Treasury Today Country Profiles in association with Citi

ANZ

Sponsor Interview: 
Hari Janakiraman, ANZ

Hari Janakiraman, ANZ

With strides being taken towards digitisation across the financial services industry, one area that has traditionally lagged behind is trade, but this is beginning to change. In this interview Hari Janakiraman, Head of Global Core Trade Product, ANZ talks to Treasury Today about how digital innovation is beginning to transform the trade arena and solve many of the challenges that corporates face today.

Hari Janakiraman

Head of Global Core Trade Product

Hari Janakiraman is the Global Head of Core Trade Products at ANZ. He is accountable for overseeing the Product P&L, Product Strategy, Product development, Policy and Innovation in all Core Trade Products across all geographies and customer segments of ANZ.

Janakiraman is an internationally recognised expert in Trade Finance and is actively engaged in industry forums which help shape trade finance industry. He is currently the Chairman of Australian Banking Committee of the International Chamber of Commerce (ICC). Janakiraman is one of the four technical trade advisors to the International Chamber of Commerce (ICC) and currently co-chairs the ICC’s drafting group on factoring rules.

Trade has traditionally lagged behind cash management when it comes to innovation. Why is this and what does innovation in the trade space actually look like?

There have been a number of positive innovations made in the trade space over recent years. For instance, supply chain finance (SCF) technology has developed enormously. In addition, online portals delivered by banks, or by banks working with third-party intermediaries, are now the norm and these allow for receivables and payables financing to be simpler and more efficient. But, I agree that when compared to other areas of the financial services industry, such as payments, trade has lagged behind in regard to digital innovation.

There is a good reason for this however, namely that the current methods work, and are broadly effective. As a result, customer demand for innovation perhaps hasn’t been as strong as in other areas of treasury. This has typically led banks to be more cautious in investing in digital trade technology, especially given how ingrained paper is along the value chain.

Nevertheless, I think that, as an industry, banks are beginning to understand that by going digital, they will have an increased visibility over the end-to-and physical and financial supply chain, making it possible to intermediate in the chain at a much earlier stage than they do today, and thereby giving them a greater role in the process.

For your corporate clients what are the big issues regarding trade that they are currently trying to solve? What digital tools has ANZ developed to overcome these challenges?

The current paper-based nature of trade finance presents a number of challenges for our corporate clients. Going digital can reduce risks to a certain extent by providing visibility and transparency into the transaction and allowing all parties to see who did what and when.

Given the increasing pressure on the corporate treasury in the wake of the financial crisis, visibility over their requirements has become a key requirement. As a result of this, corporates across the world have invested in digital products that provide this visibility, primarily over their cash and payments, through a single window. The heavy use of paper in trade finance however means that, for the most part, treasurers are unable to view their trade activity in the same way, requiring the data to be manually uploaded or managed.

To solve this challenge, we have developed a tool that provides our clients with information around their trade flows digitally. But, many of our clients are multi-banked and while achieving full visibility with one bank is a good start, achieving visibility across multiple banks is the Holy Grail. We are therefore investing in tools that cut across banks, allowing a corporate’s entire trade book to be viewed (including those that ANZ aren’t involved in) through a single window.

The move towards digital, and the proliferation of new products such as the bank payment obligation (BPO) and BPO+ (a BPO combined with an electronic Bill of Lading) will also enable corporates to drive greater straight through processing (STP) in their trade activities. At ANZ we believe this is a revolutionary product and have invested heavily in developing a truly automated end-to-end solution. Due to this work, we have already been involved in a number of high-profile BPO transactions and are seeing an increased amount of interest from our corporate clients.

Why does ANZ see the BPO as a revolutionary product?

The BPO is an irrevocable undertaking given by one bank to another bank that payment will be made on a specified date, following a successful electronic matching of specified data (such as goods delivery). It functions in a way which is similar to both the letter of credit (LC) and open account settlement, but there are a number of crucial differences that offers benefit to both the buyer and the seller.

