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Trade Finance in APAC | Embracing the future.
June 2016
2
Trade Finance industry is facing new challenges which are reshaping the way traditional
banks are conducting business
• ...
3
Agenda
Overview of the key trends in the Trade Finance industry in Asia1
3 Our credentials
Our expertise2
Appendix4
4
Source: WTO 2015, CH&Co analysis
1Asia CAGR is based on data from 2010 – 2014; Regional
trade flow growths are based on ...
5
Asia’s Trade Finance volumes are expected to grow with more focus on supply chain finance
Projected export and import vo...
6
An evolving competitive landscape in both MNC and SME markets, with relentless pressure
from new players on traditional ...
7
The Trade Finance levers for traditional actors: increase revenues & reduce costs
 Limit the Capital consumption of Tra...
8
Bridge the SME funding gap: 50% of Asian of SMEs are underserved financially
Source: World Bank, 2015, CH&Co analysis
Un...
9
Banks to adopt 4-corner Supply Chain Finance model to provide financing for underserved
small and medium suppliers
3-cor...
10
Marketplaces are disrupting the traditional trade finance model: the example of Alibaba’s
developing financial ecosyste...
11
Collaborative partnership with marketplaces is an opportunity for traditional Trade Finance
players to access broader i...
12
Overview of leading B2B marketplaces in Asia: while global players are proposing full range
of financial means, leading...
13
Increased capital requirements cause higher capital consumption of traditional trade finance
products: Supply Chain Fin...
14
Increased AML & KYC requirements cause significant impediments to Trade Finance
Source: ICC/ADB 2015, CH&Co analysis
17...
15
Banks can leverage on new players in response of regulatory pressure on trade finance
0
5
10
15
20
25
0 1 2 3 4 5 6
Mat...
16
Digitization of manual trade finance processes can reduce cost and improve security
Trade Finance is a
complex process
...
17
Intelligent PDF,
Smart Forms
Paperless
technology
FinTech
Receive
application
Check
applicant’s
identity
Verify
applica...
18
Type Supply Chain Finance
Launch 2015
COMPANY OVERVIEW
 Fluent provides financial supply chain platform and cutting-ed...
19
Business Case: Fluent provides transformative technology solutions for global commerce (2/3)
FUNCTIONALITIES BENEFITS
B...
20
Business Case: Fluent provides transformative technology solutions for global commerce (3/3)
Global Payment Platform Pr...
21
Agenda
Overview of the key trends in the Trade Finance industry in Asia1
3 Our credentials
Our expertise2
Appendix4
22
Our expertise: we aim at accompanying your Trade Finance business transformation with
tangible solutions
Accompany the
...
23
Our team of Subject Matter Experts bring together business, functional and technical
competencies with field experience...
24
Agenda
Overview of the key trends in the Trade Finance industry in Asia1
Our credentials3
Our expertise2
Appendix4
25
Our credentials: some examples of wide-scale projects related to the Trade Finance industry
Project Description: Transf...
26
Agenda
Overview of the key trends in the Trade Finance industry in Asia1
Our credentials3
Our expertise2
Appendix4
27
Type
Client Lifecycle
Management
Launch 2009
ILLUSTRATION
VALUE PROPOSITION
BUSINESS OVERVIEW
 Client lifecycle manage...
28
Type KYC Compliance
Launch 2009
ILLUSTRATION
VALUE PROPOSITION
 LexisNexis
 Experian
 Idology
 Callcredit
 Avoka
P...
29
Type Trade Finance
Launch 2014
ILLUSTRATION
VALUE PROPOSITION
BUSINESS OVERVIEW
 Wave (previously OGYDocs) is a blockc...
30
Business Case 4:
OTDocs uses blockchain to reduce fraud risk in trade finance
Type Trade Finance
Launch 2015
BUSINESS O...
31
Business Case 5:
PrimeRevenue partners with insurers to offer SCF services for non-rated buyers
Overview
 Incorporated...
32
Business Case 6:
C2FO offers a financing rate matching platform between suppliers and buyers
Overview Illustration
• In...
33
2. Approve invoices
Business Case 7
Taulia offers supplier financing with integrated management tools
Overview Process ...
CHAPPUIS HALDER & CO.
MONTREAL
1501 McGill College
avenue – Suite 2920
Montreal H3A 3MB,
Quebec
PARIS
20, rue de la
Michod...
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Trade Finance in Asia - Embracing the future

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While trade flows in and out of Asia have been growing steadily over the past decade, the related financing activities have been facing structural issues pressurizing margins of traditional banks.

With a more stringent regulatory framework, the emergence of new competitors and the loosening grip on processing costs, banks are at a crossroads: in this context, what levers to activate in order to be still competitive in the years to come?

This CH&Co study is outlining some perspectives and proposed services to drive new Trade Finance revenues and reduce compliance & operational costs of the Trade Finance business in Asia.

