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HSBC Sibos Spotlight – Harnessing Digital Disruption in Trade Finance
48 Plays2 years ago
Why is trade finance ripe for digital disruption?
To answer this question, TMI’s Eleanor Hill invites Stephanie Betant, Managing Director, Head of Trade and Receivables Finance, HSBC UK and Bhrigu Singh, Chief Product Officer Global Trade and Receivables Finance, HSBC into the hot seat to discuss the transformative potential of digital trade, and the benefits it holds for treasurers.
In the first of TMI and HSBC’s Sibos Spotlight series, our guests cover how digitalisation within trade finance empowers SMEs and reduces risks, how regulation influences the industry’s ability to progress in digitising trade, and the ways in which treasurers and fintechs can work together to encourage the adoption of digital trade tools.
Hosted on Acast. See acast.com/privacy for more information.
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Transcript
Introduction to HSBC Global Viewpoint Podcast
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Speaker
Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
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Make sure you're subscribed to stay up to date with new episodes.
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Thanks for listening.
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And now onto today's show.
Impact and Potential of Digital Trade
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In the studio today to talk about developments in digital trade, we have Stephanie Betant, who is MD, HSBC UK, Head of Trade and Receivables Finance.
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And we also have Brigu Singh, Chief Product Officer, Global Trade and Receivables Finance, also from HSBC.
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So welcome both of you.
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It's really great to have you here on this podcast and I know we've got absolutely loads to talk about and it's such an interesting space.
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But Steph, maybe you could kick us off just by giving a bit of an overview as to why trade and trade finance is so ripe for digital disruption.
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Sure, thank you and thanks for having me.
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Really happy to be here today.
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Trade is still...
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incredibly reliant on paper, and that has remained unchanged for centuries.
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Today, the estimate is that there are an average of 25 billion pieces of paper printed and flown around the world every day.
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That's absolutely a staggering number.
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Maersk, the big shipping company, did a study and looked at a shipment of goods from Kenya to the Netherlands, and
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There were 30 different parties, 100 people, 200 exchanges of information, 10-day waiting period for the documents to actually be processed in a shipment period of only 34 days.
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So paper really slows down everything and makes it incredibly complicated for all these parties that are participating in that trade transaction.
Benefits of Digital Trade and Supply Chain Sustainability
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So by digitizing trades, you know, you're really one.
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It's the sustainable thing to do from a paper perspective and from shipping around perspective.
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It protects you against fraud and forgery and double financing.
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And it really benefits everyone in the ecosystem from our customers to banks ourselves, to the port, to the shipping carriers, to the customs authority.
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So there's a real opportunity here to disrupt the global trade industry.
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Yeah, absolutely.
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So many potential benefits.
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So those stats are really, I'll let you say, really quite staggering, but almost not hard to believe at the same time, because we all know what goes on.
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Lots of progress to be made.
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So, Brigu, we've discussed the potential benefits there, but tell us a little bit more about what exactly digital trade is.
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What's possible?
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Why do we need to digitize further?
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And also for our listeners who are corporate treasurers, why might they need to be interested in digital trade?
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What could they see off the back of it?
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Well, first of all, thank you very much for having me.
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Delighted to be here.
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In a nutshell, digital trade is the ability to exchange information electronically between the various parties involved in the trade transactions.
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The information would need to be exchanged as structured data so the recipients can consume and act on that data again electronically.
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Digitizing trade will essentially make trade faster, cheaper, safer, and also more sustainable.
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So it's faster because companies can trade more.
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As Stephanie just pointed out, the time that's spent for paper to arrive once the goods have arrived suddenly disappears.
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The trade becomes faster.
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Automation and reduction of manual activity removes inefficiencies and therefore makes the whole trade transaction cheaper.
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Digitization would increase transparency because it has the potential to reduce risk, increase trust.
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A digital record can be regarded as a golden source of truth.
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Therefore, it prevents fraud and makes the whole trade transaction safer.
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It also, like I said, it increases trust and the perception of trust between the parties involved.
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And finally, it will help supply chains become more sustainable and more resilient.
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We need data on supply chain, on how supply chains are becoming more resilient, and the ability to provide sustainable finance to meet the ESG objectives of supply chains becomes easier when there's data around.
