Farooq Siddiqi, Standard Chartered’s global head for trade, discusses the headwinds for trade finance as it undergoes digital transformation, and why there’s hope for the future.
Why is going paperless such a tough nut to crack?
Trade Finance is undergoing a massive transformation as global banks and their clients push toward digitization of trade documentation. While the space seems to be taking baby steps toward a paperless future, there have been growing pains — and they will likely continue. The biggest challenge is to get all parties aligned to make it effective — the industry is only as strong as the weakest link in the chain. In other words, I would not declare the digitization movement a success just yet.
But the industry is clearly pushing forward on digitization.
For example, we have increasingly seen roll-out and adoption of new technologies, such as blockchain and SWIFT’s trade utility; however, the uptake of these innovations has been limited to pockets, and not on a large enough scale to have a significant impact.
The key challenge here is how to incentivize industry players to digitize Trade Finance on a singular standard, especially when there is currently no existing global standard.
I see four key drivers that would make it work.
The first one is external: clients. They want new solutions in trade and look to established regional and global banks to address issues — from cost-cutting to increasing efficiency.
The second is internal: banks themselves. Digitizing their business helps reduce costs, increase efficiency, and enhance scalability, not to mention prepare banks for the future.
Third is the emergence of non-traditional players such as FinTechs, which tend to solve very specific problems for clients. Many of them are working on individual solutions, but no one is aggregating and providing the overview. The day that these platforms collaborate, integrate and get interconnected is when it will be a big driver for successful digitization.
Finally, regulators are pushing for the connected players within trade to digitize the process — before stepping in to make it a requirement, which is a distinct possibility in the next five to 10 years.
The nature of Standard Chartered’s business model makes it ideal to be at the forefront of this Trade Finance transformation. Though based in the U.K., the bulk of our business is in Asia, Africa and the Middle East. We focus not just on multinationals (MNCs) in developed markets but also on small to medium enterprises (SMEs) in emerging markets. We call it “banking the ecosystem.” Standard Chartered wants to be the glue in the supply chain.
As banks increasingly digitize, the implications for clients of all sizes will grow as well. We believe the key is to provide outstanding services to MNCs and it’s equally important to cater to needs of smaller entities. They are focused on capital generation to keep their businesses ticking and securing new sources of credit — and we aim to help them address those needs.
That’s why digitizing the information supply chain — not just the physical and financial supply chains — is invaluable. The information supply chain is all about leveraging data to make credit decisions faster and more efficient. On one hand, the transparency of information helps banks to better understand the risks involved and, on the other, helps SMEs to secure financing at a cheaper cost.
To that end, Standard Chartered is investing for the future in four key areas.
The first is by expanding our product capabilities. Say requirements shift to pre-shipment financing. The bank has to create automated systems to create or upgrade new product capabilities and features.
Second is making connections, which could be as simple as using existing bank platforms, such as our proprietary Straight2Bank, or connecting to key third-party platforms.
Third, we’re investing in back-end operations, which has obvious benefits for the client experience, ensuring that when people do interact with our systems, they’ll work as expected.
Finally, we’re leveraging data in new ways, such as monetization and providing client intelligence.
So, what would the future of trade finance look like in a digital world?
First, let’s remember not to overestimate long-term changes while underestimating short-term ones. People have been predicting the slow, painful death of documentary trade finance for decades, but it is not going to go extinct. I don’t see trade as a business dying out, but it will be serviced very differently, and not just be limited to financing.
Not all banks will be profitable on trade, primarily because they need a low-cost, scalable model and the ability to cross-sell other products along with trade, so pure financing won’t work. With the model around pure financing challenged, banks will have to innovate and add other services to remain relevant to clients. Leveraging and unlocking the power of data analytics will be key. Risk mitigation, technological efficiency, and leveraging data analytics will also become increasingly important.
Expect to see more collaboration between banks and FinTechs, hence a broadening of offerings — from financing to credit decisions to use of digital currencies. FinTechs are still seen as competitors and alternatives to banks; however, there are obvious synergies and both sides will increasingly have to collaborate and co-exist.
Supply chains will get bigger, more complex, and more cross-border, despite protectionism, which lends itself quite naturally to going digital.
The traditional definition of the way banks organize themselves between front- and back-office operations will have to change, not only internally but also in the way banks view and work with one another. As I’ve already stated, banks will increasingly have to collaborate. This will bring improved interoperability between various bank platforms, much the way telcos now allow customers to seamlessly switch between carriers and still keep their phone numbers.
So, as banks are forced to work together more, a split-personality will develop between the notions of competing and collaborating as the boundaries between how banks define cash and trade continue to blur into the 21st century.
Farooq Siddiqi is the Global Head of Trade for Transaction Banking. Prior to this, he was the Global Head of Product Management. Previously he was the Regional Head for ASEAN, and Regional Head for Middle East, North Africa and Pakistan.
Farooq has over 20 years of Corporate Banking experience, having worked in Corporate Relationship Management, Product Management, Cash Management, Trade Finance and Supply Chain in India, Singapore and the U.A.E.
Before his move to Dubai in 2007, he was the Global Head of Supply Chain Financing based in Singapore for 4 years, where he was involved in launching the Supply Chain Financing initiative globally with particular focus on the Bank’s key markets in Asia, the Middle East and Africa.
Prior to Singapore, he was based in India doing a number of country roles relating to Relationship Management, Cash Management, Trade Finance and Supply Chain financing with ANZ Grindlays Bank and subsequently with Standard Chartered Bank in India.
Farooq is a Chartered Accountant by profession. He is married with 2 children and enjoys playing golf.
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