The International Chamber of Commerce (ICC) 10th annual Global Survey shows that 60% of banks are moving towards greater digitalisation, though only 9% say technology solutions have so far increased efficiency.
Over 60% of banks surveyed in the new ICC report—Global Trade: Securing FutureGrowth—reported to have implemented, or to be in the process of implementing, technology solutions to digitalise their trade finance operations.
However, only 9% of banks reported that the solutions implemented have so far led to a reduction of time and costs in trade finance transactions. In what the report describes as a “reality check”,30% of respondents say their banks remain 1-2 years away from implementing technology solutions while 7% say digitalisation is not on their agenda at all.
A heavily paper-based industry with transactions worth over US$9 trillion in 2017, trade finance is often noted to be ripe for digital disruption. The multitude of documents and players (banks, customs authorities, shippers, and insurers, among others) involved in trade finance transactions, though, make it difficult for the industry to digitalise quickly.
In the findings, 65% of respondents say that physical paper has to some extent been removed in the issuance/advising and settlement/financing of documentary transactions. A notable exception is the document verification process, where 52% of respondents say that paper has not been removed at all.
ICC Secretary General John W.H. Denton AO said: “Digitalisation in the trade finance sector will boost economic growth and sustainable development. Digitalisation will make trade more inclusive. The ICC Global Survey gives us invaluable insight into the practical experiences and real challenges of business as we seek to take advantage of game-changing technologies and advance these broader shared goals.”
Conducted annually, the ICC Global Survey report is the world’s most authoritative review of the trade finance industry, based on exclusive information from over 250 banks in more than 90 countries. The survey results are bolstered by contributions from an international array of leading voices on trade and finance, including experts from the World Bank, the Boston Consulting Group (BCG) and the World Trade Organization.
An industry ripe for disruption
A single trade finance transaction can require over 100 pages of documents, with an estimated four billion pages of documents currently circulating in documentary trade. According to BCG estimates, digitalisation could cut trade finance costs by up to US$6 billion in 3-5 years and boost banks’ trade finance revenues by 10%.
The ICC Global Survey figures demonstrate that a majority of banks are moving towards greater digitalisation, recognising its potential gains, yet only a minority have so far seen technology solutions increase their operational efficiency.
“Adapting global trade finance rules to the digital era will play a pivotal role in enabling banks to capitalise on new technologies,” said Olivier Paul, Head of Policy at ICC’s Banking Commission, which launched a digitalisation working group in June 2017. “ICC rules underpin over US$1 trillion of transactions each year. Now, we are working to both ensure these rules are ‘e-compatible’ and establish a set of standards to enable digital connectivity for trade finance service providers.”
Bullish on future growth despite compliance and pricing concerns
Among the many other Global Survey findings, responses show that banks are bullish on future trade finance growth trends. Nearly three quarters of banks presented an optimistic outlook for the next 12 months, with respondents headquartered in Africa and Asia Pacific the most positive, at 89% and 81% respectively.
Looking ahead into the medium and longer term, only 5% of respondents consider traditional trade finance a strategic area of focus in the next 3-5 years. In contrast, 72% consider traditional trade finance a priority in the next 12 months.
Nearly half of respondents agreed that attracting non-bank capital, leveraging emerging technologies such as blockchain and shifting geographical coverage were priority areas for the next 3-5 years.
When asked what potential obstacles banks saw to their future growth prospects, respondents’ answers were stark. 93% of respondents named regulation and compliance as a potential obstacle while 87% pointed to complying with counter-terrorism and international sanctions regulation.
The ICC Banking Commission has continuously advocated for banking regulation that avoids aggravating geographical disparities in trade finance coverage, specifically across poorer regions in Africa and South Asia. In 2017, following ICC engagement with the United Nations (UN) and national governments, the UN officially recognised the estimated US$1.5 trillion trade finance gap and pledged to carry out an official review of its underlying causes.
The impact of interest rates on international trade finance pricing was also noted by the Global Survey, with 35% of respondents, especially large institutions, affirming that rates were driving up the cost for clients. This was particularly notable in Africa and North America where 60% and 54% reported an increase in interest rates related to trade financing. Yet, a total of 38% reported maintaining the same rates, suggesting that the rise in financing costs is at least partly driven by bank-specific pricing strategies.
Barclays announces new trade finance platform for corporate clients
Barclays Corporate Banking has today announced that it is working with CGI to implement the CGI Trade360 platform. This new platform will provide an industry leading end-to-end global trade finance solution for Barclays clients in the UK and around the world.
