Digitised Trade: connecting markets and supply chain finance

Digitised Trade: connecting markets and supply chain finance

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  Digitised trade: connectingmarkets and supply chain finance 18th April 2016 - 09:00 BST • Ruediger Geis, ICC Executive Committee and Head of Product Management, Trade, Commerzbank AG • Alexander Malaket, ICC Executive Committee and President, OPUS Advisory Services International • David Hennah, Head of Trade and Supply Chain Finance, Misys
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  1. Introductions 2. Digitisationin trade and supply chain finance - where we are today 3. Driving forces, challenges and opportunities 4. Standard definitions of techniques for supply chain finance 5. Current concepts of digital trade 6. The future of digital trade and supply chain finance 7. Q&A Agenda 2© Misys 18 April, 2016
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  3 Digitised trade: connectingmarkets and supply chain finance © Misys 18 April, 2016 David Hennah, MIFS Head of Trade and Supply Chain Finance Misys Expert Advisor to the Trade Community, ICC Academy Special Advisor to the World Trade Board Alexander R. Malaket, CITP President OPUS Advisory Services International Inc. Member of the Executive Committee, ICC Banking Commission Co-Chair, Academic Committee (Trade Finance), ICC Academy, Singapore Member of the Board, World Trade Symposium Ruediger Geis Head of Product Management Trade, Commerzbank AG Member of the Executive Committee, ICC Banking Commission
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  By the panel….. ©Misys 18 April, 2016 Published by Gower/Ashgate UK February 2014 www.gowerpublishing.com (Also available on Amazon) Published by the International Chamber of Commerce http://store.iccwbo.org/ 4
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  5 Digital disruption isthe change that occurs when new digital technologies and business models affect the value proposition of existing goods and services. Financial services is the most digitised industry in the developed world. Digitisation in trade and supply chain finance - where we are today © Misys 18 April, 2016
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  6 Digitisation is morethan a channel © Misys 18 April, 2016 Browser Mobile File services ERP
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  7 Digitisation is morethan automation © Misys 18 April, 2016 Digitisation extends to new ways of acquiring vast amounts of ‘BIG’ data that is said to be increasing in complexity at a rate of 1000% per decade.
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  8 Digitisation has thepower to transform data flows © Misys 18 April, 2016 The electronic exchange of data and communications can reduce administrative overhead and permit re-use of data leading to increased accuracy and speed of turnaround. Digital goods and services Digital platforms Digital wrappers
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  9 What happens ifyou don’t digitise in trade…? © Misys 18 April, 2016 Lack of data insight impacts cost and service Inconsistent international service delivery Slow time to market with solutions that win business Disjointed digital strategy to battle disintermediation Missed opportunity Increased risk Inconsistent channels and service across products and regions High cost and pain of onboarding Inability to follow clients into new markets Loss of competitiveness Loss of market share Poor user experience. Lack of data visibility for bank or client Slow adoption of e.g. MT798, eBL, BPO etc… Loss of visibility Loss of efficiency Inability to adapt and compete Accenture estimates 18% of banking revenues at risk due to the competition from alternative financiers and marketplaces
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  10 Digitisation enables banksto capture the opportunity © Misys 18 April, 2016 Agility to grow, service and connect Improve efficiency, cost, and UX Win with value added services STP as standard Meet the demands of the digitalised corporate Reduce errors, cost and time in manual processing. Right data, right place, right time Client mobility to deliver value add Ease onboarding for clients and counterparties Consistency of service Become the central hub for client and network connectivity Significantly boost transaction volumes and fee generation A 360 view of client and counterparties Ability to be more proactive and deliver timely, relationship based service Aggregated data and common enterprise processes Data insight into relationship value
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  11 Optimum design Complete andconnected - integrated from sales to settlement © Misys 18 April, 2016 Bank integration Trade finance, cash management, loan servicing, treasury and core banking Collaboration > Email and SMS > Company/ counterparty/ Bank task management > Documentation > Audit trail Relationship services > Web marketing > User specific dashboards > Automated reports Security > 2FA/OTP > Single-sign on Network services > Multi-bank > SWIFT > ISO20022 > Payments and messaging Integration > SOA > JEE > Misys interfaces > 3rd party interfaces Value added services > Calendar > Alerts > Content management > Templates Multi-channel Browser Mobile ERPFile services Common Services Platform Localisation > Multi-language > Multi-entity branding > Software Development Kit Cross business workflow > Data aggregation > Onboarding > Authorisations > Approvals > Authentication Business applications
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  12 Front-to-back Trade andFinancial Supply Chain Services From Client to Operations © Misys 18 April, 2016