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Trade Finance in Asia - Embracing the future

  1. 1. Trade Finance in APAC | Embracing the future. June 2016
  2. 2. 2 Trade Finance industry is facing new challenges which are reshaping the way traditional banks are conducting business • Concentrating industry, as some actors are retreating from this activity (e.g. ANZ in Asia) • In the recent years, FinTechs and market places or specialized niche companies focusing on commodity finance or SME trade finance have emerged • Marketplaces such as Alibaba are showing an alternative model, by leveraging on their trade-centric positioning to launch banking activities and finance activities Changing competition 1 • Supply Chain financing has been focusing on the buyers-side (with sound credit ratings) and the supplier-side is still underdeveloped despite the needs (e.g. payment assurance) • There are real Financing needs in emerging markets where SMEs and distributors are struggling to gain access to affordable working capital. According to ADB, the trade finance gap in Asia has been around US$700Bn Untapped segments 2 3 4 • Strengthening regulations around KYC, International Sanctions and AML have deeply impacted traditional banks’ business processes, lengthening the on- boarding process and increasing workload on Operations • Basel III requirements have triggered the deleveraging of balance sheets and have reduced the liquidity available for the financing business Relentless regulatory pressure • Trade Finance is still relying on heavy processes involving the exchange of paper documents between multiple parties, threatening the customer experience and increasing the banks’ overall operational cost • Ongoing Digitization is paving the way to a renewal of this industry, for instance by digitizing the entire chain via Blockchain / Smart Contracts Obsolete processes Trade Finance challenges
  3. 3. 3 Agenda Overview of the key trends in the Trade Finance industry in Asia1 3 Our credentials Our expertise2 Appendix4
  4. 4. 4 Source: WTO 2015, CH&Co analysis 1Asia CAGR is based on data from 2010 – 2014; Regional trade flow growths are based on 2013 and 2014 data Asia > Africa and Middle East US$ 509 bn|+11.1% Asia > North America US$ 1,065 bn|+5.2% Intra-Asia US$ 3,093 bn|+0.5% Asia > Europe US$ 900 bn|+5.3% Asia > Latin America US$ 185 bn|+3.2% Asia’s trade flow with the world has been steadily growing at 4.5% CAGR1 since 2010
  5. 5. 5 Asia’s Trade Finance volumes are expected to grow with more focus on supply chain finance Projected export and import volume growth Asia Export Volume Asia Import Volume Global Trade Volume Trade Finance Product Mix Projection Total stocks of Trade Finance transactions (Trends) 0 200 400 600 800 1000 1200 07 08 09 10 11 12 13 14 15 16p 17p 18p 19p China India Global US$ bn 0 2 4 6 8 2015 2016p 2017p % Source: WTO 2016, CH&Co analysis Source: BIS, IMF, World Bank, CH&Co analysis 33% 15% 52% 2014 2020 33% 52% 15% 45% 36% 19% Traditional Trade Finance Payments Supply Chain Finance Source: MISYS, 2015
  6. 6. 6 An evolving competitive landscape in both MNC and SME markets, with relentless pressure from new players on traditional segments Asian Regional Banks Boutique SCF Companies* Marketplaces FinTech MNC (80% of current traditional activity) SME (20% of current traditional activity) Targeting primarily large corporates and MNC • Tier 1 and 2 Asian banks are developing a strong financing & payment network for intra-Asian flow • In particular, Japanese banks are proposing cheap liquidities with the help of BOJ stimulating bank lending facility: 0% interest rate for loans • In South-East Asia, sub-regional actors such as DBS are riding on the good dynamics of exchanges in the area Targeting primarily SMEs • Marketplaces rely on their centric positioning to build an exhaustive ecosystem for synchronized data flow in trade finance • FinTech introduce disruptive technologies aiming primarily at serving SMEs and develop new standards (e.g. blockchain-based trade) • Boutique SCF Companies compete by providing non-conventional business models *Refer to B-Case 5 to 7 in Appendix
  7. 7. 7 The Trade Finance levers for traditional actors: increase revenues & reduce costs  Limit the Capital consumption of Trade Finance products, as Basel III requirements (Balance Sheet as well as Off-Balance Sheet) are more stringent Managing constraints on pricing 3  Bridge the funding gap for SMEs in Asia and turn this market into an engine growth  Broaden the scope of Supply Chain Financing offer Sourcing of new businesses 1  Partner with marketplaces and leverage on their trade- centric positioning would allow traditional Trade Finance actors to gain information, expertise and new customers Leveraging on marketplaces 2  Answer rapidly to tightening regulation without increasing the operational cost of compliance  Leverage on RegTech ecosystem can help banks to secure and enhance the setup Reducing operational risk 4 5  Automate manual operational tasks by leveraging on FinTech would contribute to reducing processing costs  In particular, assess the impacts of Blockchain, Big Data, Robotic Process Automation and Machine learning Automating operations Increase Revenues Reduce Costs