With the CGI Trade360 platform, Barclays will provide clients with greater connectivity and visibility into their supply chains, allowing them to optimise working capital efficiency, funding and risk mitigation. By utilising cloud based functionality for corporate banking clients, Barclays will also be able to offer a leading client user experience through easy access and real-time integration to essential information, combined with the latest trade solutions as the industry-wide shift to digitisation continues to accelerate.
This move underpins Barclays commitment to supporting the trade and working capital needs of their clients and reinforces a commitment to innovation that has been central to the bank for more than 300 years.
James Binns, Global Head of Trade & Working Capital at Barclays, said: “We are delighted to announce our move to the CGI Trade360 platform and to have started the implementation process. We have a longstanding partnership with CGI, and the CGI Trade360 platform will mean we can continue delivering the best possible trade solutions and service to our clients for many years to come.”
Neil Sadler, Senior Vice President, UK Financial Services, at CGI, said: “Having worked closely with Barclays for the last 30 years, we knew we were in an excellent position to enhance their systems. Not only do we have a history with them and understand how they work, but part of the CGI Trade360 solution includes a proof of concept phase, which is essentially seven weeks of meetings and workshops with employees across the globe to guarantee the product’s efficiency and answer all queries. We’re delighted that Barclays chose to continue working with us and look forward to supporting them over the coming years.”
What’s the current deal with commodities trading?
By Sylvain Thieullent, CEO of Horizon Software
The London Metal Exchange (LME) trading ring has been the noisy home of metals traders buying and selling for over a hundred years. It’s the world’s oldest and largest metals market and is home to the last open outcry trading floor. Recently however, the age-old trading ring, though has been closed during the pandemic and, just a few weeks ago, the LME announced that it will remain so for another six months and that it is taking steps to improve its electronic trading. This news fits in with a growing narrative in commodities about a shift to electronic trading that has been bubbling away under the surface.
Something certainly is stirring in commodities. The crisis has affected different raw materials differently: a weakening dollar and rising inflation risks bode well for some commodities with precious metals being very attractive, as seen by gold reaching all-time highs. Oil on the other hand has had a tough year and experienced record lows from the Saudi-Russia pricing war. It has been a turbulent year, and now prices look set to soar. While a recent analyst report from Goldman Sachs predicts a bullish market in commodities for the year ahead, with the firm forecasting that it’s commodities index will surge 28%, led by energy (43%) and precious metals (18%).
Increasingly, therefore, it seems that 2020 is turning out to be a watershed moment for commodities, and it’s likely that the years ahead will bring about significant transformation. And whilst this evolution might have been forced in part by coronavirus, these changes have been building up for some time. Commodities are one of the last assets to embrace electronic trading; FX was the first to take the plunge in the 90s, and since then equities and bonds have integrated technology into their infrastructure, which has steadily become more advanced.
The slow uptake in commodities can be explained by several truths: the volumes are smaller and there is less liquidity, and the instruments are generally less exotic, essentially meaning it has not been essential for them to develop such technology – at least not until now. This means that, for the most part, the technology in commodities trading is a bit outdated. But that is changing. Commodities trading is on the cusp of taking steps towards the levels of sophistication in trading as we see in other asset classes, with automated and algo trading becoming ever prominent.
Yet, as commodities trading institutions are upgrading their systems, they will be beginning to discover the extent of the job at hand. It’s no easy task to upgrade how an entire trading community operates so there’s lots to be done across these massive organisations. It requires a massive technology overhaul, and exchanges and trading firms alike must be cautious in the way they proceed, carefully establishing a holistic, step-by-step implementation strategy, preferably with an agile, V-model approach.
The workflow needs to be upgraded at every stage to ensure a smooth end-to-end trading experience. So, in replacement of the infamous ring, these players will be looking to transform key elements of their trading infrastructure, including re-engineering of matching engines and improving communications with clearing houses.
However, these changes extend beyond technology. For commodities players to make a success of the transformation in their community, exchanges need to have highly skilled technology and change the very culture of trading. All of which is currently being done against a backdrop of lockdown, which makes things much more difficult and can slow down implementation.
What is clear is that coronavirus has definitely acted as a catalyst for a reformation in commodities. It is a foreshadowing of what lies ahead for commodities trading infrastructure because, a few years down the line, commodities trading could well be very different to how it is now, and the trading ring consigned to history.
