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Banks’ trade finance business under threat, seek digital solutions
Banks say digitally-enabled supplier finance networks and alternative lenders pose a significant threat to their lending businesses, citing competition to be toughest in the area of supply chain finance and small business lending.
Darryl Yu 27 Aug 2015

Banks say digitally-enabled supplier finance networks and alternative lenders pose a significant threat to their lending businesses, citing competition to be toughest in the area of supply chain finance and small business lending.

 

According to a recent survey of 77 banks by technology company Misys, respondents say pricing of loan products is increasingly becoming a challenge for most banks, while many of them fear losing market share to alternative lenders.

 

Banks have been under pressure since the financial crisis as demand for credit from SMEs has risen, but increased regulation and scrutiny of balance sheets has diminished their lending capacity.

 

Unable to keep up with the credit demands of SMEs many banks have lost business to smaller flexible peer-to-peer lenders and new supplier networks. They are also seeing the rise of technology firms making a push into the lending business. Earlier this year, Square announced that it would expand its small business financing program. In addition, Facebook has been planning to do international money remittances via Whatsapp.

 

A report from consultancy firm Grant Thornton says that 60% of mid-market businesses based in the UK were already using a non-bank lender as a source of finance. "The banking sector understands that it must now react to remain at the centre of corporate credit requirements," says David Hennah, head of trade finance at Misys.

 

Banks are fighting back

 

The rise of alternative financiers are driving banks to re-evaluate their operating models and embrace partnership, new technology and more agile approaches to lending and trade finance, the study notes.

 

In Asia, the race to lead in digital banking has been a continuous process. In the last several months, banks have been incorporating a digital strategy into their overall corporate plan.

 

ANZ for example earlier this month established an international technology and digital business advisor panel to provide advice on the strategic banking application of new technologies and emerging technologies.

 

"The financial services industry is now undergoing rapid change driven by advances in digital technology," says David Gonski, ANZ's chairman. "The aim for establishing this advisory group is to ensure that the board and management have access to external perspectives, specialists' insights and trusted advice."

 

Some of the members of the panel include Aliza Knox, Twitter's managing director of Asia Pacific/Latin America online sales and Don Kingborough, head of strategic development at Paypal.

 

While some banks are seeking advice from industry experts some have opted to partner with financial technology companies. Malaysian bank Hong Leong (HLBB), for instance, have sought the help of technology company Intellect Design Arena Limited (Intellect) to apply digital technologies across its corporate banking and insurance services. "Following the digitization of our Personal Finance Services, HLBB is now turning its attention to the corporate banking space with a focus on the development of real-time payment offerings," comments Raja Teh Maimunah, CEO of Hong Leong Islamic Bank.

 

"More of our wholesale banking clients have gone global and expect more competitive banking services to facilitate their cross-border businesses."

 

HLBB has already purchased Intellect's iGTB (Intellect Global Transaction Banking) suite that will enable it to leverage on an improved technology, which consists of mobility and cloud services.

 

The Misys survey reveals that 68% of banks are looking to partner with a technology firm to sustain their trade finance growth. "Innovation is outpacing the limitations of legacy bank frameworks," observes Hennah. "By thinking differently and embracing change, banks in partnership with their vendors, can define new value propositions along clients' financial supply chains."

 

 

 

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