  8. 8. 8 Bridge the SME funding gap: 50% of Asian of SMEs are underserved financially Source: World Bank, 2015, CH&Co analysis Underserved SMEs (in %) 40-50% 50-60% 0 20 40 60 80 100 120 140 160 180 East Asia & Pacific South Asia Number of SMEs in APAC Underserved With Loan/Overdraft With Checking Account (millions) 35% 13% 52% 42% 14% 44% How to turn Asian SME market as a growth engine for Traditional Trade Finance actors? Major impediments in financing SMEs  Current global credit gap of SMEs is estimated at US$2.6tn, with wide gap in Asia accounting for US$700Bn to US$850Bn  Lack of collateral and information asymmetry cause low credit scores for most SMEs  The high risk profiles associated with SMEs cause long approval process for loans from banks What levers to bridge the gap?  The ultimate goal is to fasten SMEs onboarding and loans application processing  Develop improved decision making tools via better data acquisition (e.g. third-party partnerships) and more accurate risk credit scoring for SMEs  Sample of CH&Co SME credit risk scoring model: 1 20% 80% Legal agreement to be completed ? 70 % New client ? Yes No Amount Interest rate Maturity Internal Risk checking ? Calibration of the deal? Final decision ? 10% 90% Yes Stop Stop 40% No Maybe Interesting profile ? Yes No 10% 20% Under delegation New product ? Above Limits ? Guarantee required ? 15% 10% 10% 25%
  9. 9. 9 Banks to adopt 4-corner Supply Chain Finance model to provide financing for underserved small and medium suppliers 3-corner closed model 4-corner interoperable model SCF Service Provider Buyer Seller TradeContract Risk and processing services Financing services Seller’s Bank Buyer’s Bank Buyer Seller SWIFT TMA TradeContract BPO BPO Risk. Financing & Processing services Risk. Financing & Processing services • Business relationships are mainly between SCF service providers and “cash-rich” large corporate buyers with high credit rating • Buyer-led solution: SCF service providers finance their buyers’ accounts payable to provide early payment for their clients’ suppliers (Approved Payables) • The approach is buyer-centric with frequent occurrences of suppliers on-boarding issues • Standards and channels are proprietary as determined by the SCF providers • Business relationships are between banks (partnerships) and all types of business profiles, including SME suppliers • Supplier-led solution: Banks provide early payment for suppliers by purchasing their accounts receivables (Receivables Finance) • The on-boarding processes of suppliers and buyers are conducted independently with their respective banks • This model supposes the existence of open, interoperable standards: BPO can be used as an electronic letter of credit in a multi-bank industry standard 1 Processing platform Routing & settlement Routing & settlement
  10. 10. 10 Marketplaces are disrupting the traditional trade finance model: the example of Alibaba’s developing financial ecosystem Buyer Seller Marketplace Buyer’s Bank Seller’s Bank Exchange of Goods Payment Collection of information from multiple parties/channels, at multiple stages (KYC, credit approval, transaction documentation, etc.) Reporting Reporting Buyer Seller Financing (CN, UK, US) Investments / Treasury management From a desynchronization between trade & financial flows… … to an exhaustive ecosystem relying on data flows  The current Trade Finance model relies on a separation between the flow of goods on a marketplace and the related financial flows (payment, credit, etc.)  In this scheme the Banks, as Trade Finance instruments providers, are not accessing all the data required to support the financing process (e.g. KYC, credit process) and thus are losing time and effort to gather required documentation and substantiate the transaction  This impacts mainly SMEs (small merchants and distributors)  Alibaba has built an ecosystem relying on its centric positioning as marketplace for multiple segments (Alibaba for wholesale, TaoBao for retailers): it has access to a huge database of buyer/seller information, trade payment & settlement behaviors, cash flows  All this information is tracked and analyzed through a cloud-based IT infrastructure which allows to speed up the credit process and reduce the risk by enhancing the reliability of the data collected  This allows Alibaba to enhance its Financial Services offer by building blocks: payment, financing, investment of excess cash, etc. DataAnalytics/Cloudcomputing 2
  11. 11. 11 Collaborative partnership with marketplaces is an opportunity for traditional Trade Finance players to access broader information, better expertise and a new reservoir of customers  Provision of payment services between buyers and suppliers  Provision of credit line for marketplace users with appropriate credit history  Offering investment products for excess cash  Determination of customers’ outstanding debts and credit history  Additional data input for improving the discriminatory power of existing risk models  Prediction of customer’s future credit behaviour  Determination of customers’ purchasing behaviour and current industry trend  Identification of customers’ payment patterns and financing need  Direct marketing of appropriate products for each clients Marketplaces have a holistic view of the information related to the flow of goods in each trade BuyerSupplier Marketplaces Bank Bank Exchange of Goods  Exchange of data on clients and trades (Big Data)  Provision of Financing solutions 2 Clients & transactions information Credit and Counterparty risk Revenue generation Example of target model Benefits of this model
  12. 12. 12 Overview of leading B2B marketplaces in Asia: while global players are proposing full range of financial means, leading local players are still focusing on the exchange of goods GlobalChampionsLocalChampions April 2016 Traffic1 605.2M 13.4% 13.4% 4.5% 20.9M 27.4% 12.1% 7.3% 11.2M 18.9% 13.2% 5.7% 14.1M 88.4% 0.6% 0.6% Overview 4.9M 95.6% 0.4% 0.3% 1.3M 34.5% 9.8% 6.6%  Founded in South Korea, 1997  > 2.5M registered members  >5,300 product categories  Founded in Indonesia, 2001  > 4.4M registered members with a focus on serving SMEs  Founded in India, 1996  > 26M buyers and > 2 M suppliers  > 33M product offerings  Started focusing on serving SMEs since 2012  Founded in China, 1996  Focused on promoting Chinese suppliers to global buyers  Best Cross Border Trade Solution provider in 2014  Founded in China, 2004  > 1.2M suppliers and > 10M buyers  > 40M product offerings  Founded in China, 1999  Largest B2B market place in the world with > 400M active users  Extensive financial services through its subsidiaries Payment Services Financing services Investment services 2 1 Expressed in Nb of website views for the month of April 2016 (%= percentage of views split for the top 3 countries)
