The International Trade and Forfaiting Association (ITFA) was in Helsinki again with an excellent workshop for Finnish banks large companies and SMEs who directly be involved in financing trade and exporting.
Trade is the most important lifeline for a small economy like Finland to remain healthy and strong. Without finance across the globe, there would be a huge reduction in trade and that would hurt small economies like the ones we have here in the Nordic countries.
The news from these professionals was both good and very bad!
Here are the most important bad news:
Exporting is no longer a simple affair, just look at the complexity of connections needed when exporting from one country to another. Companies that export need to understand a million different details to succeed and the small size of the great majority of SMEs here in Finland underlines one of the key problems facing the country today.
There are too many small Finnish companies that like the willingness for the capacity to grow even though they have excellent potential in the export markets. Many recent official reports on trade and finance have noted that Finland is lagging behind the other Nordic countries in terms of exports and this is cause for concern.
Banks are out of SME’s even more than last year focusing on large trade deals because the costs of processing SME trades are too high and the revenue stream toolow.
New banking regulations on capital adequacy too tight, as was pointed out by one of the speakers at this workshop, who underlined that under the new banking regulations banks will have to apply twice the amount of capital for financing SMEs and three times the amount of capital for large corporates. This will, hurt the export trade and is in exact contradiction to what governments want to do!
Here is the most important good news:
Digital processing of LC’s are now real and can save huge amounts of time. Parsing, mapping and error discovery can be done in 45 seconds with machine learning going on all the time in the background making processes easier and reducing the costs of processing – even for SME’s!
Some electronic documents are now legally accepted in Sweden and Finland, but the law is lagging at the international level. The ITFA is working on this with many companies and banks as Electronic Payment Undertaking (ePU) – functionally equivalent as paper. The law firm Sullivan and ITFA are working on changing law on trade contracts. Note that UK is trying to follow Singapore who are said to be working on a new electronic document solution. Cyber-security and originality through Blockchain ledgers are sufficient.
Work is also being focussed on making Trade Finance to be defined as an asset class on systems like Bloomberg – this is being proposed by Enigio is creating a transparent and open document on Blockchain.
I conclusion the workshop presented like last year concrete solutions that should be able to alleviate some of the problems that Finland is facing in terms of exports.
The ITFA together with Finnish Fintech Ecosystem (FFE) workshop in Helsinki brought some of the most important international Fintech companies to meet with the Finnish banks, large and small companies as well as our emerging Fintech companies.
Kirsi Larkiala from FFE, Sean Edwards, Board Member and Chair, ITFA, André Casterman Chair of IFTA Fintech Committee were the organisers and introduced international companies that produce software solutions like Intix, Traydstream, and Mitigram as well as trade finance shared platforms TradeTeq and Levantor.
These companies are very specialised in their main strengths and use granular data from existing legacy systems of banks and companies to create new standards or ecosystems. They do not demand capital expenditure from banks but are pay as you go models. This means that they are very different when compared to the traditional vendors of banking software.
Each of these companies made short pitches by to the workshop audience so they can discover how they may take advantage and develop new solutions in a cost efficient manner by taking advantage of existing solution from the main financial centres where it is clear that banks and fintechs are increasingly collaborating for the benefits of banks’ own clients and counterparties.
The main foreign Fintech companies
Here are short descriptions of the main foreign Fintech companies who gave presentations at the workshop:
Joshua Cohen, Managing Director, Mitigram – The company as born in Nordics 3 years ago as a communications tool for trade finance and handles transactions €1.5 billion each month. Mitigram is a global online platform for funding and hedging the risk of trade. Adopted by multinational corporations, leading commodity traders and many of the world’s largest banks, they offer a collaborative and efficient way for corporations to securely interact with their financial institutions in the negotiation of trade finance, bonding & guarantees and risk mitigation. They also allow banks to collaborate with each other and with non-bank financial institutions in the exchange of information to allow for trade finance needs to be effectively communicated and redistributed.
Nils Behling, Co-founder and CFO, Tradeteq – The company is only one year old and based in London. Their system allows banks to sell their trade finance risks and exposures to non-bank investors. Trade finance is very stable because it has low credit defaults compared to ordinary lending and the bond markets. Their system provides such access to trade finance for investors because prior to this self-liquidating and revolving market was almost impossible to access. Tradeteq provides tools for investors to assess the risks and invest in these markets using machine learning.
Uzair Bawani, Co-founder and COO, Traydstream. They started this platform in 2016 to help implement better decision making for trade finance by extracting data from existing legacy systems of banks. One example of their approach is the checking of Letters of Credit. A normal physical check can take up to 2 hours, but their system can automate the same standard check in just 45 seconds. The clients can also implement a bespoke checking based on their own requirements as well as implementing data connections with SWIFT and other data suppliers/banks/corporates, etc – www.traydstream.com
André Casterman, CMO, INTIX. Intix is a technical tool to extract data from the existing data systems of banks working as a search engine in the same manners as Google for tracking data. Intix accesses and collects data from internal legacy systems without having to make changes to these traditional operating systems. IBM, Oracle, SAP are partners for data collection, indexing, reporting on trades and warning of problems. INTIX is a suite of modules that breaks down the organisational silos that typically exist within financial institutions and corporations to provide a complete picture of an institution’s financial transactions across a myriad of data sources and data formats – www.intix.eu
One of the take aways from this workshop was how technology can enable easier access to trade financing for SME’s and mid-caps, whether acting as suppliers or buyers.
The financial gap in access for trade finance for SME’s compared to that for large companies is huge. There are also major challenges with the risks and the lack of information about the tools used in trade finance. Low value tickets for SME’s demand higher volumes with much better cost efficiencies than is currently available through traditional banking systems.
It is well-known that banks have been shunning trade finance for SME’s. This is now changing with the efforts of these new Fintech companies like Levantor who are able to offer a limited service for SME’s through banks and non-bank investors. It appears that non-banks are so far investing around €250 billion in trade finance according to Tradeteq. Fintechs are in fact strengthening the hand of the bank with clients and not interfering with bank client relationships. This is confirmed by the banks who were participating in this panel discussion – OP Group, Standard and Chartered, SEB, Nordea and Danske.
There was a clear consensus at this workshop that these Fintechs are offering a cost efficient service for banks in many ways.