Firstly, it offers improved risk mitigation over traditional instruments because purchase orders are agreed at the very outset using a data matching application – such as SWIFT’s Trade Services Utility (TSU) – minimising the risk of confusion arising between counterparties further down the line. Next is the assurance the solution provides for sellers that they will be paid in full and on time. Unlike trade on open account, which offers no such assurance, the BPO functions rather like a confirmed LC. Finally, there is an opportunity for the seller to use the BPO as collateral for pre and post-shipment financing because once the obligor bank has issued the BPO, the recipient bank knows that, providing their client ships the goods, repayment is covered.

When the BPO is combined with electronic documentation, as was the case in our recent BPO+ transaction, it becomes very powerful. To date, although being regarded as a digital product, the BPO has been very paper-intensive. As a result of this, the process still required lots of manual intervention; including the keying in of data into the SWIFT TSU. This was not only highly inefficient but posed a greater risk of mistakes being made. Moreover, it also slowed down the transaction because documents had to be sent manually once there was a positive data match – again inefficient. The BPO+ transaction, however, utilises electronic documentation that is released and sent instantly upon a positive match in SWIFT TSU, removing the need for human intervention and creating a true end-to-end automated digital solution.

Despite its revolutionary properties, adoption of the BPO has been sluggish thus far. What more needs to be done to bring it into the mainstream?

The drivers for adopting the solution are clear; it provides great efficiency opportunities, reduces the documentary risk and increases visibility for both buyers and sellers. But, it also means the buyer has to pay earlier than they would traditionally because of the increased efficiency of the BPO. In many cases the buyer does not want to do this, thus creating a barrier to adoption. I therefore believe that the primary reason for the slow uptake of the BPO is that businesses are still trying to establish its commercial viability.

The answer to removing this barrier is simple; the seller needs to offer something to the buyer, perhaps a discount for early payment. Thankfully, we are beginning to see these conversations happen and I believe that once this barrier is broken through, and both parties understand there needs to be some give and take, then it will become more widely used by corporates.

In the meantime, more work can be done by banks to promote the BPO, but this does require further training and education to be provided to bankers to ensure they correctly explain the advantages of a solution. I believe that to date, as an industry, we have not done enough to explain the benefits to customers, especially on the open account side where the BPO can offer a cheaper alternative than using an overdraft or trade loan, something that is not always made clear.

Finally, the BPO is still a product in its infancy and not all banks are currently BPO-enabled, and even those that are haven’t all participated in transactions. For it to gain further traction this needs to change. But, this may take some time due to the complex world that banks are currently operating in which is causing them to narrow their focus and strategy, meaning that a new product such as a BPO will not likely be a priority.

A number of recent innovations in banking have been facilitated by specialist ‘FinTech’ firms, including the recent BPO+ transaction. What role do these firms have to play in the future of the trade?

It is our view that these companies should not be seen as competitors and instead should be collaborated with in order to develop cutting-edge digital solutions.

There are two key reasons for this. Firstly, these companies bring in new innovation and technology without banks having to spend vital resources on research and development. Also, they are not tied down by the heavy infrastructure of banks, enabling them to think outside the box and develop tools banks may not be able to.

Looking ahead, how do you see digital solutions further impacting the trade world?

In the long term, I believe that digitisation and innovation will transform trade finance and we will see more-and-more interactions between banks and customers occurring digitally. That being said, I don’t think documentary trade business will completely vanish because it is too big and involves too many players.

The speed and scale of the change will be driven by supply and demand and therefore progress might be slow in the next two to three years for many of the reasons I mentioned earlier. For banks to really push the digital agenda, corporates need to demand innovative tools such as SCF and the BPO, because for these to work and be efficient, paper needs to be removed. In adopting these solutions and pushing them down the supply chain it will also drive down the associated costs, making them more accessible to the mid-market and SMEs – ultimately benefiting the industry as a whole.

Reader Comments 

Please login or register to submit your own comment