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But most importantly, I think digitization will just make it that much more easier for banks and others in the trade finance ecosystem to access data about the performance and the track record of smaller companies.
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And this is the sort of area where several estimates have shown that there's a huge working capital gap, particularly for smaller companies.
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And we believe digitization will address that because of the data that's now available.
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Yeah, absolutely.
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There's always talking about the trade finance funding gap and it'd be great to see something done there to make that less of a chasm.
Regulatory Influence on Trade Digitalization
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But Stephanie, I just wanted to come back to something that you mentioned at the beginning, which was the fact that trade has been so paper-based for so long and it seems like it's taking quite some time to make progress.
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So to what extent does regulation
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I'm thinking about things like the UK's Electronic Trade Documents Act influence the industry's ability to actually move forward in digitalising trade and trade finance.
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It plays a really important part.
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I mean, we talked about the number of parties that are involved in a trade transaction.
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So having a common standard and a certain way of doing things is fundamental for everyone to participate in that trade transaction.
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So you talked about the Electronic Trade Documents Act, which is going to become a law in September on the 20th, actually.
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And this does something which will seem pretty simple.
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It's saying that electronic trade documents are going to have the same legal outcomes as their paper equivalent.
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So when you know that today, in order to get your goods out of a customs office or a shipping yard, you need the document in order to get it, the physical document, the time that is wasted in that and the energy that is wasted, suddenly you can do it digitally.
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So that's
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absolutely transformative for trade.
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And if you don't have that change in the law, the trade would continue to be paper-based and complex and time-consuming.
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So suddenly, with this law and this new act, you reduce the admin costs, you cut processing time.
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And in the UK, international trade is worth about 1.4 trillion pounds.
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And the estimate is that this can have a 1.4 billion boost in benefits for the UK.
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So really, really staggering.
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Now, that doesn't mean it's a whole win, right?
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You've got to actually implement this bill.
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The industry has to come together to agree on the common standards.
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What is the platform going to be that all these different parties are going to transact on?
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And also trade is international.
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So it's not enough that just the UK has adopted it.
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Other countries have to adopt it.
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And, you know, there's a model that was issued by the UN, which a number of trading nations have adopted.
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And of course, with the UK and English law being one of the most important laws in global trade,
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it's great that they're setting the basis for that.
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But we have work to do in terms of advocating this and, you know, for the whole industry to just adopt it and put it into practice, if you will.
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Worldwide.
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Yeah, absolutely.
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Briggy, tell us a little bit more about that.
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What do you think's needed from global bodies, regulators?
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What do we need in terms of additional standards?
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And also give us a little flavour of
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What HSBC is up to in terms of sort of lobbying, supporting, working with these bodies?
HSBC's Role in International Trade Digitization
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So the ETDA is a very important step in digitizing, but we need a lot more besides just that one law.
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So first of all, while the law is going to come into force in September, it still needs certain sort of frameworks to sort of foster adoption.
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So HSBC is part of a task force set up by the ICC UK to make recommendations to the UK government regarding adoption of the ETDA, defining what resilient systems and other aspects of the law should be.
00:08:48
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But besides that, we also need other countries to sort of enact similar laws.
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Most trade is international and just having a UK law wouldn't be adequate to sort of digitize international trade.
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So we need other countries to adopt similar legislation, either like the ECDA or based upon the MLETR that the UN bodies have sort of come up with.
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We are part of several initiatives where we work with regulators as well as industry bodies to lobby for such legislation.
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legislation.
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So laws is the first thing, more widespread enactment of laws.
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The second thing then is standards, right?
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So you need standards for recording and exchanging data.
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Standards are key to ensure interoperability of systems and prevent digital islands.
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Trade is very fragmented.
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It's got numerous players.
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We do not see one solution solving the entire world's problems.
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There'll be several solutions.
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And for
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our clients and buyers and sellers or various parties in the trade ecosystem to really benefit from these solutions, they need to interoperate so that they can deliver scale.
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The ICC, the International Trade and Forfeiting Association, ITFA, BAF, these all industry bodies, are making real progress in advancing digitization of trade, creating standards.
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And we are active participants in these working groups, in the ICC's Digital Standards Initiative,
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to sort of standardize these trade sort of documents.
00:10:13
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So what exactly are the data fields?
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How should the data fields be defined?
