Global trade has had a tough few years, what with supply-chain disruptions, geopolitical tensions and sustainability challenges. Corporates have had to adapt to this new reality, and banks have had to evolve as well.
HSBC, the world’s largest trade-finance bank by revenue, launched Global Trade Solutions last month, a rebrand of its long-standing Global Trade and Receivables Finance (GTRF) business. The bank is moving beyond being a product provider and financier to offering more comprehensive and tailored solutions for clients.
“There’s a much broader role for banks like us to play to help clients with these changes,” says Vivek Ramachandran, HSBC’s head of global trade and receivables finance. “And so the branding reflects both where we are, but also where we are going.”
In 2023, HSBC facilitated $850 billion in trade. Global Trade Solutions focuses on three key areas: digitalization and automation of traditional trade finance; structured solutions for emerging business models; and embedded finance as a key growth driver.
The bank launched two new trade-finance products last year: automated guarantee issuance and Tradepay.
Guarantee issuance, traditionally a paper-heavy process, has been streamlined from three or four days to mere minutes by virtue of straight-through processing (STP). Although only tens of guarantees are currently issued this way, HSBC aims to reach 25% in the next couple of years.
“You’re never going to get to the majority of guarantees,” says Ramachandran. “They will still involve some human intervention at some point. But if we get to 25% of guarantees issued being STP, that would be a game-changer for the industry.”
Tradepay – a digital solution that enables clients to draw down loans and make just-in-time payments to suppliers – has already achieved scale since its launch in September 2023. It has launched in 11 markets and converted over 120 clients between September and December 2023, with assets expected to exceed $1 billion within the next month.
Blockchain versus APIs
The bank is looking to digitalize specific links in trade and trade finance, rather than pursuing an all-encompassing, end-to-end solution.
While blockchain technology was once touted as the ultimate solution for digitalizing and automating trade processes, recent years have witnessed setbacks in its adoption. The shutdown of high-profile blockchain-driven projects such as we.trade and TradeLens prompted banks to shift their focus towards application programming interface (API) connections as a means to leverage existing infrastructures and bridge digital islands.
The sluggish adoption of blockchain-driven platforms can be attributed to a chicken-or-egg dilemma, where there is little incentive for early adoption. Overcoming this predicament has proven to be a complex challenge for the industry.
For now at least, the future lies in the interconnectivity of various systems, likely involving a combination of both centralized and distributed ledgers, as well as the integration of new and existing platforms.
“I don’t think we’ll end up with one distributed ledger,” says Ramachandran. “Instead, we will have multiple reliable systems interconnected through APIs.”
There’s a much broader role for banks like us to play to help clients with these changes. The branding reflects both where we are, but also where we are going
Vivek Ramachandran, HSBC
He also believes that the industry may overestimate short-term changes and underestimate long-term transformations.
“[Digitalization is] not going to happen overnight,” he said. “It’s going to happen over three, four, five years. And it won’t be one big change that makes it happen. It’ll be an evolution.”
In the meantime, banks such as HSBC are aligning themselves with government-led initiatives.
Ultimately, the success of digitalized trade hinges on the establishment of common global digital standards and the legal frameworks necessary to enforce them. The latest development is the UK’s Electronic Trade Documents Act, which came into force in September 2023.
HSBC’s progress on API connectivity is evident, with over a million API calls in 2023, a 350% increase from 2022, and a six-fold increase in clients actively using APIs to access trade products.
The bank’s API-led journey for supply-chain finance has also seen good growth, with enterprise resource-planning (ERP) integrations completed for 30 clients by the end of 2023, enabling real-time feeds and automated same-day supplier on-boarding and financing.
Despite the growing prevalence of APIs, Ramachandran emphasizes that they are not a replacement for blockchain technology. He believes that certain aspects of blockchain, particularly its ability to ensure the immutability of transactions and prevent data alteration, will continue to play a crucial role in the future of trade finance.
Structured solutions
The bank is also focused on structured solutions, particularly in the rapidly growing services trade sector.
“When we talk about trade, you think of containers and shipped goods,” says Ramachandran, “but actually, trade in services is growing much faster.”
Ramachandran points to a recent meeting with a client in Hong Kong who was a garment manufacturer but is now expanding into selling automation technology and software to other companies and countries.
HSBC’s Global Trade Solutions platform caters to clients like this, offering support as they venture into the software-as-a-service (SaaS) industry.
In the SaaS model, providers need upfront investments but generate income from monthly or yearly subscription fees. Their financial stability can be heavily dependent on the financial health of their key customers.
“Helping companies monetize these contracts and accelerate cash is where we come in,” Ramachandran explains. “We need to understand the relationship between the buyer and seller, the nature of the industry, the nature of the contract, and how cash flows can be accelerated.”
Embedded finance, approached through collaborations with fintech firms, represents the smallest but fastest-growing segment of HSBC’s new trade platform. The concept leverages third-party data – such as sales and inventory data of merchants on platforms like Amazon – to streamline credit assessments and financing decisions. The financing process will also be embedded into the third-party platform, rather than redirecting customers to the bank’s website, offering a seamless experience.
HSBC has announced joint ventures with business-to-business trade platform TradeShift and partnerships with cross-border e-commerce API platform Dowsure, and has projects with Oracle and HKTVmall. By integrating the financing process into these third-party platforms, HSBC eliminates the need to build one-to-one relationships and improves the efficiency of customer onboarding.
