Treasury Today Country Profiles in association with Citi

ANZ

Trading paper for precision: seizing the digital advantage in the trade space

The trade and supply chain space is ripe for disruption in so many ways. But how can this be achieved and to what effect? ANZ’s trade experts, Michael Lim and Hari Janakiraman, consider digitisation in this key function and explore the future prospects.

Portrait of Michael Lim

Michael Lim

Head of Trade & Supply Chain
Portrait of Hari Janakiraman

Hari Janakiraman

Head – Trade & Supply Chain Products

Some aspects of life just seem to be fixed. A casual look at the trade and supply chain space would reveal a set of underlying processes that haven’t greatly altered over hundreds of years. Paper is still king and the humble fax is still much in evidence as a means of sharing documentation.

“Trade is probably about 20 years behind from a technology perspective,” notes Michael Lim, Head of Trade & Supply Chain at ANZ. The chief reasons for this lag, he believes, are more commercial than technology-driven. Progress in most international transactions is largely suffering at the hands of an over-populated chain of participants.

The will of so many actors to move forward is yet to create a kind of tipping point but it really ought to. “Given that we still see so much paper in the sector, the opportunity to apply new technologies, generate efficiencies and improve the customer experience is huge,” Lim states.

Gathering pace

To be fair, this opportunity has not gone unnoticed and the feeling is that a competitive momentum is building. With an increasing number of fintechs showing interest in this space, there is acknowledgement by leading banks and financial institutions (FIs) of the need to adapt to the digital agenda to remain relevant, says Hari Janakiraman, Head – Trade & Supply Chain Products at ANZ. “We are seeing more banks investing in technology companies to ensure they are in the driver’s seat.”

Indeed, many banks, including ANZ, have a stated objective to promote the digitisation of trade. This is generating much more support within these organisations to come up with relevant initiatives.

In addition to the impetus given to the trade space by the competitive agenda, there has been increasing attention from governmental and regulatory bodies, notes Janakiraman. There has been active interest, support and leadership from stakeholders such as the Monetary Authority of Singapore and the Hong Kong Monetary Authority. This has seen the establishment of a number of working groups and initiatives willing to provide seed-funding as a means of stimulating involvement in the drive to digitise.

With regulators and major industry participants all pushing in the same direction, it would certainly seem that a collective momentum to digitise the trade space is driving progress. “We are now seeing change in a more productive way,” comments Lim. “Progress is much more organised and a lot of the banks have come to the conclusion that the best way to deliver on the benefits of digitisation is to cooperate because the real value is, ultimately, in getting the broadest network of participants.”

Points of progress

In practical terms, the focus on technology has given rise to a number of broad approaches. Highlighting three in particular, Lim acknowledges that the removal of paper will be a key target when it comes to optimising trade processes.

The conversation around distributed ledger, and in particular blockchain, looks increasingly promising in this respect, he notes. This is exemplified by ANZ’s recent blockchain trial that digitised the bank guarantee process for commercial property leasing. The trial, in collaboration with Westpac, IBM and Scentre Group, has proved such a success that it is now being moved through to the pilot stage. However, while distributed ledger technology is going to play a greater part over the next few years, even as industrialised flows of data in this space ramp up, Lim feels paper “will be around for quite a while yet”.

The rise of the third-party platform, although not new per se, is another key development, especially in the supply chain financing specialism. The reason is simple: corporates that are multi-banking across multiple jurisdictions are not interested in managing commensurate numbers of banking platforms if they can avoid it. The role of these platforms in consolidating trade processes is, Lim feels, indisputable.

Perhaps one of the more scientific recent developments in the trade space is the application of machine learning. With computing power and data storage having reached a critical mass and affordability, machine learning – where computers understand and process without being explicitly programmed – is a distinct possibility in ever more applications. Its adoption, notes Lim, will help trade practitioners on all sides of a deal to be a lot more efficient in capturing, using and automating their existing manual processes and data flows.

But it will be the willingness of the various stakeholders to cooperate and keep aside their competitive differences that will truly be ground-breaking, says Janakiraman. The creation of a more open environment has been noted in the last few months as a number of banks have announced partnerships and collaborative networks.

But it is the rate of development here that is most interesting. It looks like technology is both enabling and compelling the banks into collaboration. This is perhaps on the understanding that if partnerships are not agreed between certain players, then certain other players who are cooperating will seize the initiative and win the business. As Lim comments, “If the industry is to evolve, it cannot be done alone”.

Joined-up thinking

Bringing organisations and technologies together to achieve a cohesive end-to-end game-changer for clients will not work without a digital strategy. ANZ’s internal discussions led it to conclude some time ago that customers want self-service, ease of access, a transparent and reliable service, fast execution and surety of funding. Its approach to the digitisation of trade reflects these multiple needs.

The efficiencies and the cost savings for the bank will naturally be derived from transformative technologies such as distributed ledger and machine learning. Individually, these can offer a more instantaneous way of doing business over “shuffling bits of paper from office to office”, notes Lim. The provision, for example, of deeper insight for customers through data analysis, is thus a strong motivational force to bring them to market.

It is true that these technologies are subject to ongoing development, but even in the interim they can be used to automate selected labour-intensive processes. On the paper reduction side alone, there’s a potential 30% to 50% turnaround time saving for customers.

