With a market capitalisation of over €90 billion, Santander is one of the world’s top 10 financial groups by market value. Santander operates in continental Europe, the UK (under Abbey) and Latin America and has 69 million customers worldwide. This month we speak to Federico Papa about developments in global trade and Santander’s supply chain solutions.

Federico Papa is Managing Director and Global Head Trade, Export & Commodity Finance at Banco Santander. He reports to Carlos Rodriguez de Robles, Managing Director and Head of Global Transaction Banking within Global Banking & Markets.

Prior to his current responsibilities, Federico was EMEA Head Cross Border Structured & Commodity Finance at ABN AMRO Bank in London and before that Latin America Head for the same line of business in Sao Paulo, Brazil. In 15 years of international banking and structured finance experience, he has held several positions in the US, Europe and Latin America.

Federico graduated as an Economist from the Universidad de la Republica in Montevideo, Uruguay and holds an MBA from the Kellogg School of Management at Northwestern University. He currently lives in Madrid with his wife and two children.

Where is Global Transaction Banking positioned in Santander Group?

Global Transaction Banking is situated within Global Banking and Markets, the wholesale banking arm of Santander Group.

Global Transaction Banking has a global remit to deliver transaction banking services to Santander Group’s large corporate and international financial institutions. Global Transaction Banking covers the following product areas which work together closely to deliver seamless customer solutions:

• Cash Management
• Trade, Export & Commodity Finance
• Working Capital Finance

As the international bank with the largest number of offices in the world, it is entirely logical that international cash management and trade should be key elements of our customer proposition. We have brought our structured trade finance solutions under the same roof as Cash Management and Trade Services, in order to ensure a one stop shop for our customers who trade internationally. Our Trade, Export & Commodity Finance team delivers specialist solutions, covering a range of asset classes, such as Export Credit Agency backed facilities, as well as structured trade and commodity finance solutions, in addition to classic documentary trade services. In this way, Santander is expanding as a global player with its foundations firmly in its core markets (Europe and Latin America) and supporting its clients in Asia, Middle East and other emerging markets.

What is Santander’s value proposition and how do you differentiate yourselves?

We take a holistic approach to delivering solutions to customers’ cash and trade needs. We are creating solution-oriented teams combining the skills of our product specialists and sales teams with an understanding of our customers’ industries. We are mindful that the world of transaction banking is undergoing important changes, driven by the need for lower processing costs and efficient working capital solutions. Cash and trade are converging and our customers increasingly seek a total package; for example, covering regional liquidity management, international supply chain finance and local banking services across a range of countries, including T&E card solutions.

In this way, we can act as a gateway to banking in the geographies where we are strongly represented, in particular Latin America, Spain and Portugal, while helping our customers to trade efficiently with other regions. Within Global Transaction Banking one of our key roles is therefore to co-ordinate our solution delivery across a number of Santander units internationally, to ensure the best possible solution for our customers and provide them with a single point of contact for transaction banking needs.

We believe the key difference in our value proposition is that we can deliver local expertise in a range of important emerging markets, along with global reach in relationship management. Similarly, in trade we are strengthening our structuring capabilities in Export Finance, typically supported by Export Credit Agencies (ECAs) as part of non-recourse deals and project finance. This is enhanced by our ability to underwrite large deals in our core markets to finance acquisitions and large capital expenditure programmes, based on underlying export flows.

What trends do you see in global trade?

We are redefining our value proposition in the light of important market trends in world trade, driven by the globalisation of procurement and ‘lowest cost country sourcing’. Cross-border trade is growing fast, having quadrupled in the last 20 years. On the other hand, overall documentary trade volumes, letters of credit (L/Cs) and documentary collections, have remained flat over the last six to seven years. This stability in documentary trade volumes masks some interesting details:

• In emerging markets documentary trade is actually going up.
• Middle market usage of L/Cs is also rising.
• The average value of L/Cs is rising.
• At the top end of the market, some large corporates are trying to move away from L/Cs, given their perceived costly and paper intensive nature.

However, documentary trade remains very important, indeed an essential part of cross-border trade, in many of the markets where we operate – in particular emerging markets and regulated countries where exchange controls are in force. Therefore, we recognise the importance of an efficient documentary trade service at Santander. Similarly, in other more advanced economies and indeed at the beginning of new trade relationships, especially between distant counterparties, L/Cs provide added comfort for both the importer and exporter.

For these reasons we consider that documentary trade will continue to be important to many of our customers for a long time to come. It is the way of delivering these documentary trade services which is evolving and this is where we need to ensure the smart use of web-based technologies to streamline processes, minimise timescales and cut costs. It is also noteworthy that the potential downturn in the credit and commodity cycle could create valuable opportunities for structured deals in our Trade Export & Commodity Finance group.

