BETTING ON BLOCKCHAIN: Evolution of strategy in trade finance required, Standard Chartered says

A few years ago, Standard Chartered made a decision to integrate itself more fully into the supply chains of its clients. The goal: use technology to connect into its clients’ ecosystems, upending the traditional model of banking services.

“There was a realization a few years ago that businesses are evolving and they’re evolving quite rapidly – we’ve seen that in a number of industries and there’s no reason why banking will be any different. So we evolved our strategy to focus on banking our clients’ ecosystems,” Michael Vrontamitis, Standard Chartered’s head of trade, Europe & Americas, told Fastmarkets.

The bank, he noted, is active in 40 different markets across Asia, Africa and the Middle East and provides services for companies ranging from small-to-medium enterprises (SMEs) up to global corporates. Its interest became how it could become a core bank across its client mix, providing a holistic service across trade finance, foreign exchange, cash management and other areas.

“What that means is we have to change our thinking. We can’t use the traditional model - we need to have a proprietary platform that requires every corporate in that ecosystem to be on Standard Chartered’s platform,” Vrontamitis said.

“We need to be platform-agnostic, open to connecting with our clients in a way that they want to do business and changing from the traditional way the bank would want to do business,” he added.

That doesn’t come without its challenges, however. According to Vrontamitis, the main issues for banks are efficiency and shifting the model.

“From an efficiency perspective, these types of technologies help in terms of lowering costs - if you can receive data electronically rather than on paper and then convert it, it reduces the cost,” he said.

“The key question from the business model opportunity perspective is, as we move to a more data-based economy, how are banks going to remain relevant? That’s the question we’re starting to address by experimenting with these types of technologies,” he added.

Fragmented space
The bank isn’t unique in its approach; there has been a shift to more of a platform play in different markets, Vrontamitis said.

“The market has developed in such a way that we now have what I describe as a ‘digital island’ phenomena, where there’s been a lot of digitization in the trade finance space,” he noted.

“It started with electronic data interchange technology and moved onto desktop or windows-based machines and then into the cloud, and now experiments with blockchain and application programming interface (API). You’ve seen an evolution in technology and we wanted to connect to different platforms,” he added.

Because trade finance “fintech” - financial technology - is a very fragmented space, Standard Chartered had to consider various different solutions.

One such solution the bank signed up for is supply chain platform GT Nexus, which has developed an ecosystem around retailers on a traditional cloud-based platform to do pre- and post-shipment financing.

Other similar types of platforms have evolved, leading to the fundamental problem that dozens of different counterparties each have their own system, ranging from shipping to customs to banking, and within these systems there are a host of players doing things their own way as well.

“The complexity of trade relates to the ability of players to interact with each other, and that’s why everything defaults to paper,” Vrontamitis said.

The bank is also a member of the Marco Polo network, which it sees as a key integration layer between the various different platforms.

“What was interesting about Marco Polo was that it and its partners are building a network of networks - a way of using API, blockchain and cloud together to bring data from one location to another or make data visible across multiple different sources. They’re providing the glue,” he added.

Success rate
How rapidly blockchain is initially adopted through commodities will in part depend on how many players there are; according to Vrontamitis, complexity increases as the number of players increases.

“Say one metals corporate has ten buyers and ten suppliers and they have different solutions from paper to systems, they have to deal with 20 different platforms - which one are they going to choose? Everyone is digitized, which is great, but it’s not one standard so it’s still really complicated,” he said.

“It’s probably better to receive paper and have a single workflow than to receive ten different digital formats and communications on email with different logins and so on,” he added.

What the platform sets out to achieve is also key to uptake: it’s about problem solving, Vrontamitis noted.

“For example, diamonds find it difficult to access financing, and traceability is really important. In food, safety is really important; in retail, it’s traceability of where goods are made,” he said.

“Are the problems solvable with technology? What you’re seeing is that specific problems are being solved,” he told Fastmarkets. “You’ll probably find a solution in metals around efficiency and trading - a producer will want to go digital to eliminate paper and costs within shipping, so that’s a problem to be solved,” he added.

Are you involved in a blockchain project? Get in touch with Andrea Hotter on ahotter@fastmarkets.com.

Andrea Hotter

ahotter@fastmarkets.com

Published

Andrea Hotter

December 18, 2018

17:14 GMT

New York