  13. 13. 13 Increased capital requirements cause higher capital consumption of traditional trade finance products: Supply Chain Financing as a way to optimize Balance Sheet Constraints on traditional products RWArequirementsBaselIII–LeverageRatio  The capital requirements via Risk-Weighted Assets (RWA) has become the new standard for economic capital management across banks  Both standard or internal valuation models highlight the high consumption of capital for Off Balance Sheet products including Credit Guarantee Facilities, Revolving Credit Facilities, and other liquidity facilities  Biggest challenge for Banks in Trade Finance activities: adjust their activities to products and maturities with lighter capital weightings (Credit Conversion Factors) in % of undrawn notional Rules # CCF <= 1yr > 1yr 15 Commitments (non-securitisation, but including cash advances) unconditionally cancellable at any time without prior notice, or cancellable automatically if the borrower's creditworthiness deteriorates 22 Undrawn cash advances or facilities unconditionally cancellable without prior notice 20 Short-term and self-liquidating L/Cs, linked to material goods (to be applied to issuing and confirming banks) 15 Commitments (excluding securitisation liquidity Facilities) with original maturity <= 1yr 20% 15 Commitments (excluding securitisation liquidity Facilities) with original maturity > 1yr 50% 22 Other eligible liquidity facilities, including cash advance 18 Transaction-related contingent items (ex: Performance / Bid bonds, Warranties, Standby LC) 19 Revolving underwriting facilities (RUF) Note Issuance facilities (NIF) 22 Off balance sheet securitisation exposure (except eligible liquidity facilities / servicer cash advances facility) 16 Standby L/C as financial guarantee for loan / securities, acceptances (incl. endorsments..), warranties (except securitisation exposures) 17 Forward asset purchases, forward forward deposits, partly paid shares / securities (commitment with certain drawdonw) 21 Commitment on Off Balance Sheet item 50% Based on original 10% 10% 20% 50% 50% 100% 100% 100% The lower of the 2 3 Example: Supply Chain Finance benefits BaselIII pricing Common setup Delivery (4 months) Sow (6 months) Trade & Transport (3 months) Bank A Bank B Bank C Total yearly banking cost: 27,5 Doc. collections D/C Total yearly banking cost: 31,7 Capital Liquidity Funding 21 5 1,5 Capital Liquidity Funding 25 5 1,7 Capital Liquidity Funding 31 7 2,2 Total yearly banking cost: 40,2 Doc. collections D/C Total Basel III capital cost without SCF: 99,4 Total Basel III capital costs with SCF Cost Bank A * 7/12 + Cost Bank B * 2/12 + Cost Bank C * 3/12 = 31.4 WithSCF benefits (99,4-31,4) = 68 -68% Expected Benefit of SCF under Basel III The first positive consequence of SCF, is that the overall bank matches funding needs to the payment schedule of buyers and suppliers. This way, the own banking facilities of the parties during the entire process could be drastically reduced. Following this application of SCF the cost of all Basel III drivers can be reduced for the supply chain.
  14. 14. 14 Increased AML & KYC requirements cause significant impediments to Trade Finance Source: ICC/ADB 2015, CH&Co analysis 17% 45% 40% 8% 17% 14% 26% 9% 7% 9% 39% 24% 23% 31% 28% 32% 25% 21% 20% 12% 33% 18% 22% 41% 32% 32% 19% 39% 38% 25% 10% 13% 15% 20% 24% 24% 29% 31% 36% 54% High transaction costs or low fee income Lack of dollar liquidity Constraints on your bank's capital Low any/obligor credit rating Insufficient collateral from company Basel regulatory requirements Previous dispute or unsatisfactory performance of issuing banks Issuing banks' low credit ratings Low country credit ratings AML/KYC requirements Very insignificant Insignificant Significant Very significant Banks’ survey results on impediments to trade finance Source: ICC/ADB 2015, CH&Co analysis 88% of banks agreed that KYC requirements are impacting on-boarding time 88% 12% Source: Finextra corporate banking survey-2015, CH&Co analysis 79% 21% Only 21% of banks think their KYC technology and process is flexible enough to handle changing regulations rapidly 4
  15. 15. 15 Banks can leverage on new players in response of regulatory pressure on trade finance 0 5 10 15 20 25 0 1 2 3 4 5 6 Maturity - Years of Incorporation 75 80 85 Size-FundingAmount (US$ m) Big Data Analytics Cloud Platform Automation Examples of RegTech actors (ranked by maturity) proposing innovative solutions Minimize cost through information sharing of PEPs and regulatory updates Enhance identity check and verification of individuals and companies with data mining Replace manual spreadsheet reporting with automated compliance check, formatting and reporting based on regulators’ standards (using Blockchain or robotics) 4
  16. 16. 16 Digitization of manual trade finance processes can reduce cost and improve security Trade Finance is a complex process involving multiple manual checks to be carried out throughout the lifecycle… ...Hence the capacity to leverage on digital to lower the processing cost and decrease the risks will be key in the next decade Illustration: Paper intensive process Digitized Process Digitised records Digital signaturesReal time transactions Digital distributed ledger Payment aggregation Advanced cryptographic Blockchain Machine learning / RPA Big Data Analytics Foreign exchange Sample FinTechs Key Trends Key Functionalities 5
