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TRADE FINANCE TRENDS – SHIFTS IN GLOBAL CREDIT TERMS

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TRADE FINANCE TRENDS – SHIFTS IN GLOBAL CREDIT TERMS 1

By Simon Featherstone, Global CEO, Bibby Financial Services 

The global economy has undergone a profound and perhaps permanent shift in recent years as a result of the financial crisis, covering bank bailouts, rising inflation and stagnant growth.

Simon Featherstone

Simon Featherstone

One major consequence of the credit crunch has been a sharp reduction in the availability of business funding and tightening of credit terms.  For those businesses that have survived the crisis, the pressure is piling on.

While developing economies having been struggling to maintain fast growth rates, plug funding gaps and invest in infrastructure to foster new enterprises to create jobs and generate wealth, developed economies have been hit hard.

And despite their ability to adapt and survive in the face of adversity, it is small and medium sized enterprises (SMEs) that tend to bear the brunt of these economic shifts. And one major shift that has made life particularly hard for SMEs is the growing trend for open account business and lengthening payment terms.

Today, around 80 per cent of world trade is conducted on open account terms; while this is  good news for buyers,open accounts combined with differing credit terms between countries, put a real strain on sellers.

Through our research of 1,000 businesses in five key international markets, we found that navigating these differing regimes is difficult for firms seeking to grow through international trade.

Policymakers have recognised this problem, and in Europe policy initiatives have been introduced to encourage public sector and commercial businesses to pay their bills within a certain amount of time, unless it has been agreed otherwise.

But in reality this has had a limited effect on payment cultures.

For example, in Germany, the vast majority of businesses demand immediate payment from customers and only a minority offer credit terms which allow payment after 30 or 60 days. Whilebusinesses in the UK routinely offer credit terms of 30 to 60 days. One must recognise that in an increasingly competitive world,suppliers are often reluctant to enforce the rights available to them if their customers are slow to pay.

Outside Europe payment practices differ again. In the US around half of the businesses polled said they require immediate payment, while in Singapore60 per cent said they offer customers the opportunity to delay payment. In Hong Kong, the majority of businesses offer 30 to 90 day payment terms.

This conflicting payment landscape is creating growth barriers for small businesses, with many feeling that they are failing to maximise their export opportunities.

One of our clients, Oak Exports, is familiar with the issues that differing payments terms cause.

A successful exporter of British food and drink, including well-known brands such as Cadburys, Walkers, Fox’s and John West, the Cheshire based business exports across 40 overseas markets including Asia, Australia and the Americas, and has built an international distribution network with offices in Thailand, Singapore and the US.

However, the company soon discovered there was a gap to be bridged between the 30 days payment terms held with British suppliers, and the 60 day payment term that overseas customers worked to.

The business needed to address the problem quickly and protect cashflow in order to maintain the excellent relationships ithad built with suppliers, and after being introduced to Bibby Financial Services in 2003, managed to overcome these hurdles.

With the global economy picking up, companies like Oak Exportswill have many more opportunities to export their products. However, without a sound knowledge of the challenges they will face around payment practices, they may struggle to succeed.

 In addition, businesses face another challenge freeing capital to replace stock and satisfy growing demand.  Without sufficient cash available to seize opportunities during a growth period, there is a risk of over-trading. The release of working capital through invoice finance can play an important role in enabling businesses to capitalise on the recovery.

All in all,Business looking to grow through exports should make sure they understand payment practices to ensure they can manage their cash flow effectively.

Payment terms need not be a permanent issue for SMEs who want to grow through exports. Businesses should take the time to understand the differing regimes, whilepolicy makers and business advisors should strive to highlight and resolve barriers to growth to enable businesses to progress and succeed through the recovery.

Finance

Bitcoin slumps 6%, heads for worst week since March

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Bitcoin slumps 6%, heads for worst week since March 2

By Ritvik Carvalho

LONDON (Reuters) – Bitcoin fell over 6% on Friday to its lowest in two weeks as a rout in global bond markets sent yields flying and sparked a sell-off in riskier assets.

