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The world of supply chain finance will soon become more widely understood as an attractive source of funding for corporates globally, thanks to new accounting standards.

Introduced in late May, the International Accounting Standards Board’s (IASB’s) new disclosure requirements aim to alleviate investors’ concerns that some companies’ supplier finance arrangements are not sufficiently visible. More specifically, the changes affect the IAS 7 Statement of Cash Flows and the IFRS 7 Financial Instruments: Disclosures, and will become effective for annual reporting periods from the start of 2024.

The IASB’s goal is to make a company’s use of supplier finance arrangements more transparent and, in turn, enable investors to make better-informed decisions about the impact on the company’s operations.

For industry specialists like Orbian, these are small yet welcome changes.

“The new standards make it easier to understand supply chain finance programmes,” said Paul Coles, the firm’s Treasury Director responsible for managing relationships with funding partners. “They are also positive for highlighting why this is such a good asset class, which can help plug the so-called trade finance gap.”

The new disclosure requirements have been in the pipeline since well before Covid. They resulted from a couple of corporate collapses involving atypical supplier financing arrangements that should have raised red flags previously – such as abnormally long payment terms, buyers bearing most of the costs and unusually large programmes compared with cashflows.

While these were outliers in the generally well-run world of supply chain financing, the IASB’s response addressed the backlash and subsequent industry-led efforts to find a solution.

“The biggest practical change is to create a more prescriptive reporting requirement,” explained Coles. “Adding specific data points in the footnotes of financial reports will give extra clarity.”

These elements include confirmed obligations, outstandings at the beginning of the year, invoices confirmed during the year, confirmed invoices paid during the year and then obligations outstanding at the end of the year.

Along with investors, rating agencies and auditors will also now be able to more clearly identify and better understand the impact of these financing arrangements on a company’s financial status.

More broadly, while the new requirements won’t result in any significant change, such as reclassifying trade payables into bank debt, they will help demystify supply chain financing programmes.

“Transparency is a good thing for supply chain finance,” added Orbian’s Daniel Smith, Director of Origination – EMEA. “Even though the failed programmes were just two of many thousands, the new standards are a good reminder about what could happen if supply chain finance isn’t utilised for the appropriate corporate objectives.

For corporates, the new reporting requirements will be relatively straightforward to deliver. “Banks or fintechs should be able to provide the extra data points required.”

In the meantime, Orbian is starting to educate existing customers and prospects on the new requirements, plus guide them on which data points they will need.

The timeframe also gives Orbian scope to develop more scalable and automated solutions to facilitate the settlement processes for payments that buyers make to suppliers – including, potentially, providing data in a dashboard format to the IASB’s new disclosure requirements, added Smith.

Ultimately, Coles sees these developments as an opportunity. “We can now further extol the virtues of supply chain financing and the importance of fully understanding its role within the global economy.”

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“Digital innovation has always been Mashreq’s DNA,” said Joel Van Dusen, Senior Executive Vice President and Mashreq’s Group Head of Corporate & Investment Banking. Leveraging the success of its digital consumer bank, Neo, Mashreq’s innovations for its corporate clients are transforming the traditional role of relationship management

Through its Wholesale Digital Innovation Lab, Mashreq has approximately 200 data scientists organized into “digital squads” that are focused on streamlining typical “pain points” for corporate clients, such as onboarding for accounts or trade license processing.

Mashreq’s digital squads are also developing new digital capabilities for corporate customers that have moved credit risk and trade finance functions to the cloud.  “We are using API connectivity and streaming solutions on a very rapid basis to our clients in these ecosystems,” said Van Dusen.

Data analytics are the foundation of Mashreq’s digital innovation. “Data analytics is the new frontier: data is the new oil, and like oil it has to be refined before it can be used,” said Amith Rajan, Executive Vice President, Head of Advanced Analytics (CIBG & IBG) & Data. “Data analytics enable companies to use data to drive decision making to optimize and customize the customer experience.”

Mashreq is using AI and data analytics to drive hyper personalization for customers. For example, based on network analytics for shipping and trade data from across its global platform, the bank uses AI analytics for a wide range of risk management features, from identifying adverse media to early-warning fraud and anti-money laundering alerts.

“We are leading the industry in terms of real applications in the market for corporate banking customers,” said Rajan. Innovating the use of AI, blockchain and intelligent scanning to facilitate digital onboarding for customers, Mashreq is the only bank in the MENA region that allows large corporate customers to open accounts electronically using facial recognition.

Mashreq’s international banking is using digital innovation to leverage opportunities across its global network. “We are using internal and external data to capture end-to-end transaction journeys to make more informed decisions on where to invest and where to expand,” said Tarek Al Nahas, Senior Executive Vice President and Mashreq’s Group Head of International Banking.

