1 Chapter 8 Instructor Shan A. Garib, Winter 2013

T ECHNOLOGY AND T RADE F INANCE Trade Finance and Technology: Context Trade Finance the Old Way  Around for hundreds of years eg Doc Let Cred  Trade finance is domain of banks largely because of costs Trade Finance and Technology  More efficient way of communication, to automated to virtualized trade finance

T ECHNOLOGY AND T RADE F INANCE Trade Finance and Technology: Context Trade Finance and Technology  Interoperability: ability of both systems and devices eg PDA to exchange information and support the functions of other devices  Leapfrog legacy technologies is a comp advantage Trade finance and messaging Globally accepted standardized messaging format through SWIFT introduced MT700 and MT400 series messages for doc let of cred and doc collections

T ECHNOLOGY AND T RADE F INANCE Trade Finance and Technology: Context Trade Finance and Messaging  The UN has UN/EDIFACT standard for trade related communication (formatting, processing, and transmission) both paper and trade messaging SWIFT  Brussels-based society for world interbank financial telecommunications Members are primarily telecom companies more now, corporations

T ECHNOLOGY AND T RADE F INANCE Trade Finance and Technology: Context SWIFT  Brussels-based society for world interbank financial telecommunications  Members are primarily telecom companies more now, corporations  Agree to formats and standards of communication and share infrastructure  Message formats eg 700 series message format for doc let of cred and 400 series for doc collections

T ECHNOLOGY AND T RADE F INANCE Technology the Trade Value Proposition  Search for new business and operational models in trade finance is b/c of these factors: Competitive pressures Traditional products use down eg LOC Narrowing profit margins Need for global reach Acquisition and maintenance of expensive systems and technology

T ECHNOLOGY AND T RADE F INANCE Technology the Trade Value Proposition  one challenge is that goods reached destination before documents so needed to catch up  Competitive and efficiently executed trade finance no longer a differentiator between providers  Expected now, timely payment and cheaply priced finance services

T ECHNOLOGY AND T RADE F INANCE Technology the Trade Value Proposition  Search for new models has four flavors: Virtualize Enhance/optimize current value proposition and processes Extend trade finance proposition further across a transaction Extend the value proposition further into a global supply chain

T ECHNOLOGY AND T RADE F INANCE Technology the Trade Value Proposition  Search for new models has four flavors: Virtualize –Guy tozzoli of New York port authority designed and build world’s first container port in NJ –Created TradeCard »Replicate traditional letters of credit process »Including security features for compliance »Called a “financial supply chain” –Another product/service is TradeBeam provides comprehensive solutions to Global Trade Management (GTM)

T ECHNOLOGY AND T RADE F INANCE Technology the Trade Value Proposition  Search for new models has four flavors: Enhance/optimize –Options to centralize global operations –By Outsourcing some trade operations –And Use high powered processing systems and workflow mgt solutions Proponix a JV of BMO, ANZ Bank and Barclays Bank and AMS –Offer full suit of trade processing capabilities to client banks

T ECHNOLOGY AND T RADE F INANCE Technology the Trade Value Proposition  Search for new models has four flavors: Extend –Now providers of TF also provide timely reporting –Take a holistic approach, end-to-end –JPMorgan acquired Vastera now is a domain expert on advice, logistics, compliance, and customs clearance etc…

T ECHNOLOGY AND T RADE F INANCE Technology and the Supply Chain Open Account  Eliminated attractive margins and removed lucrative risk mitigation features Supply Chain Finance  Global sourcing patterns concentrated in Asia  Payment cycles extended eg days sales outstanding (DSO) increasing

T ECHNOLOGY AND T RADE F INANCE Trade Finance: A Glimpse into the Future?  Four core elements: PMT facilitation Financing Risk Mitigation Provision of Information Facilitating communication between parties

T ECHNOLOGY AND T RADE F INANCE Trade Finance: A Glimpse into the Future?  Ebay has taken some steps to assess risk of trading with potential imp/exporter eg feedback profile  Platform provides software to assist with inventory mgt Includes dispute resolution, and ID top exporters by volume  Acquired PayPal adding PMT facilitation  Added online communication capabilities with Skype VOIP