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And how do you actually transfer data from one solution to the other?
00:10:23
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Yeah, so that's the back.
00:10:25
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backbone of it all but Stephanie as you alluded to earlier we actually need to get everyone to adopt as well and there's so many more players in the ecosystems.
00:10:34
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How do we then encourage adoption of these new digital ways of working especially that we now don't have so many trade consortia around and where do you think fintechs fit into this picture in terms of encouraging adoption?
00:10:49
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Sure so
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We, in HSBC, we sit in an incredible position where we are, you know, we have access to, I think, 90% of trade globally.
00:11:00
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So support customers in their global operation.
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So we need to stay really close to them and we need to understand their needs, their digitization journey and how we can partner with them as their trusted advisors, but also continue to invest resources in guiding them to,
00:11:20
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how to adopt the digital ways of working, if you will.
00:11:24
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So trust is a really important element that needs to be established because this is so multi-jurisdictional and so fundamental to their business and to the success of their business that we have to help reduce these hurdles for corporates to transition into the digital world.
00:11:44
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We talked about fintechs and frankly, it's really exciting to be working with fintechs because we're sitting absolutely on the same side of the table.
00:11:55
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We've got the same aim, you know, in terms of delivering solutions that are going to help customers face this transformation and connect buyers and sellers in a more seamless, more straight through way and give corporates the visibility.
00:12:12
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And why do banks and fintechs work well together?
00:12:15
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Well, the first is banks have sort of legacy infrastructure.
00:12:18
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They've got regulatory controls and customers that are asking for more seamless and tailored experiences.
00:12:26
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Fintechs, they struggle with market share and scalability, which sometimes can kill a product even before, you know, it's landed on a corporate desk.
00:12:37
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So,
00:12:38
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The opportunity to really partner is going to be leveraging the dependability and the credibility of banks that banks have with regulators, the infrastructure that they have, the customer base,
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that banks have.
00:12:56
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But fintechs obviously have this agility and the ability to build innovative, tailored solution for target customers that really answer some need and be able to fail fast and start again, as we say.
00:13:11
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So it's a really great opportunity to partner together.
00:13:15
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Yeah, it's an excellent symbiotic relationship, isn't it, that's developing there.
00:13:20
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Brigu, anything further on the encouraging adoptions?
00:13:23
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Yes, I see adoption will be two phase adoption.
00:13:26
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You need people to build upon these sort of legislations and standards to come up with digital solutions.
00:13:32
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So you'd have sort of fintechs or existing players, industries, banks, big shipping companies, customs, border authorities coming up with solutions.
00:13:42
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that will address or digitize either a sector or a particular market or a particular activity or a set of activities within a trade transaction.
00:13:53
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So you need adoption of laws and standards to create these solutions.
00:13:57
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And then you need adoption of these solutions by players in the industry.
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So providing data to these solutions, using these solutions, and most importantly, consuming and acting on the data that these solutions provide.
00:14:11
Speaker
So I see adoption, both solutions being created and then the adoption of the solutions.
00:14:16
Speaker
Yeah, that makes sense.
00:14:18
Speaker
Okay, so we've spoken quite a bit about the challenges ahead, what needs to happen in the future, but it'd be good just to focus for a minute on what we've already achieved.
00:14:28
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So Brigu, what would you say are some of the biggest leaps forward in terms of digital progress in trade and trade finance in recent years?
00:14:36
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And are there any particular solutions that HSBC has developed that you think our listeners might like to hear about?
00:14:43
Speaker
Now, there's been a lot of effort and a lot of progress in tackling this incredibly complex and difficult problem.
00:14:51
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And there have been several success stories within HSBC and in the industry with our competitors as well as fintechs and other players.
00:15:00
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In HSBC, I guess the way we've been thinking about this is this is a sort of a twofold approach towards digitization.
00:15:08
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One is the longer term, bigger thing of trying to sort of digitize the industry.
00:15:14
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Okay.
00:15:14
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That is more collaborative.
00:15:17
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We recognize that while we're a big player in the industry and we have a big sort of footprint and we have the ability to sort of bring a lot of clients into digital solutions because of the fragmented nature of the ecosystem, we have to collaborate.
00:15:29
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You have to collaborate with various jurisdictions, other players in the industry and our efforts.