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  13 De-Risking © Misys 18April, 2016 Loan IQ Loans incl. Participations Summit Structured & Derivative Credit Products Collateral Asset Pool FusionFabricConnect Trade Innovation Trade Finance Products & Workflows Results Aggregation & Presentation Hedge Strategy Analysis Hedge Accounting FusionRisk e-trading portal • Collateral Agreements set / replenish available asset pools • Credit instrument structuring & booking • Investor & Obligor Documentation Credit instrument structuring & booking • Asset booking & servicing • Loan funded & un-funded participations • Trade Finance issuance management
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  14 Misys FusionBanking BusinessIntelligence © Misys 18 April, 2016 Digitisation offers the means of achieving increased cost-effectiveness and operational efficiency whilst reaping the benefits of stronger customer insights and the ability to leverage new business models. “Data is the new collateral”
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  What are themain barriers to the adoption of digital technologies? a) Incompatibility of legacy systems b) Lack of trust in overall security c) Lack of standardisation d) Inconsistent use of data definitions and taxonomy e) Finding the right partners f) Other Polling Question #1 15© Misys 18 April, 2016
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  16 • Demand forgreater efficiency in the use of working capital • Demand for development and delivery of innovative supply chain solutions • Increasingly competitive environment; emergence of fintech/regtech • Pro-cyclical effects of regulation governing capital adequacy • Growth and influence of emerging economies re-shaping commercial landscape • Commoditisation of data Financial institutions require technology platforms that support cost-effective modes of operation with appropriate levels of standardisation and consistency. Driving forces, challenges and opportunities – beyond traditional trade © Misys 18 April, 2016
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  17 Global trade flows ©Misys 18 April, 2016 Cross-border movement of goods has reached unprecedented levels, approaching 40% of global GDP. One-third of goods produced are traded cross-border. In the next decade global flows are predicted to exceed $50 trillion. The volume of data continues to grow exponentially as does the variety of data to be processed.
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  18© Misys 18April, 2016 As goods flows have increased, their direction has also changed. Developed economies used to dominate global trade—54 % of all goods trade in 1990 was between developed economies— but in 2012 these flows accounted for only 28 %. This shift has been offset by the increasing participation of emerging economies in global goods trade, both as exporters and as importers. Emerging economies now account for 40 percent of goods flows, and 60 percent of those go to other emerging economies—so- called South-South trade.
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  19 Globalisation of markets Growthdominated by open account © Misys 18 April, 2016 Conclusion: If industry forecasts for growth prove correct, by 2020 we could have an additional USD 17 trillion worth of open account trade in respect of which banks will need to find new ways to compete through innovative financial supply chain management solutions. 4.5 mil 2000 4.6 mil 2010 4.7 mil 2020 (est) Total Volume of LCs on SWIFT $2 Tn 1970 $6 Tn 2000 $15 Tn 2010 $33 Tn 2020 (est) Value of World Trade Estimated Value of LCs % world trade on LC $1 Tn 1970 $1.5 Tn 2000 $2.5 Tn 2010 $3.5 Tn 2020 (est) 50% 1970 25% 2000 18% 2010 11% 2020 (est)
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  20 Standard definitions oftechniques for supply chain finance Defining Supply Chain Finance Today © Misys 18 April, 2016 Ask five financiers, you’ll get at least eight definitions of SCF… Why bother to write a dictionary…let’s just do the business! Noooooo!! Not ANOTHER ICC Drafting Exercise &%$!%$ Hmmmm, this could be handy with regulators, lawyers, accountants and…CLIENTS
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  21 • Collaborative approachand joint ownership: ICC asked to facilitate only • Review of existing documentation and definitions, including by BAFT, EBA and others • In-person sessions in Dubai, Paris, Frankfurt, Toronto, Istanbul, London and Singapore • Draft and internal peer review process, guidance from Steering Committee Standard definitions of techniques for supply chain finance The Process © Misys 18 April, 2016
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  22 Standard definitions oftechniques for supply chain finance The Outcome © Misys 18 April, 2016 Definition Synonyms Distinctive Features Parties Contractual relationships and documentation Security Risk and risk mitigation techniques Transaction illustration Benefits Asset distribution (as applicable) Variations (as applicable) 1. Receivables Purchase SCF category • Receivables Discounting • Forfaiting • Factoring and its variations • Payables Finance 2. Loan or Advance-based SCF category • Loan or Advance against Receivables • Distributor Finance • Loan or Advance against Inventory • Pre-shipment Finance 3. Enabling framework • Bank Payment Obligation (BPO)
