New Directions in Trade

1
New Directions in Trade

Barbara S. Ismail Practice Lead Trade, Payments
and Risk
2
Trade Product Innovation

• Whats the next wave in trade?
• What can the internet do for trade
  finance/processing?
• What are its limits?
• What are the risks involved, for banks and for
  importers and exporters?
• What other innovations are occurring beyond, or
  outside, the internet?

3
What can the internet do for trade
finance/processing?

• Trade has not yet realized great gains in
  productivity from automation processes have
  been moved onto the PC, but retain a heavy paper
  base.
• Internet platforms provide the opportunity to
  move from paper to electronic sharing of
  documents, and streamline trade payments.
• These facilities can minimize time to payment,
  and provide a shortcut through processing
  complexities.

4
What can the internet do for trade
finance/processing?

• Streamlining works where all parties want it
  primarily in open account, or quasi-open account
  situations.
• Developed markets/no transfer risks
• Few credit issues
• Longstanding commercial relationships

5
What can the internet do for trade
finance/processing?

• Streamlining may not work where at least some of
  the parties have concerns
• Emerging markets/transfer risk
• Strict regulatory environment requires
  documentation
• Credit issues and lack of easily available
  information

6
What can the internet do for banks in trade
finance/processing?

• Trade Communities bring buyers and suppliers
  together, with Banks seeking to provide credit on
  the fly to participants who may not be their own
  customers.
• Credit tools are needed to provide immediate
  decision making capabilities
• Providing Vendor Financing based on purchase
  orders
• Providing logistical links to their clients
  involve themselves in the details of what their
  client is looking for in this area, which has not
  traditionally been what banks have looked for.

7
What can the internet do for importers/exporters
in trade finance/processing?

• Importers can benefit from trade platforms which
  may, in certain of their trade transactions,
  allow them to forego bank letters of credit and
  the fees associated with them.
• The streamlining of the trade process still
  depends on credit assessments of buyers,
  political risk, freight, and other aspects of the
  transaction. These can cause bottlenecks, even
  in arenas designed for speed (such as LC
  auctions)
• Importers and Exporters increasingly look toward
  the primary providers of insurance to cover their
  transactions, disintermediating banks.

8
What are the Risks and Limitations?

• Financial Platforms Require Significant
  Capitalization
• Any website involving itself in the payment
  process, as opposed to offering only a platform,
  needs the necessary capital to support it.
• Banks take reputation risk in aligning
  themselves with any particular provider, and need
  to be confident that the provider has staying
  power.
• In an endurance contest among competing
  websites and platforms, capitalization will be
  increasingly important, and household names with
  strong capital will be best dressed to win.

9
Innovations

• Integration Among Providers Integrated web
  communities or sites bringing together disparate
  providers in one place (such as credit agencies,
  insurers, logistics providers, inspectors).
• Innovative Payment Models Using
  already-existing payment infrastructure, a
  quasi-credit card prototype can bring payments
  to the next level of convenience,security and
  portability.
• Banks taking a more proactive stance regarding
  the extension of trade credit, which technology
  will permit them to do.

10
Innovations

• More activity in the area of securitization, with
  rated, short term trade paper trade-able in
  secondary markets. This will entail a fairly
  complex methodology, but some standardization of
  categories with widespread acceptance will change
  the face of trade.
• The backbone of trade remains credit in its
  various guises. The challenge in streamlining
  both the commercial term agreement and trade
  processing is in integrating the credit extension
  to make it less arduous.