However, says Lim, as the digital future of these tools becomes reality, and their respective benefits are brought together – just as banks must work together – then the real transformation of trade will take place.

One area where the power of combination is yet to be fully revealed is in the Internet of Things (IoT), says Janakiraman. “We are looking at how we can embed RFID/chip technology into various parts of the supply chain to ensure the entire process becomes visible to the bank,” he explains.

This would not only eliminate the need to receive paper-based information but, in creating full process visibility for the financier, risk management enhancements are achieved. This has an important customer benefit.

The term ‘RegTech’ has entered the common lexicon in recent months. Trade has a lot of opportunity to exploit robotic process automation (RPA) as a means of harvesting and analysing regulatory data in real time, says Janakiraman. Better understanding of risk equates not only to faster, better and more cost-effective compliance but also, as a result of such efficiencies, the opportunity to make improved funding offers for clients.

Visible benefits

Indeed, the overarching benefit of digitisation can be seen in the drive towards greater depth of trade financing across the board. IoT, RegTech and RPA and all the other new technologies can combine to give unprecedented visibility with a positive effect on risk-based funding decisions.

But deeper visibility and process improvements also mean funding solutions that were previously only made available for higher value transactions (because of their administrative cost), suddenly have commercial viability lower down the value scale.

The availability and tracking of multiple sources of trade data in almost real-time also provides improved opportunities to support sustainable finance programmes, where provenance of raw materials, for example, is vital.

This, notes Lim, demonstrates the capacity of big data analytics in tracking every redistribution point, or node, in a supply chain. “Once you have that level of data and visibility, it makes it a lot easier for a business to quickly identify where inefficiencies and potential losses are taking place.”

The efficiencies and the cost savings for the bank will naturally be derived from transformative technologies such as distributed ledger and machine learning. Individually, these can offer a more instantaneous way of doing business over “shuffling bits of paper from office to office”.

Michael Lim, Head of Trade & Supply Chain

Many large and sophisticated corporates have been able to accumulate detailed trade data from counterparties and from banks and can use this to provide visibility and analytics across, for example, their accounts payable and receivable. They might then use this insight to match and optimise their use of trade finance facilities.

This has not commonly been available for smaller to mid-tier corporates and those from emerging countries, especially those with multiple banking relationships, says Janakiraman. As trade data becomes more accessible through the advent of new technologies, the benefits enjoyed by the larger corporates will become available to a far wider cross-section of the trade community. “This will give them a level of visibility they have never had before, helping to level the playing field.”

All pull together as a team

In helping corporates make informed decisions on funding and even purchasing, disruptive technologies, and the will of banks to cooperate and create a functioning ecosystem for all trade partners, are essential. But the regulators too must all pull together to create the desired global trade proposition.

“There is a lot of work that needs to be done to update regulatory and legal frameworks to support the aims of trade,” suggests Janakiraman. “There are still debates around whether a digitised bill of lading has the same weight as its paper counterpart. There are still debates between certain countries as to what is acceptable as a digital document. These debates need to move on.”

The ICC is reviewing standards of trade document creation, drilling down for example into what constitutes a digital invoice. This level of granularity is complemented by its push to organise working groups looking at broad policy recommendations for governments and regulatory bodies. With the likes of ANZ fully on board, it is reviewing how digitisation may be best facilitated. It is also considering how its own ICC business rules need to be revamped to encompass the future exchange of digital trade documentation.

The banking community has a reflective task too, says Janakiraman. Where banks agree to form trade networks, certain anti-competitive issues may arise. All such agreements must be conducted with the utmost transparency, he insists. “It needs to be clear to all stakeholders that this is not about forming a cartel but servicing the client and benefiting the community.”

A waiting game

The technologies referred to earlier are in development in the treasury context; they are practicable solutions in the making. “From ANZ’s perspective, we are operating on the expectation that truly commercialised and industrialised digital trade flows will be a reality, potentially within three to five years, closer to three,” says Lim.

It is well understood that paper will not be removed from the equation completely, and certainly not within that timeframe. However, Lim believes that there will be a more rapid transition to digital flow in the trade corridors and sectors where proactive government and regulatory bodies are working with the industry and financial sector to drive that change.

Here he pays particular attention to the flows in and out of the markets of Singapore and Hong Kong, where the regulatory authorities are indeed proactively supporting the digital agenda. Lim also suggests that advancement will be more notable where there are large concentrations of industry players that are prepared to use their scale to both drive progress and materially benefit from the efficiencies of digitisation.

ANZ in the real world

Wherever progress is seen, it will be at the invitation of the end-users and not the banks, says Janakiraman. The broad ANZ policy on technology is, he explains, about enhancing the customer experience through self-service, connectivity and speed based around its channels’ data-processing efficiency.

It is the ANZ approach that if there is an issue to be resolved, then it will work with a group of customers to find the best solution. Under this model, there is no developing a product in isolation and then hoping to find a real-world problem for it to fit.

This understanding sits at the heart of the ANZ approach to the world of trade digitisation. “We invested our time and resources to develop the Distributed Ledger Technology Guarantees Proof of Concept because it solves a genuine customer and industry problem,” explains Lim. “Our aim is to make sure we are focusing on enhancing the customer experience and everything we do is designed to deliver for our customers.”

Reader Comments 

Please login or register to submit your own comment