For Mashreq’s international network, spanning from Hong Kong to New York, governance can present significant challenges. The bank is automating the regulatory reporting process to streamline local compliance and regulatory requirements, with a focus on strict regulatory requirements on data sharing. “Automation ensures that our regulatory reporting is always on time and accurate,’ said Al Nahas.

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The potential for frictionless, digital payments in Africa is growing, spurred by the collective efforts of an expanding ecosystem of market players.

This offers a compelling opportunity for businesses and individuals alike. Across online, mobile point-of-sale and other electronic channels, for example, total transaction value in Africa’s digital payments market is already projected to reach $146 billion this year, according to Statista Market Insights, based on data from April 2023^[1]. Further, between now and 2027, the expected annual growth rate for total transaction value is 16%.

While the aim at a corporate level is to enable smoother flows for business, Standard Bank’s Nombasa Hlathi also pointed to the rising importance of facilitating remittance payments as people who travel across the continent need to send money back home. “This is becoming the driver to enabling faster and less costly payments,” she said.

Initiatives to overcome hurdles to borderless payments such as exchange and other controls are gaining traction throughout different parts of the continent by taking a regional, step-by-step approach.

This is essential given the size of the task and divergence in areas such as policies, regulations, payments infrastructure and language.

Yet programmes in Eastern and Western Africa to create centralised clearing houses, for example, are gradually breaking down the borders. Authorities are also adopting a common approach in signing treaties to enable pan-African payments that support more trade. “A lot of work is being done in different regions to simplify how we do business,” added Hlathi.

At the same time, integrators such as fintech companies are helping to accelerate borderless digital payments.

In short, they are driving greater connectivity with both central banks and commercial players in local markets, to pilot and showcase technology-led solutions that offer the required agility to move money in a way that also makes it readily accessible between countries. “Cash is still king for a lot of African people,” explained Hlathi.

At the same time, some regulators, including the South African Reserve Bank, are shifting stance, creating a ‘sandbox’ to road test payments-related technology.

Bringing a wider range of market players to the table is vital to a sustainable and effective payments infrastructure in Africa.

“Banking is no longer just about banks and regulators,” said Hlathi, explaining that new parties from fintechs to retailers have big roles to play within the ecosystem. “They introduce new ideas as they view banking through a different lens.”

Customers themselves are also changing the rules of Africa’s payments game, as they start to dictate to their banks how and where they want to access their funds. “Rather than banks selling solutions to customers, we need to meet their evolving demands,” added Hlathi.

She believes Standard Bank is well-placed to navigate the new landscape emerging. Despite the digital nature of transactions, a physical presence in multiple markets within Africa is a key differentiator, as is customer trust and being able to offer the same experience in each region. “The bricks-and-mortar element has a psychological impact on our clients,” said Hlathi.

Further, she added, being a platform bank enables Standard Bank to partner with fintechs and other complementary players, ultimately playing to the institution’s strengths.

In Hlathi’s view, it is realistic to expect a viable digital, borderless payments landscape in Africa by 2025.

This outlook aligns with the focus among the continent’s regulators on a 2025 goal for interoperability and real-time, seamless payments. In addition, the financial industry wants to meet SWIFT’s ISO 20022, an emerging global and open standard for payments messaging.

Regulatory backing will support such rapid acceleration of solutions to facilitate digital, borderless payments. Mobile banking in Kenya is a case point, plus experiences in other parts of the world provide an important reference point. India, for instance, which shares similarities with Africa in terms of scale and its developing status, is seeing notable success in how it is digitising its payments landscape.

^[1] https://www.statista.com/outlook/dmo/fintech/digital-payments/africa

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Digitalisation presents an unparalleled opportunity for institutions to streamline their trade finance processes, improve efficiency, and enhance customer satisfaction. The benefits of embracing digital transformation are manifold, including reduced operational costs, accelerated transaction processing, and improved risk management.

However, the journey towards digital transformation is fraught with challenges and decisions that institutions must navigate carefully. One such decision is whether to invest in an existing, ready-to-use platform offered by external providers – a choice that holds significant implications for the long-term success and competitiveness of both banks and corporates alike amid a rapidly evolving trade landscape – or build a custom digital solution in-house.

“The ‘buy or build’ dilemma has evolved over time, and recent shifts in the industry have altered the dynamics of this crucial decision,” says Enno-Burghard Weitzel at Surecomp.

Surecomp’s survey findings: Discontent and desire for improvement

To gain a better understanding of the current state of play, Surecomp conducted a survey of banks and corporates to assess their adoption of digital solutions and identify the challenges and opportunities they face.

The results unveiled a significant level of dissatisfaction among banks and corporates with their current trade finance processes. A notable 41% of banks expressed discontent with the time taken to issue finance approval to their customers, with 35% of them being not happy “at all.” Similarly, 45% of corporates reported being unsatisfied with the time it takes to receive approvals from their financiers.

