Trade finance has fast become a lead product capability. While long overdue digitisation and product innovation has been spurred on by the COVID-19 pandemic, are trade finance executives and relationship managers (RMs) evolving in line with customer expectations?
Can the well documented “talent gap” between experienced trade bankers and junior relationship managers (RMs) be successfully bridged in order to prevent rising customer churn?
Yawning Talent Gap Only Widening for Trade
Banks have bemoaned difficulties attracting and retaining trade finance talent for the better part of a decade. Within the Australian Big Four majors, East & Partners research confirms the average age of an Australian trade finance executive is 53 and trending steadily higher each year. Anecdotally, many of these leaders boasting extensive relationship management and sales experience are nearing their shift into retirement without the ability to pass on their valuable skills to a new crop of talent rising through the ranks.
These industry leaders commenced their careers in operations however that conventional training ground has been spun off to third parties or centralised in many instances. As a result, many new starters in banking are being lost to trade or failing to “learn the ropes” in the same granular level of detail required to service trade customers end-to-end.
The twin challenges of overcoming senior management approaching retirement age and an inability to attract fresh talent from other areas of banking could see an entire generation of trade customer management “wisdom” lost before it is passed on, with potentially disastrous results for incumbent primary trade finance leaders such as ANZ, HSBC and CBA.
Global Trade Review’s Shannon Manders referenced this issue in the insightful article “Overcoming the talent gap: trade finance industry at a crossroads” by asserting that should trade finance attract more tertiary graduates, the question remains whether there are even enough roles in the industry to satisfy an increase in demand. Recent underlying shifts in the industry have resulted in many opportunities vanishing for new candidates and traditional routes to the top diverted.
Failing to replenish this pool in the long term will have consequences not just for banks but for trading enterprises and by extension, GDP and economic growth.
As opposed to ‘filling’ the trade gap through internal training and professional development, leading trade banks continue to poach directly from rivals, further depleting the overall talent pool. Fresh insights are not forthcoming and this veritable ‘merry go round’ for executives and RMs between trade finance providers is only compounding the current ‘brain drain’ taking place in the industry. In most instances key executives and senior RMs moving between banks are also followed closely in tow by their best clients, exacerbating churn and ‘multibanking’ for trade reflected in falling wallet share outcomes.
Senior Trade Finance Management
Source: East & Partners Trade Finance Talent Index
Innovation No Replacement for Relationship Management Excellence
Traditionally trade finance led to end-to-end banking relationships becoming “stickier”. Primary trade finance customers are 68 percent less likely to “churn” their banking relationship than other products or relationship areas. This is a direct result of knowledgeable, experienced Trade Account Officers, rated as a top two requirement by customers market wide. Our research shows advice for their business and industry (27 percent), more competitive pricing (22 percent) and funding strategy advice (20 percent) are also highly valued RM attributes.
In the last three years however this “home banked” hallmark of trade finance has deteriorated rapidly as customers increasingly panel bank for Open Account financing, Letters of Credit, Documentary Bills for Collection and associated working capital solutions. Trade finance wallet share continues to decline as customers spread their business across multiple providers more often. This is especially evident in the SME segment where businesses traditionally preferred to bank in a holistic way yet are now displaying record high switching intentions. SMEs are now allocating a fifth of their trade financing needs to secondary providers, up from essentially nothing as recently as 2015.
Reflecting enormous disruptions incurred across interconnected global supply chains, the majority of customer switching activity both over the last six months and anticipated through 2021 is confined to Trade & Supply Chain relationships according to East & Partners latest Global Insight Report - COVID’s Shake Up of Relationship Banking.
"Our big issue remains changing supply chains. This is
where we are spending a lot of our time with the banks,
trying to navigate better solutions against constantly
shifting goal posts"
- Corporate Treasurer, US$10Bn UK Logistics Group
One in ten of the top 100 revenue ranked corporates in eight countries switched their trade relationship since the onset of the COVID-19 pandemic in Q1 2020, while a further 12 percent plan to switch as a direct result of their negative experience with their current trade finance provider.
COVID Influenced Customer Churn by Product - Forecast
% Planning to Switch Primary Relationship in Next 12 Months
Source: East & Partners Global Insight Report - COVID's Shake Up of Relationship Banking
The Digitisation of Trade
Trade finance has a reputation as an archaic, paper heavy and complex area of working capital management for importers and exporters and while there have been efforts made in the past to rectify this (Swift’s Bank Payment Obligation is an example), it has remained stubbornly unchanged.
Long overdue innovations such as smart contracts, e-signatures and e-documentation however are beginning to be implemented across the board and the case for blockchain as a mainstream infrastructure is never as clear as when discussing its implications for international Trade.
These advances are attracting graduates and new talent that want to be at the forefront of change, innovation and technology. The financial sector has shared some concern over recent years about top graduates preferring tech start ups to their hallowed halls however by combining the two, financial institutions may find themselves back at the top of the pile.
New approaches to old problems are necessary to overcome frustrating pain points associated with information asymmetry between creditors and borrowers…in other words, banks are tasked with transferring lengthy paper-heavy processes online using cloud technology, eventually reaching a critical mass of stakeholders up and down the supply chain “speaking the same language”.
How Much is on the Line?
Where new trade finance talent will be sourced from to plug the gap remains unclear. Poaching from other banks and abroad can only carry on for so long.
Previously an Asia based network and career experience was vital for progression in Australian trade banks, however with the exception of ANZ’s growing institutional footprint in Asia, most Australian banks have swung back towards their domestic ‘bread and butter’ and now lack a defined on the ground presence in many markets.
For the banks, trade remains a highly profitable business and delivers significant benefits to transaction banking, financial markets and other areas of the bank. Trade finance is firmly positioned at the lower risk, higher collateral end of the credit quality scale. This image will be tarnished however if the field fails to rebrand itself to that of a dynamic and innovative area of banking. If the widening talent gap is not closed, Australia will suffer from a broken pipeline of trade finance talent leading to rising customer churn, diminished customer experience and poor advocacy outcomes that could take a generation to repair.
It is a delicate balance that needs to be found, companies searching offshore for new growth opportunities depend on their bank for vital guidance and advice to navigate liquidity constraints and supply chain disruptions however execution of the actual transaction needs to be efficient and seamless. If an overreliance on self-service platforms or automated processes positioned to overcome the talent gap takes place, customer satisfaction will undoubtedly suffer.
Ultimately no amount of innovation or digital prowess will replace old fashioned trade relationship management, but if trade units are unable to attract new talent, this skill will disappear with today’s cohort of trade bankers, leaving trading businesses all the poorer for it.