September 2014

Trade Finance – Who’s Moving Tomorrow’s Market?
Trade Finance has escalated in prominence for Australian businesses across multiple industries as advances in digital technology thrust markets closer and present new growth opportunities.

Facing outward has never been more important yet the means by which businesses finance offshore ventures are changing rapidly.

Can their Australian bank intuitively change with them or is a globally recognised international offering the right fit?

Letters of Credit (LC’s) have long been offered by banks to guarantee payment between buyers and sellers once specific conditions are satisfied. Deemed lower risk than Open Accounts, they are still plagued by tedious paperwork conditions and lengthy processing times.

Digitalisation of Trade Finance processes is long overdue, offering substantial opportunities for banks and payments providers to improve efficiency, lower costs and encourage new business prospects.

New products such as Bank Payment Obligations (BPO) offer considerable upside in terms of efficiency and cost. A BPO is an undertaking of a purchaser’s bank to settle a seller's bank upon completed data matching using SWIFT's proprietary platform.

The relatively new Trade Finance product has been designed to transform transactions for institutional sized enterprises by effectively combining Open Account and Letter of Credit benefits without many of the limitations.

A BPO is an effective payment instrument that provides inherently less risk than an Open Account transfer yet more flexibility than old fashioned LC’s.

Although market wide awareness remains relatively low, up to fifty banks have acknowledged the opportunity offered by BPO and gradually begun to make the product available to corporate clients.

Several other banks are still in the process of justifying what benefits BPO can fundamentally offer themselves and their customers, instead choosing to patiently look on and gauge BPO uptake and popularity before committing whole heartedly.
BPO’s can provide significantly higher risk mitigation coupled with improved flexibility, handing institutional businesses greater control over their international accounts at a fraction of the cost.

Global Credit Manager for BP Chemicals David Vermylen, one of the first exporters to use BPO, described the benefits in a recent interview with The Corporate Treasurer - “Before BPO, BP could physically move 150,000 cubic meters of LNG faster than it could process 500 grams of paper….things needed to change”.

The ‘readiness’ of businesses to easily incorporate new systems of this calibre is also not yet fully quantified, however banks and payments providers are clearly responding to the need to reduce risks and facilitate new trade opportunities.

e-Trade solutions have steadily grown in importance for institutional customers according to East & Partners long running Trade Finance program, ranking narrowly behind ‘Value for Money’, ‘Customer Service’ and ‘Trade Account Officer’ categories.

Australia’s Top 500 enterprises by turnover rated Westpac highest among the Big Four in terms of e-Trade finance solutions with a score of 1.87 (where 1 = satisfied and 5 = dissatisfied).

ANZ is however the first Australian bank to adopt and roll out BPO capability, signalling their intent in the Asia-Pacific region. ANZ has experienced a significant increase in e-Trade customer satisfaction from 2.16 to 2.05 since August 2012, rating a close second among the Big Four.

Both Australian banks were rated behind HSBC (1.58) and Citi (1.75) for e-Trade finance solutions customer satisfaction as competition for the rapidly expanding trade dollar heats up.

The methods by which Australian manufacturers, retailers, miners and service providers intend to enter new markets continue to evolve, requiring a custom fit and upwardly scalable infrastructure provision by their bank.

Notwithstanding new products and capabilities, superior service and a strong emphasis on building the underlying relationship via industry knowledge and knowing the customer’s industry will remain an important driver for long standing customer relationships in trade.
e-Trade Finance Solutions – Institutional Customer Satisfaction 2014
N: 362 1 — — 2 — 3 — 4 — — 5
(satisfied/important)          (dissatisfied/unimportant)
HSBC 1.58
Citi 1.75
Westpac 1.87
ANZ 2.05
Market Average 2.32
Importance 1.03

Source: Source: East & Partners Trade Finance Program


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