00:15:35
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in making trade digital have been collaborative.
00:15:37
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So whether it's working with industry bodies and creating standards or whether it's working with regulators and industry bodies to create legislation or to be part of consortia or actually invest and promote consortia that would create these digital solutions, those have been historically our approach towards digitizing the industry.
00:15:59
Speaker
While that's happening and we recognize that's going to take time, we've been sort of digitizing, creating digital experiences for our clients and making our own operations and the way we sort of service our clients more digital, despite in a sort of analog or a paper-based trade world.
00:16:17
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And we've done three or four things there.
00:16:19
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So first of all, we try and we've created a variety of digital channels.
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We've invested in our digital channels so clients can interact with us for the most part digitally from a trade finance perspective.
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And there are several examples of that.
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We've done it.
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Several other sort of fintechs do it.
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Several of the other banks have done it.
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We believe ours gives clients a really best-in-class digital experience.
00:16:41
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And more importantly, it creates a sort of
00:16:44
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data flows that allows back-end efficiency when these instructions come in.
00:16:48
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They also provide clients a lot more transparency of what's happening with their trade finance transactions so that they feel in control.
00:16:57
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We also invested a lot to deal with paper more efficiently.
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So we recognize that until the industry changes, paper is going to come our way.
00:17:04
Speaker
And we've got solutions that combine a variety of technologies like optical character recognition and artificial intelligence that essentially
00:17:14
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recognizes what kind of a paper document, what kind of a document, a piece of paper it is.
00:17:19
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It extracts pieces of the relevant pieces of data from these documents, and it populates it and makes it available to our staff so that they can act upon it far more quickly.
00:17:30
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So that's despite there being paper in the industry, we've been able to sort of create enough efficiencies over there.
00:17:37
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And we are building on this then based upon this sort of automate even more complex processes.
00:17:43
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And we hope to be able to announce success in the near future.
00:17:47
Speaker
We've also created digital solutions, so wholly digital products.
00:17:50
Speaker
And some, we've got a straight-through processing trade loan that essentially takes about a second between the time the client asks for a particular financing, makes a financing request, till the time the money is actually paid off to whoever the person needs.
00:18:05
Speaker
So it's a straight-through process.
00:18:06
Speaker
We're going to do something similar around sort of straight-through processing of guarantees, which we are working on.
00:18:12
Speaker
We've created embedded finance solutions.
00:18:14
Speaker
So a lot of our clients are now
00:18:16
Speaker
Trading electronically.
00:18:17
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So even though the goods, when they move physically, might involve paper, the actual act of buying and selling between two counterparties gets done on electronic venues.
00:18:28
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So it could be on an e-commerce marketplace or it could be on a company's own e-commerce portal.
00:18:34
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So you see a lot more electronic buying and selling happening.
00:18:38
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And we are providing our trade finance solutions in these venues so that our clients can sell more or buy more effectively.
00:18:46
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So that's what we've been
Future of Digital Trade: Technology and Adoption
00:18:48
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doing.
00:18:48
Speaker
I guess in terms of the big things that have happened in the industry, I think distributed ledger technology is still a very, very big part of the software and still has a role to play in digitizing trade.
00:19:01
Speaker
It's got some fundamental characteristics that lend itself towards digitizing a fragmented multi-jurisdictional ecosystem.
00:19:10
Speaker
The consortia on which the digital, on which DLT solutions were being proposed may not have been successful, but I don't believe that's an issue with the technologies, perhaps more with how the consortia were being run, the product market fit, and the inability to scale.
00:19:26
Speaker
So I think DLT is a really big technological advancement.
00:19:30
Speaker
I think the laws that support digitization will help us scale DLT-based platforms much faster.
00:19:38
Speaker
I think standards will create the interoperability that is necessary for clients to really benefit from scaled digital solutions.
00:19:48
Speaker
Absolutely.
00:19:49
Speaker
And Stephanie, just a quick question on some of those digital solutions that Briggy mentioned there.
00:19:55
Speaker
To what extent do you see them lowering the barriers to entry for trade finance for SMEs who've quite often found it a little bit difficult to access?
00:20:06
Speaker
Yeah, so I think really fundamental, particularly when, you know, there's a part that Brigou was mentioning around embedding yourself in that SME journey.