Afreximbank’s African Commodity Index declines moderately in Q3-2020
African Export-Import Bank (Afreximbank) has released the Afreximbank African Commodity Index (AACI) for Q3-2020. The AACI is a trade-weighted index designed to track the price performance of 13 different commodities of interest to Africa and the Bank on a quarterly basis. In its Q3-2020 reading, the composite index fell marginally by 1% quarter-on-quarter (q/q), mainly on account of a pull-back in the energy sub-index. In comparison, the agricultural commodities sub-index rose to become the top performer in the quarter, outstripping gains in base and precious metals.
The recurrence of adverse commodity terms of trade shocks has been the bane of African economies, and in tracking the movements in commodity prices the AACI highlights areas requiring pre-emptive measures by the Bank, its key stakeholders and policymakers in its member countries, as well as global institutions interested in the African market, to effectively mitigate risks associated with commodity price volatility.
An overview of the AACI for Q3-2020 indicates that on a quarterly basis
- The energy sub-index fell by 8% due largely to a sharp drop in oil prices as Chinese demand waned and Saudi Arabia cut its pricing;
- The agricultural commodities sub-index rose 13% due in part to suboptimal weather conditions in major producing countries. But within that index
- Sugar prices gained on expectations of firm import demand from China and fears that Thailand’s crop could shrink in 2021 following a drought;
- Cocoa futures enjoyed a pre-election premium in Ghana and Côte d’Ivoire, despite the looming risk of bumper harvests in the 2020/21 season and the decline in the price of cocoa butter;
- Cotton rose to its highest level since February 2020 due to the threat of storm Sally on the US cotton harvest, coupled with poor field conditions in the US;
- Coffee rose 10% as La Nina weather conditions in Vietnam, the world’s largest producer of Robusta coffee, raised the possibility of a shortage in exports.
- Base metals sub-index rose 9% due to several factors including ongoing supply concerns for copper in Chile and Peru and strong demand in China, especially as the State Grid boosted spending to improve the power network;
- Precious metals sub-index, the best performer year-to-date, rose 7% in the quarter as the demand for haven bullion continued in the face of persistent economic challenges triggered by COVID-19 and heightening geopolitical tensions. In addition, Gold enjoyed record inflows into gold-backed exchange traded funds (ETFs) which offset major weaknesses in jewellery demand.
Regarding the outlook for commodity prices, the AACI highlights the generally conservative market sentiment with consensus forecasts predicting prices to stay within a tight range in the near term with the exception of Crude oil, Coffee, Crude Palm Oil, Cobalt and Sugar.
Dr Hippolyte Fofack, Chief Economist at Afreximbank, said:
“Commodity prices in Q3-2020 have largely been impacted by COVID-19. The pandemic has exposed global demand shifts that have seen the oil industry incur backlogs and agricultural commodity prices dwindle in the first half of the year. The outlook for 2021 is positive however conservative the markets still are. We hope to see an increase in global demand within Q1 and Q2 – 2021 buoyed by the relaxation of most COVID-19 disruptions and restrictions.’’
EU Commission sets out new intellectual property action plan affecting SEPs, patent pooling and EU design protection
By Andrew White, Partner and UK & European patent attorney at intellectual property firm, Mathys & Squire The EU Commission...
InsurTech is helping to drive the digital evolution of the UK motor retail industry
By Alan Inskip, Tempcover CEO & Founder If the last nine months have made anything clear, it is that the...
Five ways enterprises are using the public cloud
By Michael Chalmers, MD EMEA at Contino The public cloud is the most significant enabler in a generation. It’s causing a...
Another ‘new normal’? Five challenges CTOs will face in 2021
By Amit Dattani, Director of Technology at Conosco We’re one year into the new decade, and arguably technology has guided...
An inside look at how both the global pandemic and the March and November 5th National Lockdowns are affecting mental health within the workforce
By Lianne Harrington, Director SMP Healthcare Ltd Part One: Real life insights into the deteriorating mental health of three employees...
Data Unions, fisherfolk and DeFi
By Ruby Short, Streamr In the fintech world it seems every month there’s a new trend or terminology to get...
Deloitte: Middle East organizations need to rethink their workforce in the wake of COVID-19
Organizations in the Middle East have had to take immediate actions in reaction to the COVID-19 pandemic, such as shifting...
One in five insurance customers saw an improvement in customer service over lockdown, research shows
SAS research reveals that insurers improved their customer experience during lockdown One in five insurance customers noted an improvement in...
ECOMMPAY expands Open Banking payments solution to Europe
Open Banking by ECOMMPAY facilitates fast, secure and simple payments International payment service provider and direct bank card acquirer, ECOMMPAY, has...
Bots Are People Too: Robotic Process Automation in Finance
By Tom Venables, Practice Director – Application & Cyber Security at Turnkey Consulting As technology has advanced, Robotic Process Automation...