The world’s biggest cryptocurrency slumped as low as $44,451 before recovering most of its losses. It was last trading down 1.2% at $46,525, on course for a drop of almost 20% this week, which would be its heaviest weekly loss since March last year.

The sell-off echoed that in equity markets, where European stocks tumbled as much as 1.5%, with concerns over lofty valuations also hammering demand. Asian stocks fell by the most in nine months.

“When flight to safety mode is on, it is the riskier investments that get pulled first,” Denis Vinokourov of London-based cryptocurrency exchange BeQuant wrote in a note.

Bitcoin has risen about 60% from the start of the year, hitting an all-time high of $58,354 this month as mainstream companies such as Tesla Inc and Mastercard Inc embraced cryptocurrencies.

Its stunning gains in recent months have led to concerns from investment banks over sky-high valuations and calls from governments and financial regulators for tighter regulation.

(Reporting by Ritvik Carvalho; additional reporting by Tom Wilson; editing by Dhara Ranasinghe, Karin Strohecker, William Maclean)

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Britain sets out blueprint to keep fintech ‘crown’ after Brexit

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Britain sets out blueprint to keep fintech 'crown' after Brexit 3

By Huw Jones

LONDON (Reuters) – Brexit, COVID-19 and overseas competition are challenging fintech’s future, and Britain should act to stay competitive for the sector, a government-backed review said on Friday.

Britain’s departure from the European Union has cut the sector’s access to the world’s biggest single market, making the UK less attractive for fintechs wanting to expand cross-border.

The review headed by Ron Kalifa, former CEO of payments fintech Worldpay, sets out a “strategy and delivery model” that includes a new billion pound start-up fund and fast-tracking work visas for hiring the best talent globally.

“It’s about underpinning financial services and our place in the world, and bringing innovation into mainstream banking,” Kalifa told Reuters.

Britain has a 10% share of the global fintech market, generating 11 billion pounds ($15.6 billion) in revenue.

“This review will make an important contribution to our plan to retain the UK’s fintech crown,” finance minister Rishi Sunak said, adding the government will respond in due course.

The review said Brexit, heavy investment in fintech by Australia, Canada and Singapore, and the need to be nimbler as COVID-19 accelerates digitalisation of finance all mean the sector’s future in Britain is not assured.

Britain increasingly needs to represent itself as a strong fintech scale-up destination as well as one for start-ups, it added.

The review recommends more flexible listing rules for fintechs to catch up with New York.

“Leaving the EU and access to the single market going away is a big deal, so the UK has to do something significant to make fintechs stay here,” said Kay Swinburne, vice chair of financial services at consultants KPMG and a contributor to the review.

The review seeks to join the dots on fintech policy across government departments and regulators, and marshal private sector efforts under a new Centre for Finance, Innovation and Technology (CFIT).

“There is no framework but bits of individual policies, and nowhere does it come together,” said Rachel Kent, a lawyer at Hogan Lovells and contributor to the review.

Britain pioneered “sandboxes” to allow fintechs to test products on real consumers under supervision, and the review says regulators should move to the next stage and set up “scale-boxes” to help fintechs navigate red tape to grow.

“It’s a question of knowing who to call when there’s a problem,” Swinburne said.

($1 = 0.7064 pounds)

(Reporting by Huw Jones; editing by Hugh Lawson and Jason Neely)

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Enhancing efficiency in international trade – the time is now

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Enhancing efficiency in international trade – the time is now 4

By Carl Wegner, CEO of Contour

Despite significant advances in digital enterprise technology in recent years, international trade remains overwhelmingly manual and fraught with inefficiency.

Financial market participants spend millions of dollars to save fractions of seconds. Central banks are rushing to offer “fast” domestic payments in under three seconds. But cross-border trade relies on payments involving more than one country and bank, with no common central bank to provide cover and currency conversion. It takes at least a day or, in most cases, two – and that’s not even the most inefficient part of cross-border trade.