00:20:18
Speaker
which is where are they trading and how are we helping them trade via the platform that they are already using is really critical to addressing that trade finance gap.
00:20:33
Speaker
Prior to being in the UK, I spent four years in Vietnam and I can see sort of how critical international trade is to SMEs in a country like Vietnam where development is
00:20:47
Speaker
is hugely reliant on the global trade.
00:20:51
Speaker
So helping those customers access trade, finance, and really embedding ourselves is the critical piece to adoption.
00:21:02
Speaker
Keeping it simple, basically, because they don't have the capacity to understand.
00:21:06
Speaker
I mean, they don't have the resources to
00:21:10
Speaker
to understand sort of some of the complexities of global trade finance.
00:21:14
Speaker
Yeah, of course.
00:21:15
Speaker
There's so much to look at and make sure that you're getting correct and certainly don't always have the time and the people to do that.
00:21:23
Speaker
But on the message of keeping things simple, we've discussed all manner of things today.
00:21:29
Speaker
We've had a great discussion around digital trade.
00:21:33
Speaker
But just to sum it up for our listeners today,
00:21:36
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What would be your parting message for them, for the corporates, but also for the industry at large in terms of making the most of digitization in the trade and trade finance space going forward?
00:21:48
Speaker
Stephanie, maybe you can kick us off.
00:21:51
Speaker
Sure.
00:21:51
Speaker
I think that what's critical is for everyone to work together and to really adopt an open platform approach because we're all on the same side of the table here.
00:22:04
Speaker
You heard some of the stats that we mentioned at the beginning, and this is critical.
00:22:09
Speaker
It is absolutely critical.
00:22:11
Speaker
And I think the second piece for corporates is, you know, is adoption is really sort of the more they adopt this, the faster it can go, the more we simplify it.
00:22:22
Speaker
And we have a role to play in that, absolutely, in accompanying them.
00:22:26
Speaker
But for the corporate treasurers that are listening to you out there, this is, you know, their participation is key.
00:22:34
Speaker
Yeah, absolutely.
00:22:36
Speaker
And Brigu, final thoughts from you?
00:22:38
Speaker
So I think we're making real progress towards solving an incredibly difficult problem.
00:22:43
Speaker
A problem that when it's solved will provide benefit, like you said earlier in the podcast, to everybody involved in the trade system.
00:22:50
Speaker
Trading more is good for all our companies.
00:22:53
Speaker
It creates opportunities.
00:22:54
Speaker
It creates jobs.
00:22:55
Speaker
It creates wealth that's good for society.
00:22:57
Speaker
So I think if anything that we do to sort of make trade simpler and faster has much wider benefits.
00:23:03
Speaker
Four things that we need to do to get this across the line, and there's progress in all of them.
00:23:08
Speaker
So legislation, the ETDA and all the lobbying efforts with several countries across the world are sort of considering, we'll see a proliferation of legislation coming through.
00:23:18
Speaker
We believe the work on standards around data will foster interoperability.
00:23:23
Speaker
Solutions based upon these laws and standards will come from fintechs, from banks, from other key players, and we need corporates to be open to adopting them.
00:23:32
Speaker
Adopting them both in terms of sort of being part of these ecosystems and providing the data, but also consuming data.
00:23:38
Speaker
Because when you get this data and you're able to consume this automatically, you will deliver efficiencies into your own sort of corporate sort of operations.
00:23:46
Speaker
So it is difficult.
00:23:48
Speaker
I guess one could get frustrated by the pace at which progress has been made.
00:23:53
Speaker
But I genuinely believe we are getting closer and closer to solving this problem.
00:23:58
Speaker
Yeah, we are.
00:23:58
Speaker
Absolutely.
00:23:59
Speaker
Well, thank you both ever so much for joining us today and taking us on this whistle-stop tour of digital trade and trade finance.
00:24:07
Speaker
It's much appreciated.
00:24:09
Speaker
It's great to hear the progress that's happening and also the positivity and momentum as we look to the future.
00:24:15
Speaker
So thank you.
00:24:16
Speaker
Thank you.
00:24:17
Speaker
Thank you very much.
00:24:35
Speaker
Thank you for joining us at HSBC Global Viewpoint.
00:24:38
Speaker
We hope you enjoyed the discussion.
00:24:40
Speaker
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