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  23 Standard definitions oftechniques for supply chain finance The Outcome © Misys 18 April, 2016 Receivables Discounting Forfaiting Factoring Payables Finance Loans against receivable s Distributor Finance Inventory Finance Pre- Shipment Finance Large Volume Usually Sometimes Usually Usually Often Often Often Often Large Value Usually Usually Sometimes Sometimes Often Often Often Often Low Volume Often Usually Never Often Usually Often Often Often Low Value Often Sometimes Usually Sometimes Usually Often Often Often Large Corporate Obligor Often Sometimes Often Always N.A. Sometimes Sometimes Sometimes Large Corporate Creditor Usually Usually Sometimes Sometimes Sometimes Always N.A. N.A. SME Obligor Rarely Sometimes Sometimes Never N.A. Often Often Usually SME Creditor Sometimes Sometimes Usually Often Usually Never N.A. N.A. Buyer- centric Never Sometimes Never Always Never Never Often N.A. Seller- centric Always Usually Always Never Always Always Often Always 100% Financing Often Usually Sometimes Usually Sometimes Sometimes Sometimes Sometimes Committed Facility Often Sometimes Often Sometimes Often Often Sometimes Often 3rd Party Distribution Often Often Sometimes Sometimes N.A. Sometimes Sometimes Sometimes Off-Balance Sheet Usually Always Usually Usually Never Sometimes Sometimes Never Credit- enhanced / insured Sometimes Often Often Sometimes Sometimes Sometimes Usually Sometimes Loan-based Never Sometimes Never Never Always Usually Usually Always Purchase- based Always Usually Always Always Never Sometimes Sometimes Never Disclosed Often Always Usually Always Often Always N.A. N.A. Non- disclosed Often Never Sometimes Never Often Never N.A. N.A. With full recourse Often Sometimes Usually Never Always Never Usually Usually With limited recourse Often Usually Often Usually Never Always Sometimes Never • Highly engaged team, solid sense of ownership • Active effort to solicit input throughout • Wide distribution of draft through partners, seeking candid commentary • All comments addressed in review process • Next priority: advocating adoption globally
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  24© Misys 18April, 2016
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  25 Standard definitions oftechniques for supply chain finance The Outcome © Misys 18 April, 2016 http://www.iccwbo.org/About-ICC/Policy-Commissions/Banking/Task-forces/Global- Supply-Chain-Finance-Forum-Drafting-Group/
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  26© Misys 18April, 2016
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  27 Current concepts ofdigital trade and supply chain finance © Misys 18 April, 2016 Wider adoption of eUCP MT798 for traditional trade finance BPO for bank-assisted open account
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  28 Approved payables ina 4-corner model © Misys 18 April, 2016 Closed 3-corner business model likely to evolve into open 4-corner model Business relationship & liability Buyer/ Importer Seller/ Exporter Service Provider Risk & processing services Financing services Production (Market) Distribution (Client) Processing platformContract BPO Exporter’s bank Importer’s bank Risk, financing & processing services Risk, financing & processing services Routing and Settlement Routing and Settlement Production (Market) • Supports partnership banking globally • Applicable across the risk spectrum • Open, interoperable rules and standards • Relationships maintained by local banks • Supplier on-boarding not an obstacle • Focused on limited set of buyer-seller relationships • Demand driven by cash rich importers • Use of proprietary standards and channels • Relationships managed by central Service Provider • Significant supplier on-boarding issues + a/c + a/c Buyer/ Importer Seller/ Exporter Distribution (Client) Contract Business relationship & liability + a/c + a/c Processing platform Processing platform Routing and Settlement
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  29 “BPO Plus” eBL heldin escrow pending data match © Misys 18 April, 2016
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  30 • A blockchainis a decentralised, publicly verifiable ledger which holds a record of all messages exchanged between users. Each message contains two identifiers referring to the sender and the receiver of the message. • Smart contracts are computer protocols that facilitate, verify, or enforce the negotiation or performance of a contract, or that make a contractual clause unnecessary. Smart contracts usually also have a user interface and often emulate the logic of contractual clauses. • Tokenisation is the process of substituting a sensitive data element with a non-sensitive equivalent, referred to as a token, that has no extrinsic or exploitable meaning or value. The future of digital trade and supply chain finance © Misys 18 April, 2016
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  31 Major computing paradigms– one per decade © Misys 18 April, 2016 1970s 1980s 1990s 2000s 2010s ? E-marketplace Emergence of the e-marketplace (revolving around a central hub) The distributed model (aka blockchain) Today’s business model is largely based upon a series of bilateral relationships.
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  32 Blockchain in trade& supply chain finance? © Misys 18 April, 2016 • The payment process: – Direct exchange of payment between buyers and sellers? Does this threaten to disintermediate the banks? • Trust in the workflow / mitigating operational risk – Has the exporter delivered the goods to the port? Can the importer be sure that goods have been loaded on to the vessel and are in transit? What if there was an immutable, digital ledger where the port authority could register, using an encrypted signature, that goods have been delivered and loaded and the importer can see this in real time? Can blockchain be used to detect potential duplicates of documents, without the overhead of manually keying in data. Documents would then be commented against in a traceable and auditable way. Blockchains are real and growing
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  Is blockchain agame changer? a) Yes b) Yes, but it will take at least 5-10 years c) No d) Don’t know Polling Question #2 33© Misys 18 April, 2016
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  34© Misys 18April, 2016
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  misys.com Please consider theenvironment before printing this PowerPoint. @MisysFS Misys @ LinkedIn MisysVideoChannel www.worldtradesymposium.com