Trade Finance Outlook
Innovation in Trade Finance: traditional business, new approaches
Interview with Enno-Burghard-Weitzel
Corporates are operating against a background of growing geopolitical instability, trade tensions and a slowing global economy. But are they underestimating the impact of this on their operations? Insights speaks to Enno-Burghard Weitzel, Cluster Lead Trade Finance, about how Commerzbank is adapting to help its corporate clients cope with the rapid changes in the trading environment.
Enno, let’s begin with the bigger picture. What trends are you observing in the global trade landscape?
Though the global economy is still growing, the rate of growth is declining. Furthermore, corporates are now operating in an increasingly complex political and regulatory environment – punctuated by trade tensions, political instability, sanctions and embargoes.
What are the consequences for corporates?
One of our biggest concerns is the extreme lack of awareness on the part of some corporates as to the real levels of risk involved in a given transaction. Worryingly, open-account business among corporates is still growing although the international alliances, and especially the WTO, promise less and less protection due to the inability of the arbitral tribunal to act. Thus, we suggest the use of risk-mitigating instruments, such as letters of credit. Banking partners should be active in offering support and advice to reduce their clients’ risk exposures in this regard.
What are the major initiatives that Commerzbank is undertaking to enhance its service to corporate clients?
Not only are we growing our correspondent network to become more active in certain regions, but our departmental silos have also been broken down and replaced with smaller clusters comprising of individuals across a range of specialties (business, development and operations). This more agile working environment has engendered a holistic approach to problem-solving, enabling us to tackle the unique challenges our clients face both creatively and efficiently.
How is this reflective of changes within the industry as a whole?
More broadly, we are seeing the banking industry transition from monolithic banking solutions to API-based microservices. This is enabling banks to combine a number of products to create an entirely new solution – often bespoke to each client. The cluster model facilitates the proliferation of these innovations by breaking down the silos that often stifle innovation within banks. In our view, all these initiatives share a common goal: to modernise our service delivery so that it truly meets our clients’s needs.
And speaking of modernising your service delivery, what technological innovations is Commerzbank supporting as a means of creating greater value for its corporate clients?
To reflect the environment that our corporate clients operate in, banks must offer faster support and more innovative tools to process transactions than ever before. As such, we are particularly active in the Marco Polo initiative – a joint undertaking between technology firms, the world’s leading financial institutions and their corporate clients – which offers a blockchain-powered solution to allow for the seamless and secure exchange of data and assets between participants. Through this initiative, we continue to make huge strides towards the digitisation of trade finance.
Earlier this year, for instance, we worked with LBBW to map, for the first time, two commercial transactions between the international technology group Voith, and the leading pump and valve manufacturer, KSB SE, using blockchain technology. One transaction involved the delivery of special hydraulic couplings from Germany to China and the other, the delivery of pumps within Germany. The process also, for the first time, incorporated Logwin AG, a logistic provider, directly and in real time. Sales and delivery data were agreed via the network, and payment terms secured by an irrevocable payment commitment triggered through automated data matching by Logwin - a feat of transparency made possible only via intelligent collaboration and technological advancements. The landmark transaction demonstrated Marco Polo’s ability to incorporate the usually disparate stakeholders within the supply chain network – for the benefit of our corporate clients.
What will be among the priorities during Marco Polo’s next phase of development in your view?
We need to look to further incorporate other stakeholders along the supply chain – such as insurers, port authorities and local chambers of commerce. For example, our customers can directly define detailed conditions for the payment obligation in the intelligent contract. In this way, everyone involved benefits from a better oversight of trade information regarding this specific transaction – everything from humidity readings in freight containers to insurance contract details. In addition, the payment can be triggered automatically at more and more steps of the transaction.
Of course, collating this granularity of detail and migrating all data from third-parties and intermediaries across to the Marco Polo network will take time. But investing in such infrastructure will reap benefits for all parties in the long-term, as it provides a more accurate means by which to demonstrate the cost and duration attached to a given transaction. It also reduces the margin for inconsistencies and errors across the supply chain which ultimately means less risk of delays or disputes for both sellers and buyers.
All of this will need to be supported by solid legal and regulatory foundations, of course – the frameworks for which take time to establish. A court of law, for instance, does not yet recognise an entry on the blockchain as legal ownership of cargo, and some ambiguity still surrounds the legal status of electronic bills of lading. While evidently traditional paper processes will not be rendered obsolete just yet, Marco Polo’s progress has certainly been impressive since its inception. It is the responsibility of banks to back such initiatives in order to generate further benefit for their clients; something which Commerzbank is fully committed to doing.