Innovation in trade: a digital frontier

In a world characterised by digital immediacy and transparency, trade remains heavily-paper-based, opaque, and for many SMEs, difficult to access. HSBC's Vivek Ramachandran explains how new technologies and collaborative mindsets are bringing trade firmly into the 21st century.

Expanding your business into new geographies is an exciting prospect - and one that an increasing number of UK SMEs are considering, given the domestic growth outlook. While working with new buyers or suppliers may be a part of the import/export challenge that companies relish, when it comes to financing trade and ensuring payment, companies often have concerns.

Trading across borders with unknown counterparties can be daunting - especially if you have chosen to trade on open account, where one of the counterparties simply takes the risk that the other will deliver on their commitment. Meanwhile, documentary trade, which relies on physical paper to provide proof of shipment and forms the basis on which financing can be obtained, is cumbersome and slow. There is also a perception among the SME community that documentary trade finance can be challenging to access.

The innovation imperative

Clearly, trade is an area ripe for innovation. Already, there have already been many attempts to digitise documentary trade, including SWIFT's recent Bank Payment Obligation (BPO) initiative, but few have made a significant impact - perhaps because they were looking to `upgrade' certain parts of the end-to-end lifecycle of a trade transaction, rather than revolutionising trade as a whole.

Today, new technologies like distributed ledger technology (DLT), often referred to as blockchain, could potentially change the way trade works from start to finish. Part of the reason why DLT is a good fit for trade is that it can help mitigate trust issues and provide a secure and verifiable way to exchange information, which are precisely the constraints that trade has traditionally faced.

The other positive of DLT is that it has given the banking industry an incentive to rethink how parts of the trade ecosystem work, and also how different parties work together. It is encouraging collaboration between banks, banks and FinTechs, and also between players like ports and customs authorities.

Digital trade chain

A great example of this is Digital Trade Chain (DTC), a joint initiative by HSBC and six other banks across Europe aimed at increasing global trade among SMEs. The solution, which is due to go live in 2017, seeks to address the challenge of managing, tracking, and securing domestic and international trade transactions by allowing real-time monitoring of various parties on the blockchain.

A UK exporter who is an HSBC customer could, for example, check whether a buyer is an existing customer of any of the member banks of the consortium - and thereby obtain a level of certainty over that customer's authenticity. The purchase order for a trade can also uploaded onto the DTC ledger, together with invoices, so that financing can be provided quickly.

DTC will therefore make it cheaper, easier and faster for companies to buy and sell internationally, with financing and risk mitigation in place. The consortium approach harnesses the power of scale by connecting a significant number of SME's with each other. Over time, the founding members want to expand this to more banks.

Leading the way

Another example of innovation that is making trade easier for SMEs is HSBC's GTRF Direct, which was recently launched in the UK. At a simplified level, it allows HSBC to remotely engage with clients, perform all the functions of a face to face meeting with the help of dynamic screen sharing and simultaneous digital document exchange capabilities. This means that any query over a clause in a trade document, for example, can be ironed out in a very user-friendly way that is time-efficient for everyone. It also means that clients can be educated about key products and their benefits in a consistent manner using standard digital material and tools like pricing calculators built along the client journey.

The proposition has helped significantly reduce the on boarding time for new customers from >100 days to 30 days and is anticipated to save 6,000 hours of travelling time for our UK BDMs every year.

The feedback from the customers has been overwhelmingly positive, with clients reporting a dramatic improvement in their overall experience. As such, not all innovation needs to be revolutionary, simple innovation can be beneficial too.

We are now expanding this proposition to 5 further key sites across the network including Mexico, US, France, China and Hong Kong.

And as the world's largest trade bank, we believe that it is our role to foster innovation - large and small - that encourages trade growth. We also believe in proactively leading the industry towards new ways of working that not only facilitate more trade but also make it easier for SME customers to buy and sell internationally.

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