Seven banks are building an inclusive, global, multi-bank, multi-corporate network called Trade Information Network that allows corporates to share purchase order and invoice information with their trade finance banks for pre-export financing.
ANZ, Banco Santander, BNP Paribas, Citi, Deutsche Bank, HSBC and Standard Chartered have unveiled TIN, which is expected to be operating under a new corporate entity by the end of the year. The pilot phase will go live in the first quarter of 2019 with founding banks and select corporates, before it is extended in the second quarter to other banks and corporates. Full launch is scheduled for the third quarter of 2019.
More than 20 additional banks from around the world are actively participating in TIN's development, with several corporates having already expressed a wish to join the pilot. The banks say TIN will help unlock trade finance for small and medium-sized companies, by leveraging the relationships they have as suppliers to the banks' clients. SMEs often claim to be shut out of trade finance.
John Ahearn, Citi
CGI will provide the technology for TIN, which will have open architecture and standardized connectivity based on a governance model similar to the Swift network, to encourage adoption across the supply-chain ecosystem.
It will be owned and operated as a collaborative industry solution. It will also be free for corporates to join and open to financial institutions involved in trade finance.
TIN will support a simple enterprise-resource planning (ERP) integration for leading ERP systems. The Rest application programming interface will be used initially, with other commonly used host-to-host integration techniques being added over the course of the pilot phase.
Confidentiality will be an important feature, in response to client feedback. The corporates that share purchase-order and invoice data on TIN retain ownership and control of it, and can decide who they share their data with.
To this end, user profiles will be created to ensure segregation of data, with appropriate rights granted. The platform will also use standard encryption protocols.
Although banks will provide the financing outside the network, using their existing systems, TIN is expected to help banks get money into the supply chain earlier by simplifying and standardizing the data-sharing process. It should also help mitigate the risk of double financing and fraudulent trade information across the industry, while enabling banks to better assess risks.
The reduction in costs should also help make trade finance more widely available, helping to fill some of the unmet financing demand that the Asian Development Bank recently estimated at $1.5 trillion – mostly from SMEs.
TIN also represents the banks defending their patch from non-bank competition.
Daniel Schmand, global head of trade finance at Deutsche Bank, says: “Banks recognized they needed to work together to come up with a solution to improve efficiency in trade finance or others like the fintechs would have eaten their lunch.”
John Ahearn, global head of trade at Citi Treasury and Trade Solutions, agrees: “This is really a counterattack against the fintechs who are increasingly looking to disintermediate the banks. The seven banks that are building this control around 40% of the trade market. If you add the other banks looking to come on board later, it will be a huge proportion of the trade market. With this we are going to offer something that feels really fintechy.”
One way to make things more ‘fintechy’ is to use distributed-ledger technology (DLT). Banks admit they did consider using DLT to power the network, before ultimately deciding against it.
Michael Vrontamitis, head of trade for Europe and Americas at Standard Chartered, says: “The founding members concluded that DLT isn’t needed to address the business requirements/use case. Interoperability to other networks – DLT or no DLT – was one of the key criteria in the review process. The bank group is continuously reviewing the technologies in the market and is open to adopt another technology in the future if there are compelling reasons.”
Marc Delbaere, global head of corporates and supply chain at Swift, says: “There is so much money in, and hype around, blockchain initiatives right now, but what excites me about that is not the prospect of blockchain solving all our problems, it is that there is an evident willingness in the industry to talk about how we can modernize trade. Whether the solution is blockchain in the end is less important than that we are seeing this level of investment and collaboration.”
HSBC is among a number of banks working on multiple trade finance projects, but it insists they can complement each other.
Vinay Mendonca, global head of product and propositions, global trade and receivables finance at HSBC, says: “Our priority is to build solutions that are owned by the users and will be developed as open-market utilities. We hence believe it is too early to back only one technology or one use case and would prefer instead to focus on a small number of initiatives with complementary use cases.”
Citi’s Ahearn agrees, stressing the industry is working hard to ensure trade finance does not become fragmented.
“The industry is working together more now to create common standards to improve interoperability,” he says. “There are a lot of initiatives out there in trade finance. Citi is working on Komgo that is a blockchain for the energy market; you have the Monetary Authority of Singapore building a blockchain for trade; you have Dubai working on something similar.”
JPMorgan has recently added 75 banks to its payments-oriented, DSL-powered Interbank Information Networks.“These are developing separately,” Ahearn says, “but the industry is well aware that if we don’t think about interoperability now, it is going to cost a lot more to think about it later.”