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How Capgemini is Helping Banks Transform Trade Finance

 

Improving efficiency and reducing manual processing of trade finance services has been a difficult challenge for over a century. However, the industry is on the cusp of a transformation which promises to standardize and automate this highly idiosyncratic, manual ecosystem. This blog identifies some of the key trends in trade finance transformation and how one vendor, Capgemini, is supporting banks in this transformation.

Trade finance industry trends

The trade finance industry is undergoing multiple, concurrent changes, including changes in participants, routes, underlying products, and communications channels.  These changes  require the underlying processes to become digitalized. However, the increase in stakeholders and process complexity inhibits the implementation of the changes required. Key industry changes include:

  • Continued growth in trade finance volumes. Headlines trumpet a trade war which may end up being very temporary. However, even a trade war will drive increased trade finance activities as alternative routes require increased levels of finance to support standing up new supply chains.  Current processing is manually delivered by experts who developed their skills on-the-job. Scaling these resources, as industry volumes are expected to grow faster than the world economy, will be impossible without long lead times (more than a decade)
  • Shift from product-based to services-based trade. The shift in underlying goods traded will necessitate new skills which cannot be taught on-the-job, at any scale
  • Shift to usage-based contracts from ownership-based contracts. These contracts will also require new skills to process. In addition, the change to usage-based contracts will lengthen the amount of time the LOCs will remain outstanding, as well as changing the conditions for a drawdown
  • Shift in shipping routes (Atlantic trade to Pacific trade, Northern hemisphere to Southern hemisphere). Trade finance practices vary by trade route. The shift of volumes to emerging routes will shift the skillsets required at scale 
  • Growth in digital and omni-channels The shift of business processes to digital channels will necessitate a shift in business practices for trade to a digital environment.   

These changes necessitate the following digital transformation requirements:

  • Standardize and automate processing
  • Allow adaptation of processing by route and channel
  • Process new underlying product types, primarily services

Below I look at two client cases from Capgemini and how both engagements addressed these three digital transformation requirements.

Top 5 global bank based in the U.S.

  • Challenge: automate and enhance the processing of trade finance operations:
    • Assess and recommend a trade finance solution which would automate processing and provide “best-in-class” functionality
    • Ability to process non-traditional products.
  • Scope:
    • Assess six solutions and activities at five competitor banks
    • Assess ability to process non-traditional products including open accounts, dynamic discounting, early payment, e-invoicing, supply chain finance.
  • Benefits:
    • Rigorous multi-stage selection process for solution
    • Identified and selected optimum solution which automated existing manual tasks and added capability to process new product types.   

Large European bank

  • Challenge: change the operating model for structured finance of commodities under conditions of changing regulation and business environments
  • Scope:
    • Review documentation of as-is processes
    • Analyze unique characteristics of structured trade finance processes
    • Analyze evolving compliance requirements
    • Address stakeholder constraints/concerns
    • Develop a target operating model to digitalize the processes.    
  • Benefits:
    • Reduced headcount by six FTEs
    • Reduced costs by $1.5m across APAC region
    • Increased operational efficiency.

Summary

These cases highlight how digitalization of trade finance requires automation, adaptation by channel, and enablement of new product types. The existing state of highly manual processing allows very large efficiency gains for a successful transformation. Challenges to successful implementation include:

  • Many solution vendors are developing offerings, which requires expertise to assess relevancy and quality for the banks
  • A bank’s business roadmap is becoming increasingly important as operations transformation must mesh with bank product services (e.g. support for open accounts and dynamic discounting). Synchronizing business and operations roadmaps requires two disparate executives teams with differing incentives and drivers to agree to compromise on their internal roadmap for the good of the organization.    

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