A rather obvious statement don’t you think? A silly aphorism; perhaps akin to “a trussed and bagged ferret troubleth no man”, (thank you to the late Christopher Hitchens for that witticism).
The fact is, Global Trade indeed needs a network in order to network. And herein lies the riddle of Trade. Global Trade and Trade Finance are probably the most collaborative and interdependent commercial activities on the planet with possibly the Foreign Exchange markets with equal interdependency. Yet for all the innately collaborative requirements, the reality is that Trade Finance participants have challenges communicating with each other.
To borrow another phrase from yet another sharp-witted fellow; Winston Churchill; when asked about the UK-US relationship he quipped “Americans and British are one people separated by a common language.” For me this description is accurate beyond measure when applied to Trade Finance.
Every commercial activity morphs and grows such that what is available today is better than yesterday but not good enough for tomorrow. A complete redesign is required for Trade in general and Trade finance in particular to shed process and structure built up over literally centuries and risk a leap into a truly interconnected, immediate, deeply distributed networked state of being.
Part of the pickle Trade Finance has arrived at, is a result of technology itself and what was deemed important in the IT industry from the onset. Let us take a step back in time in order to see ahead for why distributed networks are the only way in which Trade Finance can realise its much sought after vision of a frictionless immediate Trade Finance world.
It’s all the feature/ functionality paradigms fault!
The IT industry from the late 1970s’ and definitely the 1980s’ had a plethora of IT companies, all competing to sell as much of their equipment as possible in order to survive, prosper and secretly dominate a market or markets for one main simple reason. They all had proprietary code linked to hardware that could only interact with itself and consequently a client chose between vendors not between solutions – a big difference .
Anyone old enough to remember IBM’s System 36 and DEC VAX mid-range systems, which banks bought in their 1000’s, can also remember the huge sums of money spent and the implication that if you won the client mandate not only did you earn serious revenue, the client was irrevocably, 100% locked into your technology path and your competitor was toast.
Vendors competed thinly on capability and feature functionality, but definitely not on interoperability. Great battles between vendors were fought on features that today we would simply not give a 2nd glance to, however reputations and quite a few sales careers hung on the minutiae of this feature versus the competitors’ feature. It wasn’t wrong, it was just the age and stage of technology. The very idea of interoperability, which was code for working with a competitor would have been laughed out of the room …and let us be honest there are still firms today who employ the “all or nothing” sales pitch to capture clients lock stock and Bluemix barrel…ahem…
IT systems take a long time to die and no industry knows this better than Trade Finance. The good news is that today, Trade Finance is at a pivotal moment and on the verge of a fantastic leap forward into a distributed, interconnected world that will have an enormous impact on global trade. What do I predict? No predictions as they are for the Sunday horoscopes section, however here is what I think will be essential.
First; for all I have said about feature functionality, it is of course important. Feature functionality gets solved over time. A product starts with a light core set of functionalities and over time and through user interaction a rich suite of functionality emerges.
What I believe corporates will be looking to buy into going forward, is a distributed trade network; a network that once they have permissioned themselves into, contains all the capabilities they require in order to manage their balance sheet to its optimized point. A network where all the corporates counterparties are present and services delivered by network participants that bring new business perspective. A network where trade finance models and solutions are easily accessible and more importantly can be safely tested for veracity, and where value is clearly and accurately expressed.
Does such a network exist today, in any industry? maybe in industry and definitely in nature as described in the excerpt of the article from journo Robert Macfarlane in The New Yorker magazine, August 2016: “The implications of the Wood Wide Web far exceed this basic exchange of goods between plant and fungi, however. The fungal network also allows plants to distribute resources—sugar, nitrogen, and phosphorus—between one another. A dying tree might divest itself of its resources to the benefit of the community, for example, or a young seedling in a heavily shaded understory might be supported with extra resources by its stronger neighbours. Even more remarkably, the network also allows plants to send one another warnings.”
I am no David Attenborough but what is described above is a highly intelligent network. If I had to distil the essence of a highly functioning network it would be that it informs itself. A highly distributed network with a vast array of participants, all adding to and using the network to create and renew data in real time. A trade network that informs itself and makes that information available to any participant permissioned into the particular transaction at hand is precisely where Trade can and will migrate to.
Trade finance needs an intelligent network operating in a frictionless and informative manner; not so much for its own growth and modernization, as important as that most definitely is, but for the transformative effect it will have on businesses, production and manufacturing globally.
The ability for any business ecosystem to share data in an enriched and transparent fashion amongst participants, with the added confidence that Trade Finance will support their activity by efficiently allocating capital at any point in the cycle with innovative data backed financing, is the step forward all of Trade Finance knows it can and must take. Get ready for the Trade Finance digital revolution, as profound as the Industrial Revolution.
About the author
Eugene Buckley is Head Business Development – Asia Pacific for TradeIX. He joined from Standard Chartered Bank where he was the Head of Trade Innovation and Alliances.
He established PrimeRevenue in Australia in 2003 and in Hong Kong in 2012. Previously, Mr. Buckley spent time within the working capital and transactional divisions of JP Morgan Chase and was seconded to establish and grow Chase Manhattan JV, Intelisys, in Australia. He was instrumental in the establishment and growth of Qvalent, a subsidiary of Westpac Bank, delivering accounts receivable outsourcing and procurement solutions.
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