These processes are lightning quick compared to trade-related finance and risk mitigation products such as Letters of Credit (LCs), which can take over a week to settle. These involve more parties, more complexity, more paper and less trust.

In global trade finance, a bank will agree to pay an overseas seller after receiving proof that the seller has met their obligations. There is no common network for the seller to provide this proof, and no global database of shipments. Sellers rely on the gold standard of banking communication: wet ink-signed paper documents. Collecting, presenting and checking these documents can take days, if not weeks, stalling payments and leaving goods sitting on the dock rather than working through the economy.

The perceived credibility of “wet ink” signatures on documents is holding the industry back even as other areas are embracing new technologies. Unfortunately, it is all the industry has and the highest common denominator of communication. Bringing trade finance into the twenty-first century will need the development of a new gold standard – a common and trusted digital infrastructure. Luckily, the technology to ease this change and inject massive efficiency gains into the industry is now available.

More than a few small tweaks

Banks, buyers, sellers, shipping companies, ports, customs, and so on; the number of parties involved in international trade and the relative lack of trust among them makes any change a significant challenge.

Even before paper documents are involved for proof of shipment, there are trust challenges in communication for trade finance. While banks have a trusted form of communication among themselves, this does not extend to corporates or other parties. These groups are left with paper communication, email and fax – hardly efficient methods of communication. The industry needs a network,  a common identity, and a way to share data securely and privately with all participants. This is the first step and can lead to significant increases in efficiency, especially if communication between participants can be synced in real-time.

Building the network

The future of global trade communication is decentralised. With today’s technologies, it is no longer feasible to have the world’s sensitive trade data sitting in one place susceptible to attack or commercial manipulation.

Every bank and corporate must own their own data and share it only with their trading partners where necessary. Decentralised technologies go further than this, allowing data to be synchronised with trading partners, enabling a new level of trust between parties through the deceptively complicated concept of ”what I see, you see”.

The practicalities of title transfer

The problem of paper and wet-ink signatures seems simple to solve once the network is in place. Remove the couriers, upload PDFs of all that paper onto the decentralised and synchronised network built to authenticate the sender, and trade is digitised. However, while this process is easy in theory, the variety of documents involved in a single transaction complicates matters – especially when it comes to the transfer of title.

The bill of lading is a key example of this – issued in triplicate on original letterhead and signed by an authorised party on behalf of the ship’s captain. They represent title to the documents and can be used as a negotiable document much like a bank cheque.

Digitising these documents has come a long way in the last few years, with specialised platforms and digital registries created and new legal standards drafted to allow electronic bills of lading (eBLs) to be used instead. But adoption still lags behind, and for their efficiency to be realised across the majority of global trade, the concept of digital documents such as eBLs needs to be married to decentralised networks for trade finance.

The security issue

For documents not related to title transfer, the long-held argument that an original signed document is more secure than a digital version is extremely outdated. With the right protocols in place, a digital document can present a more private and secure option than its physical counterpart.

Even an uploaded PDF can be a “digital document” with the right controls in place. Using a decentralised network every member will have an immutable audit log for every transaction, with the uploading party taking responsibility for the documents they introduce to the network in the same way a sender can take responsibility through their signature. These security protocols will also enhance the time it takes to manage trade documents, allowing parties to track and match items to real-time data.

Scaling

There has already been phenomenal success in combining a decentralised network with electronic bill of lading solutions. Rather than seven days, the time from presentation to payment instruction can be reduced to 24 hours. However, for any of this to be achieved at scale, we need coordinated collaboration to ensure a new global digital standard can emerge, rather than a series of disconnected digital islands.

Fortunately, the industry is well on its way. The Asian Development Bank recently reported that 85% of banks are gearing up to serve the trade finance needs of more businesses through technology, addressing concerns such as inefficiencies and KYC, showing a clear demand for more efficient processes to be established in the sector.

While removing a few hours from overseas payments is a worthwhile goal, reducing a week from trade finance processes can have an even greater impact on businesses’ working capital efficiency and accelerating growth in the wider global economy.

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