How to ensure the success of a new trade finance solution
Mansour Davarian, Head of Platform Sales at Demica was joined by Amit Agarwal, Head of Open Account Trade Products at DBS Bank, Vinay Chhabra, Consultant – Supply Chain Finance at Afreximbank and Mark Stanley, Partner – Financial Services Consulting at PwC in Dubai to discuss how financial institutions can launch new supply chain finance solutions, whether it’s a new product or an existing product in a new market, considering the maturity of the different markets around the world. The discussion took place on 11th August 2021 in a live webinar.
Identify your niche
The first step in releasing a new trade finance product as a bank or financial institution is to identify a gap in the market that your business is well placed to fill. Consider your current strengths and current customer base, so that you can build your products around where you currently sit within the market. Making sure that you have a clear unique selling point for your finance product will help to give you a competitive advantage and ensure you aren’t operating in too saturated of a market.
For us, everything starts with the trade finance gap. For Africa that trade finance gap is estimated to be in the region of $100bn, mostly felt by the SMEs rather than the large corporates. (…) We’re a wholesale bank focused on the corporate and institutional segment rather than the SME segment and that thought process led to our identifying payables finance as an opportunity where we could finance SMEs while playing to our own strengths in terms of the client segments that we cater to.Vinay Chhabra, Afreximbank, speaking about how they identified their target market for a new pan-Africa approved payables product
Assess the risk
As discussed in the webinar, different products come with their own risks and challenges, and these can vary again when you consider the markets that you’re operating in.
Consider the risk of fraud within your market and product segment, and whether there are ways to mitigate this risk through changes in process or platform. If you’re implementing a solution covering different global territories, you will need to factor in the relevant local legislation and requirements when onboarding suppliers. We have observed an increase in countries implementing “digital borders”, meaning data transfer between different countries requires more and more safeguards such as regionally based data centres.
The whole model, especially in Asia, and this is based on my experience, has always been challenged, not by a buyer default risk, but more from a fraud risk. So, I, as a product head, am more wary of loss because of fraud than credit loss from the buyer. (…) We have been looking towards regulatory guidance as well as [using] digital tools to ascertain fraud.Amit Agarwal, DBS, speaking on his main risk concerns and how DBS are mitigating them
Building your platform
Generally, most banks and financial institutions are moving away from trying to build their own platforms, and are instead focusing on the more agile, flexible, and secure solutions available through fintechs [internal link to buy vs build blog]. When choosing different businesses to partner with to deliver your trade finance product, it’s best to consider what your customers will need and want from you when purchasing supply chain finance products.
We found that there are four success factors that are absolutely critical to have a successful program. Those were, first of all, robust technology, secondly a local currency financing capability, thirdly an on-the-ground presence because it’s going to take a lot of education both for buyers and suppliers to come into a program which is a fairly under-penetrated product in Africa, and finally a broad existing client base which can be a natural target market.Vinay Chhabra, Afreximbank, speaking about their criteria to find the right partners to launch a new pan-Africa approved payables product, that would include risk distribution and risk participation built in
Fintech solutions can massively reduce the operational burden on middle office functions through automation and manage huge volumes of invoices while mitigating the risks involved.
Through some of these platforms, you have the ability to go out and much more proactively sell (trade finance products). Anchors can be onboarded very easily and then their supply chains can be done as well. Positioning that as a value proposition, as part of a corporate’s “go to market”, has become quite powerful.Mark Stanley, PwC, talking about the appeal of platform-based solutions to his clients in the Middle East:
Find out how Afreximbank, DBS and PwC did it
Watch the on-demand webinar to hear the real-world experiences of Afreximbank, DBS and PwC as they worked to launch new trade finance solutions in either existing or new markets.
Afreximbank is launching a pan-Africa approved payables product, working with local partner banks, DBS has recent experience of launching a new product in an incumbent market and PwC has been consulting a major global trade finance bank on launching into a new market. In the on-demand webinar all three share their own processes and experiences for preparing to launch working capital finance products with full organisational alignment and buy-in.
Interested in discussing how you can launch your supply chain finance solutions on a digital platform that can handle payables and receivables solutions in one place? Get in touch to speak to a member of our team about how you can implement a secure, user friendly digital platform that can be customised for your customers’ needs today.