Digitised Trade: connecting markets and supply chain finance

Digitised trade: connecting markets
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

1. Introductions
2. Digitisation in 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

3
Digitised trade: connecting markets 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

By the panel…..
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

5
Digital disruption is the 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

6
Digitisation is more than a channel
Browser Mobile
File services ERP

7
Digitisation is more than automation
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.

8
Digitisation has the power to transform data flows
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

9
What happens if you don’t digitise in trade…?
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

10
Digitisation enables banks to capture the opportunity
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

11
Optimum design
Complete and connected - integrated from sales to settlement
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

12
Front-to-back Trade and Financial Supply Chain Services
From Client to Operations

13
De-Risking
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

14
Misys FusionBanking Business Intelligence
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”

What are the main 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

16
• Demand for greater 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

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Global trade flows
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.

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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Globalisation of markets
Growth dominated by open account
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)

20
Standard definitions of techniques for supply chain finance
Defining Supply Chain Finance Today
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

21
• Collaborative approach and 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
The Process

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The Outcome
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)

23
The Outcome
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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The Outcome
http://www.iccwbo.org/About-ICC/Policy-Commissions/Banking/Task-forces/Global-
Supply-Chain-Finance-Forum-Drafting-Group/

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Current concepts of digital trade and supply chain finance
Wider adoption of eUCP MT798 for traditional
trade finance
BPO for bank-assisted
open account

28
Approved payables in a 4-corner model
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

29
“BPO Plus”
eBL held in escrow pending data match

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• A blockchain is 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

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Major computing paradigms – one per decade
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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Blockchain in trade & supply chain finance?
• 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

Is blockchain a game changer?
a) Yes
b) Yes, but it will take at least 5-10 years
c) No
d) Don’t know
Polling Question #2

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Digitised Trade: connecting markets and supply chain finance

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