  17. 17. 17 Intelligent PDF, Smart Forms Paperless technology FinTech Receive application Check applicant’s identity Verify applicant’s signature Request validation from FO PO & Trade Docs. KYC Docs Issue LC to advising bank Receive shipment documents Bill of Lading Release payment to advising bank Receive financing payment from applicant Documents processing & fees collectionCompliance processesOnboarding Refer to Business Cases 1 to 4 in Appendix RFID, Barcode Letterofcredit processing Online identity verification for KYC purposes Streamlines onboarding, account opening and client maintenance process Blockchain based bill of lading Digital certificates with full audit trail for security Improvement Area Letter of Credit Banks can leverage on paperless & digital technologies to enhance trade finance processes Business Case: Letter of credit processing steps for issuing banks Blockchain financial operating network for global commerce 5 Electronic Document management solutions Integrated Cross- border payments Robotic Process Automation Instant online loan facilitation OCR, ICR, smart scanningE-signatures
  18. 18. 18 Type Supply Chain Finance Launch 2015 COMPANY OVERVIEW  Fluent provides financial supply chain platform and cutting-edge software solutions targeted for banks, businesses and lenders  Fluent is built by a team of enterprise software developers, blockchain experts, banking gurus and FinTech pioneers to solve inefficiencies in complex global commerce with antiquated and siloed financial systems Business Case: Fluent provides transformative technology solutions for global commerce (1/3) St. Louis, USABase Mentorship Fluent is under the mentorship of Patrick Bucquet of Chappuis Halder & Co. Investors  Thomson Reuters  Draper Associates  FF Venture Capital  UMB Bank  Digital Currency Group  SixThirty  Fenbushi Capital  Arch Angels  500 Startups  Caoital Innovators TECHNOLOGY INDUSTRY REVIEW  Fluent provides distributed financial network based on blockchain technology to modernize trade and the financial supply chain  Fluent uses its financial network to provide services in terms of payment platform, supply chain financing, receivables marketplace and supplier management “They have a team of blockchain experts and core technology that could be applied to use cases across Thomson Reuters.” “Fluent can provide a common platform which would greatly facilitate treasury management. Digital assets reduce fraud and improve visibility across the supply chain through the use of a distributed ledger” 5
  19. 19. 19 Business Case: Fluent provides transformative technology solutions for global commerce (2/3) FUNCTIONALITIES BENEFITS Banks Buyers SuppliersPayment Platform  Cloud based secure and flexible P2P payments in real time Supply Chain Financing  Approved payables financing by buyers for early supplier payments Receivables Marketplace  Cloud based multi-bank and multi-lender secondary market to finance payables Supplier Management  E-invoicing and buyer/supplier collaboration tools Developer Platform  Customizable development of tools on a distributed network  Eliminate manual and costly processes in receivables finance  Streamline settlement  Gain more data on buyers and suppliers  Improve auditability and transparency  Reduce fraud risks  Drive revenues  Create powerful platform for future development  Extend payment terms and Days Payables Outstanding (DPO)  Streamline supplier payments and supplier data management  Simplify and secure approval hierarchies  Optimize working capital and earn better returns on surplus cash  Enhance buyer/supplier collaboration  Reduce Days Sales Outstanding (DSO)  Streamline receivables financing process with one-click function  Improve cash flow with just-in-time financing and better rates on short-term financing  Improve turnover in accounts receivables  Reduce paper-based processes 5
  20. 20. 20 Business Case: Fluent provides transformative technology solutions for global commerce (3/3) Global Payment Platform Procure-to-Pay Platform Working Capital Solutions Receivables Marketplace  User-friendly supply chain finance platform provides convenience in approving payables and supplier early payments with a clear display of discount rates and expected return  Receivables market allows banks and lenders to finance payables based on their risk appetite and desired rate of return by showing buyers’ credit rating with real-time automated settlement  Cloud-based supplier portal facilitates e-invoicing and purchase order management with live-chat capabilities and in-document editing features  Peer-to-peer commercial payments platform facilitates approval and payments of accounts payable in real time with secure multi- signature verification 5
  21. 21. 21 Agenda Overview of the key trends in the Trade Finance industry in Asia1 3 Our credentials Our expertise2 Appendix4
  22. 22. 22 Our expertise: we aim at accompanying your Trade Finance business transformation with tangible solutions Accompany the regulatory change Design the Core Business Model Design the Target Operating Model CH&Co capabilities Examples of achievements  Define business plans & opportunity studies  Evaluate & implement partnerships with local actors, Marketplaces or FinTech  Design Digital strategy: client channels, products, innovation labs  South-east Asia Trade Finance business development plan for a major CIB  Coordination and support for the onboarding of clients from a bank ceasing its Trade Finance activities in Asia  KYC, AML & Sanctions remediation and target setup implementation  Credit & counterparty risk modelling, SME scoring models  Pricing review and Capital charge optimization  Setup the new Sanctions Screening organization of a major Corporate Bank  KYC remediation taskforces across APAC locations for several players  RWA optimization for a major French Bank  Digitization of Operations: paperless, automation, robotics & machine learning  Organization transformation: centralization, offshoring and outsourcing strategies  Mentoring a blockchain-based financial network for Trade Finance  End-to-end process review for payment- related processes