How are you using technology to support your customers?

Celent estimates that 8% of the value of total global trade is spent on processing and finance related costs. This explains why corporates are so keen to find ways to cut costs by reducing the volume of paper involved in their trade transaction processing. We see this as a step by step migration away from burdensome manual processing of paper towards more efficient straight through processing of data.

This evolution from paper to electronic processing is relevant both in cash management and trade, although to date cash products have in general had greater success in cutting costs and migrating to electronic delivering, with higher levels of straight through processing (STP) .

Santander has a good reputation for its use of technology in driving improved efficiency, as reflected in our strong cost/income ratios. In Global Transaction Banking Cash and Trade we are placing great emphasis on the efficient use of technology to enable improved solutions and customer satisfaction. For example, we are developing Regional Liquidity Management and Payment Hub solutions which enable streamlined cash management and lowest cost routing of payments and collections into local clearing systems.

This includes our SEPA solutions, with pan-European reach. We are also rolling out electronic delivery of trade solutions, so that it is easier and more cost effective for corporates to manage import and export L/Cs, as well as standby L/Cs. In Mexico, for example, the use of web delivery for L/C issuance and discrepancy management has helped grow our market share significantly.

Do you see any other changes in global trade?

Exciting new trade flows are emerging. Of particular interest to many customers of Santander Group are the export flows to Asia for Latin American commodity producers. China is the world’s largest consumer of copper, zinc, iron ore and steel. Santander is already the largest financial institution in Latin America and we are now focusing on extending our presence in Asia, with the creation of branches and representative offices in key centres such as Shanghai, Beijing and Hong Kong. Our Trade, Export and Commodity Finance Team already has a presence in Hong Kong.

We are also launching new web-based products which allow our Western importers to view and approve trade documents, hence enabling Asian exporters to get paid quicker under discounting facilities.

To what extent are your customers focusing on streamlining the financial supply chain?

We see an important trend in the consolidation of the physical and financial supply chains. Our customers are increasingly driven by working capital management metrics such as minimising Day Sales Outstanding and Days Inventory Outstanding, while extending Days Payables Outstanding. We are particularly well placed to help our customers here, since Santander already has nearly 20 years’ experience of a supply chain finance solution known as Confirming, already used by over 250,000 buyers and suppliers.

Essentially, this solution is a form of reverse factoring which enables suppliers to obtain early settlement of invoices without recourse, while buyers are able to extend payment terms or negotiate a reduction in cost of goods. We are a market-leader in Spain, Portugal and Latin America and we are currently extending the range of geographies where Global Confirming is available, hence ensuring efficient working capital management for our clients and their suppliers internationally.

How do you see supply chain solutions evolving?

There is undoubtedly a continuing movement towards electronic delivery of trade and cash services. Here we have a strong competitive advantage, thanks to our deep expertise in various forms of Confirming where we have already achieved significant volumes and country coverage. We therefore see an opportunity to deepen our involvement in the supply chain through e-invoicing solutions.

What do you think of SWIFT’s latest initiatives in cash and trade?

SWIFT is a highly valued partner for Santander Group. We are actively involved in SWIFT’s initiatives such as Corporate Access, using MA-CUGs or SCORE, given the benefits for our customers by way of standardised, secure and resilient bank connectivity, enabling improved STP. This has proved an attractive proposition for a growing number of our large corporates. We even have large customers sending us files of confirmed invoices via FileAct which we then discount to suppliers, under our Global Confirming solution. This is a good example of how we are joining up cash and working capital finance solutions for our customers.

Given our focus on trade, we are also participating in SWIFT’s global trade initiative Trade Services Utility (TSU). We would expect to see this gain momentum and we are looking forward to Release II of this product. In 2008 we will see the launch of Bank Payment Obligations, whereby a bank can provide an undertaking to another bank that it will make a future dated payment, provided documents presented through the TSU are matched. This will enable a highly streamlined form of supply chain finance, where corporates effectively outsource the automated matching of trade documents, such as purchase orders, commercial invoices, shipping documents and insurance certificates. This initiative will enable individual banks to meet the needs of both ends of a supply chain (ie buyer and supplier), with significant efficiency gains and bottom line benefits for all parties.

On the other hand, TSU will also enable banks to work closely with partner banks to improve the working capital of their customers.

Any concluding comments?

With all these changes and exciting challenges, transaction banking is certainly the place to be! By bringing together our transactional and structuring capabilities in Trade, Export and Commodity Finance, Santander is positioned to serve our clients globally.