What’s driving the tech-driven trade finance ecosystem
Banks like DBS are increasingly working with fintechs to come up with solutions to digitize trade finance and meet their clients' requirements
Over the past few years, the trade finance landscape has been characterized by the emergence of new technologies and tech-driven platforms. This trend is likely to continue as banks look for solutions to digitize trade finance while opening up for collaboration with fintechs to address their clients’ requirements.
Like many other banks, DBS collaborates with fintechs, and in doing so, it applies a framework called POC – participate, orchestrate, co-create. “We are absolutely open for collaboration and partnership with fintechs,” Sriram Muthukrishnan, group head, trade product management in global transaction services at DBS, told The Asset. “We do not regard them as competition. In fact, in some ways, we regard ourselves as a fintech rather than a bank – that makes it easier.”
Depending on the size of the fintech or the platform, DBS decides on how it can work with them. In some cases, DBS may participate as a financier, although the collaboration often goes further than merely being a funding provider.
DBS may also orchestrate or co-create solutions directly with clients or work with a fintech to service its clients. “The one thing that we always ask fintechs is – do not just come with an abstract idea, think about the customers and the customer solutions to deploy. That is the key for us,” says Muthukrishnan.
An example of the POC process was DBS’ participation in the LiquidX network when it successfully completed a primary receivables transaction with one of its relationship clients. LiquidX is the global network for illiquid assets, providing an efficient and flexible platform for participants to transact across trade finance, working capital and trade credit insurance asset classes.
“There are customers who want to make sure that they can access the market for their receivable financing requirements, but sometimes they no longer want to work with a single player,” Muthukrishnan points out. “They want to maximize their reach of various financiers, make their trade assets more liquid and get the best possible bids quickly and generate cash.”
In December last year, DBS announced its partnership with one of China’s largest automotive logistics companies, China Capital Logistic Company, and blockchain provider, Wanxiang Blockchain, to launch an automotive blockchain platform that connects car manufacturers, exporters, logistics carriers and car dealerships. The blockchain platform facilitates integrated trade financing from DBS, giving participants easy access to finance on-the-go.
In working with Wanxiang, DBS brings players into the blockchain platform that Wanxiang has created. Citing a particular solution that enables the successful delivery of a fleet of automobiles across China using a small fleet of haulers and individual truck owners, it demonstrates how using blockchain not only solves real business problems, but also enables financial inclusion, whether it is SMEs or micro SMEs, which benefit from the technology.
India fintech collaboration
Over in India, DBS has forged a strategic partnership with a fintech called Priority Vendor. An online discounting platform, Priority Vendor provides working capital solutions to corporates and their suppliers of raw materials, packing materials, transportation and other services to unlock value from the existing supply chain.
In collaborating with Priority Vendor, DBS was able to quickly ramp up its offering to small suppliers in a supply chain finance programme across India. Priority Vendor was able to onboard the suppliers into the platform that it created and DBS was able to utilize the data to provide the competitively priced financing to the SME participants.
DBS is open to collaborating with all kinds of fintechs. “Even if it is a smaller fintech, but is able to provide an innovative solution to a large corporate or set of corporates, we will collaborate with them to help digitize our customers’ journey,” says Muthukrishnan.
In terms of sectors, DBS is keen to work with growth industries which have greater emphasis towards automation or digitization such as TMT, commodities, healthcare and automotive industries. These are the types of industries that DBS is adopting or trying to find solutions for in different ways.
With banks wanting to digitize since trade finance has been mired in using paper for so long and corporates always looking for new solutions, the collaborative efforts between banks and fintechs will continue, according to Muthukrishnan. “The whole approach of using digital onboarding, digital documentation and e-signature or contract – this is absolutely the right move,” he adds
The problem, though, lies in the regulatory environment. Not all countries are on the same page, so to speak. Muthukrishnan explains: “If you want to launch e-signatures for customers on a regional basis, you have to think how are you going to do it in India, in Indonesia and in China. This is the area where regulators can help by aligning the standards.”
DBS engages with a lot of regulators, who are keen to discuss in terms of what can be done to digitize the trade flow and how the bank can provide financing to smaller trade finance participants.
“You would have heard about the Asian Development Bank estimate about the huge US$1.5 trillion trade finance gap globally and the challenges faced by SMEs. The regulators are happy to hear new ideas on how we can plug the gap. Digitalization is one way to do it,” says Muthukrishnan.
Amid the continuing trend for tech-driven ecosystem in trade finance, there are expectations of consolidation in the fintech sector. As Muthukrishnan points out, there are so many fintechs coming up and what people sometimes find is they are centered around just one good idea.
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13 Sep 2019