  23. 23. 23 Our team of Subject Matter Experts bring together business, functional and technical competencies with field experience across the full Trade Finance spectrum Benoit has 15 years international experience in Risk Management & Modelling and currently heads CH&Co. global research and analytics team. His relevant wide-scope engagements include validation of Credit and Counterparty risk models, design of funding strategies, diversification of refinancing sources and impact calculation and strategic management/ICAAP/Economic Capital, design and measurement of European stress scenarios: impact on bank P&L, balance sheet / off-balance sheet (regulatory capital) for top European banks. Benoit Genest Partner London, UK bgenest@chappuishalder.com +33 78768 8177 Patrick is the leader of the Digital practice at CH&Co. He has pioneered client-centric innovation and designed several concepts of mobile bank and mobile payments over the past 10 years for several actors such as BNP Paribas, DBS or AXA. More recently Patrick has been mentoring Fluent, blockchain-based Trade Finance FinTech based in the US. Patrick has also initiated the development of proprietary CH&Co tools such as HighwayToMail (mail parser). Patrick Bucquet Partner New York pbucquet@chappuishalder.com +1 347 419 7709 Partner at CH&Co in Asia since 2010, Charles is leading the Global Business Transformation expertise at CH&Co. He has handled multiple major transformation projects for Corporate Banking operations in APAC across several businesses (Cash Management, Trade Finance, Commodities, Capital, Markets) and Functions. Charles has been involved recently in a project aiming at onboarding Trade Finance clients from a Tier 2 European bank ceasing its activities to a major Global Corporate Bank. Charles Dally Partner Hong Kong cdally@chappuishalder.com +852 6624 4947 Since 2009 in Asia, Guillaume is Manager at CH&Co Hong Kong office. He has handled a broad array of transformation projects covering Cash management and Trade Finance businesses for major players, generally with a regional or a global scope. Examples of accomplishments in the fields of Trade Finance include the setup of a regional organization in charge of International Sanctions screening, and review of payment processes related to Cash & Trade flows to improve operational efficiency. Guillaume Rico Manager Hong Kong grico@chappuishalder.com +852 6624 3371 Jackrit is a Manager with 15 years of experience and high exposure to South East Asia (Singapore, Indonesia, Vietnam, Thailand, Philippines). Expert in Public Policy research, advocacy and Asian Trade regulatory environment, Jackrit is in charge of the Public Sector offer, working closely with institutions participating to the development of the Asian trade (e.g. ADB). Jackrit has contributed to high-profile Trade Finance assignments, such as the definition of Trade business entrance strategy in South East Asia for a major banking player. Jackrit Watanatada Manager Singapore jwatanatada@chappuishalder.com +65 6222 8664
  24. 24. 24 Agenda Overview of the key trends in the Trade Finance industry in Asia1 Our credentials3 Our expertise2 Appendix4
  25. 25. 25 Our credentials: some examples of wide-scale projects related to the Trade Finance industry Project Description: Transfer of a Trade Finance client portfolio to a target bank (our client) after original bank ceased its Trade Finance activities in Asia Results ✓ Conducted a comprehensive check of client list to facilitate smooth on-boarding and transition processes from the original bank to the substitute bank ✓ Managed an exhaustive review of clients’ documents to ensure compliance with the KYC requirements ✓ Monitored, controlled and resolved all on-boarding issues with full recovery of all escalations Client: Tier 1 Global CIB Project: Trade Finance portfolio transfer Location: Hong Kong and Singapore Duration: 6 months 1 Project Description: Establishment of a new organization to manage the International Sanctions framework for all Trade Finance activities across APAC Results ✓ Centralized the alert management functions within APAC through 40+ dedicated headcounts that ensured homogeneous alerts handling and reduced 1st level escalation by 60% ✓ Implemented and deployed a new filtering tool with strict compliance to the regulator’s deadline ✓ Established a monitoring dashboard with semi-automated data production capabilities Client: Tier 1 Global CIB Project: International sanctions alerts filtering management Location: Regional – Asia Pacific Duration: 12 months 2 Project Description: Establishment of a project management office for the monitoring and management of 4 dedicated projects in the regional business development plan and creation of a KPI dashboard for regional monitoring of Commodity Finance business activities Results ✓ Produced monthly dashboard with improved automation and shorter production time ✓ Provided a precise overview on the progress of each project milestone and improved communications between business lines Client: Tier 1 Global CIB Project: Project management office and dashboard business monitoring in the Trade Finance business line Location: Singapore Duration: 5 months 3 Project Description: Feasibility study, gap analysis with existing IT architecture (e.g. accounting , regulatory, risk), target workflow design and deployment of a new Trade Finance booking tool for Asian operations Results ✓ Ensured a smooth IT implementation and a perfect synchronization with business workflows ✓ Identified and included all necessary regulatory reports in the new tool to ensure data consistency ✓ Deployed the IT system on time and in line with the business launch without requiring any further development or tactical tools Client: Tier 1 French CIB Project: Feasibility study and implementation of a new front-to-back Trade Finance system Location: Korea Duration: 10 months 4
  26. 26. 26 Agenda Overview of the key trends in the Trade Finance industry in Asia1 Our credentials3 Our expertise2 Appendix4
  27. 27. 27 Type Client Lifecycle Management Launch 2009 ILLUSTRATION VALUE PROPOSITION BUSINESS OVERVIEW  Client lifecycle management software solutions for CIB  Onboarding workflow technology which streamlines onboarding, account opening and client maintenance process, while delivering regulatory onboarding processes that ensure compliance with global and local regulations based on clean, golden source entity data  Fenergo has a rules-driven platform that ensures compliance with multiple global and regulatory frameworks  The Regulatory Rules Engine determines the legal entity’s regulatory and assigns a compliance policy to the legal entity, deciphering the KYC questions that need to be answered and the data and documentation that needs to be collected. Globally compliant KEY TAKEAWAYS  Client onbaording could be reduced from 34 weeks to circa 6 weeks  Cost of compliance could be significantly reduced as tool is able to tackle multiple regulations in one go Dublin, IrelandBase Key Clients  Scotiabank  Bank of Montreal  Lloyds Banking Group  RBS  Rabobank  Centralized master data system designed to help financial institutions to acquire, validate, store and distribute legal entity data across product lines, business lines and jurisdictions  Allows tracking, merging and grouping legal entity identifiers to create a holistic single view of the client and all its associations Centralised  Addepar  Swipely  Yodlee Competitors Business Case 1: Fenergo offers lifecycle management software to streamline compliance processes
  28. 28. 28 Type KYC Compliance Launch 2009 ILLUSTRATION VALUE PROPOSITION  LexisNexis  Experian  Idology  Callcredit  Avoka Partnerships  Amex Ventures  Blumberg Capital  BDC Capital  Tenfore Holdings Lead investors  Global Data Company Acquisition(s) BUSINESS OVERVIEW  Canadian-based online identity verification company specializing in AML and KYC  Enables trust and safety online - flagship product, GlobalGateway, compares registration information against data collected by credit bureaus, utility companies, mobile carriers and government agencies to verify users’ identities.  More than 100 sources of data in more than 40 countries  Trulioo’s products are designed for the web, and suited for moderately valued transactions where the amount of work and cost required to perpetrate the fraud exceeds the transaction value  Its services provide global coverage, are low friction for users, and are priced to support SMBs Cost-effective web-based ID solutions for SMBs KEY TAKEAWAYS  Product created specifically to help businesses comply with international AML and KYC rules  Comprehensive match information - provides advanced analytics based on traditional information, such as public records, credit files, and government data, as well as alternative sources, including social login providers, ad networks, mobile applications, e-commerce Websites, and social networks. Comprehensive and regulation- compliant Check identification by entering - Name - Address - DOB - Passport No. (if applicable) Step 1 Trulioo checks inputs against sources e.g. - Public databases - Birth records - Electoral role - Tel. records Step 2 Results will be populated - All match indicators from Trulioo’s sources will be shown in a table Step 3  Identity verification is made simpler and more cost-effective with Trulioo  Traditional risk management tools need to consider cyber data and cyber identities >40 countriesFootprint Coverage >4 billion people Business Case 2: Trulioo provides comprehensive online identity verification for KYC purposes
  29. 29. 29 Type Trade Finance Launch 2014 ILLUSTRATION VALUE PROPOSITION BUSINESS OVERVIEW  Wave (previously OGYDocs) is a blockchain-based FinTech focusing on trade finance solutions  Trade contracts repository that records ownerships of goods and documents all along the supply chain, connecting all relevant parties in a trade  Sees replacing Bills of Lading as its first concrete application  Wave's products don't threaten to remove any intermediaries - incorporates industry standard workflows, according to the company, replacing printed documents with versions stored electronically in blockchain transaction metadata  Developing versions on top of bitcoin and litecoin testnets – i.e. follows the consensus protocol but not based on a specific digital currency  Wave has created a peer-to-peer and completely decentralized network that connects all parties of the international trading supply chain  Thus, the Wave network will not have any single point of failure and will not rely on any entity. Secure KEY TAKEAWAYS  Blockchain trade finance startups gaining popularity  Digital solutions based on the blockchain can already outperform pen-and-paper processes Business Case 3: Wave offers blockchain based bill of lading for security and affordability Tel Aviv, IsraelBase Partnerships Freight forwarder Importer Importer’s bank Exporter’s bank Exporter Carrier Ledger – record of ownership Application – smart Bills of Lading Protocol – BTC or LTC consensus Partnered Barclays Corporate Bank to assist its clients to reduce costs related to supply chain management  Blockchain-based tools help business clients reduce costs associated with pen-and-paper and traditional supply chain management Affordable  Gazebo  Skuchain Competitors
  30. 30. 30 Business Case 4: OTDocs uses blockchain to reduce fraud risk in trade finance Type Trade Finance Launch 2015 BUSINESS OVERVIEW  Open Trade Docs is a powerful tool in reducing frauds in international trade finance  Open Trade Docs (also known as OTDocs) reduces fraud risk in trade finance by complementing paper documents with unique digital copies that have full life cycle and audit trail.  It is one of the pioneers that use custom blockchains to identify, store and verify entities, documents and transactions, allowing participants to remain in control of all data and access rights instead of relying on a third party. The messaging module can be integrated with existing systems, and offers the following features:  Text and multimedia content;  Audit-ready and mathematically guaranteed message life cycle;  Guaranteed timestamps;  Ultra high availability Businesses can reclaim full governance and ownership over messaging data, as well as the following benefits:  Onshore data ownership for easier compliance  Better prevention against data breaches  Elimination of risks related to 3rd party data storage  Full lifecycle of messages with immutable CONCEPT Benefits for businesses  A major risk in international trade finance is the exchange of invoices and other documents multiple times to multiple financing entities, involving trust and data ownership to third parties.  OTDocs’ Messaging module removes the need to trust third parties by using private industry blockchains to securely send and store messages and documents.  Its Duplicate Document Detection module flags a document that has been uploaded before.  OTDocs provides a full audit trail with its blockchain technology in ensuring that once written, data cannot be amended, even by administrators. SingaporeBase
  31. 31. 31 Business Case 5: PrimeRevenue partners with insurers to offer SCF services for non-rated buyers Overview  Incorporated in 2003 with more than 20,000 customers in over 70 countries  Serving all sized companies with US$ 120bn supply chain transaction processed annually Business Case - Success Stories  Sjørring Maskinfabrik faced cash flow problem when Volvo extended its payment term and it approached the loan limits on its banks.  SCF relieved SM from bank loan through early payment with lower financing cost AIG Partnership for serving mid-market buyers Buyer Buyer 1. Accounts Payable  AVIC corporation acted as the supplier of a leading discount stores in Australia on open account terms with lengthy payment period Seller Funder PR & AIG 2. Accounts Receivable 3. Accounts Receivable and Credit Risk Insurance 4. Early Payment 5. Payment on due date  Early payments from SCF increased its working capital by 20% p.a. as of 2013  Opensci cloud-based platform facilitates cash flow management, dynamic discounting program and access to funders and suppliers  Significantly lower financing rates for suppliers at 1-3% compared to traditional factoring  Flexibility in selecting financing sources from banks, non-bank founder and self-funding option with OpenSci Multibank capability  Provision of the first SCF services to mid- market and non-rated buyers with 100% insurance on the credit risk through Partnership with AIG One-Stop Application Favourable Financing Serving mid-market clients BUSINESS OVERVIEW VALUE PROPOSITION
  32. 32. 32 Business Case 6: C2FO offers a financing rate matching platform between suppliers and buyers Overview Illustration • Incorporated in 2008, with > US$ 70MM funding in 4 rounds and rapid growth in capital flow (US$ 2.7bn in Q1 2015 - US$ 5.4bn in Q4 2015) • Partnering with Tradeshift with >500k active suppliers to intergrate its e-procurement and e-invoice services with C2FO’s financing rate matching platform • >90% supplier satisfaction rate supplier participation rate BUSINESS OVERVIEW VALUE PROPOSITION • Online platform with proprietary “Name Your Rate” model facilitating direct discount rate negotiation between buyers and suppliers • Automated selection process that match the closest rates between buyers and suppliers for early payment • Lower financing cost for suppliers and higher average APR for buyers than other investment alternatives (6.8% vs 0.6% AA corporate bonds) Operating Model Rate Matching
  33. 33. 33 2. Approve invoices Business Case 7 Taulia offers supplier financing with integrated management tools Overview Process flow of Taulia supply chain finance Investor Buyer SME Supplier Taulia 1. Issue invoices 3. Apply for supply chain finance 4. Approve and provide financing 5. Provide financing to suppliers 6. Fulfill payment at maturity BUSINESS OVERVIEW VALUE PROPOSITION Taulia dynamic discounting method  Incorporated in 2009 with > US$ 135MM in 8 rounds  120,000 active buyers, 700,000 suppliers in > 100 countries and 100% customer retention rate  292% bookings increase in Q4 2015 - 50,000 new suppliers on-boarded • Online platform with complimentary supplier engagement programs, such as digitalized cash management tools for suppliers and automated approval processes • Dynamic discounting for upfront payment based on time period and supplier’s cost of capital in Taulia’s database • SAP Gold Partner as the only provider of SAP certified dynamic discounting portal DynamicDiscounting
  34. 34. CHAPPUIS HALDER & CO. MONTREAL 1501 McGill College avenue – Suite 2920 Montreal H3A 3MB, Quebec PARIS 20, rue de la Michodière 75002, Paris, France NIORT 19 avenue Bujault 79000 Niort, France NEW YORK 1441, Broadway Suite 3015, New York NY 10018, USA SINGAPORE 60 Tras Street, #03-01 Singapore 078999 HONG KONG 1205-06, 12/F, Kinwick Centre 32 Hollywood Road, Central, Hong Kong LONDON 50 Great Portland Street London W1W 7ND, UK GENEVA Rue de Lausanne 80 CH 1202 Genève, Suisse Charles Dally| Partner | cdally@chappuishalder.com Guillaume Rico | Manager | grico@chappuishalder.com er.com CONTACTS
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While trade flows in and out of Asia have been growing steadily over the past decade, the related financing activities have been facing structural issues pressurizing margins of traditional banks. With a more stringent regulatory framework, the emergence of new competitors and the loosening grip on processing costs, banks are at a crossroads: in this context, what levers to activate in order to be still competitive in the years to come? This CH&Co study is outlining some perspectives and proposed services to drive new Trade Finance revenues and reduce compliance & operational costs of the Trade Finance business in Asia.

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