Unsurprisingly, both banks and corporates shared a desire for improvements in their trade finance processes. The top responses in this regard were “more digital” (53% for banks, 52% for corporates), “more time-efficient” (53% for banks, 52% for corporates), and “more streamlined and simple” (41% for banks, 45% for corporates).

Interestingly, despite this strong desire for improvement, the survey results revealed a noticeable gap when it comes to adoption. While 71% of banks and 73% of corporates acknowledged that process automation is a top priority for internal stakeholders, a significant proportion have yet to implement digital trade finance solutions to automate their processes.

A striking 59% of banks and 70% of corporates reported not using a digital trade finance solution for process automation. Furthermore, 93% of banks continue to rely on email as the primary mode of communication with their trade finance customers, highlighting the ongoing use of time-consuming and error-prone manual processes.

“This gap presents a substantial opportunity for growth and transformation, and by overcoming it, banks and corporates can unlock the full potential of digitalisation, streamline their processes, and achieve enhanced efficiency,” says Enno. “The challenge, however, lies in determining the most suitable means of doing so.”

To buy or to build, that is the question

The trade finance industry has experienced a surge in technological innovation in recent years, with a plethora of solutions emerging to address various pain points and inefficiencies in the sector. However, the landscape is characterised by fragmentation, with numerous fintech solutions and blockchain platforms in various stages of development. Many solutions have not yet moved beyond the proof-of-concept stage to live production, and the events of recent months, where several large-scale initiatives have closed down after failing to reach commercial viability, have done little to inspire confidence.

“Banks have invested enormous sums of money into digital transformation, but they’re making slow progress,” says Enno. “Whether it be building API connectivity for corporate clients into the backend, or spending money on integrations into platforms that don’t achieve scale, things aren’t moving as fast as they may have expected.”

Meanwhile, the proliferation of new technologies creates new challenges. Not only do stakeholders face the risk of investing in technologies that may eventually fail, but the lack of standardisation across various solutions creates significant integration hurdles, with banks and corporates finding themselves having to invest in multiple platforms to cater to different aspects of their operations.

Given this backdrop, building a custom, in-house solution may appear attractive in terms of flexibility and control. By building their own services, banks can create unique features and capabilities that distinguish them from their competitors, creating a tailored offering that caters to the specific needs of their clients. This competitive differentiation can be a valuable asset in an increasingly crowded and competitive trade finance landscape, enabling institutions to stand out and capture a larger share of the market.

However, not all financial institutions are able to roll out their own digital services: while larger banks may have access to specialised teams capable of designing and implementing digital trade finance systems, smaller institutions might lack the necessary resources and knowledge.

What’s more, the risks and limitations inherent in this approach often outweigh the potential benefits.

“Building a custom trade finance solution demands significant time and human resources,” says Enno. “By opting to buy, banks can allocate their resources more strategically, focusing on activities that drive competitive advantage and differentiation. We’ve seen this in the way that the relationship between banks and fintechs has transformed from one of competition to one of strategic collaboration, where banks can leverage fintechs’ specialised knowledge and technological experience.”

Responses received by Surecomp from the market revealed a mixed picture as to which side of the buy or build debate the industry is settling on.

Of the banks and corporates that said they were already using a digital trade finance solution, roughly half said this was a third-party platform, while the remainder said they either used host-to-host integration between their enterprise resource planning (ERP) software and their banks’ servers, or a proprietary solution developed by the bank.

Given the trade-offs associated with building a custom solution versus procuring an existing platform, it may be tempting for industry players to hold off on making the leap for now, until the landscape matures somewhat. However, doing nothing is not an option.

“Despite the hurdles the industry is facing on the path towards trade digitalisation, the direction of travel is clear,” says Enno-Burghard Weitzel. “Changes underway in the regulatory, legislative and policy environment are set to catalyse the utilisation of digital processes, and huge progress is being made around adoption of value-creating use cases. The potential benefits of making trade faster and easier for everyone are real, especially given the current tough macroeconomic situation.”

The third way: Bridging the gap between buying and building

To unlock significant economic and operational benefits, corporates and banks alike should start adopting digital trade strategies now – and this will mean bridging the gap between buying and building to leverage the advantages of both options while reducing the risks.

“As stakeholders within the trade finance ecosystem look to navigate the complexities of the buy or build dilemma, finding a hybrid approach that can enable them to make tangible progress now and expand their capabilities over the time is a compelling alternative,” says Enno.

This alternative to the strict binary choice between buying and building combines the control and customisation capabilities of in-house solutions with the specialized expertise and scalability of external platforms, enabling banks and corporates to create a more adaptable and resilient digital trade finance infrastructure.

Surecomp’s RIVO platform, a digital hub that provides open API access to importers, exporters, banks, insurers, shipping companies and solution providers, is one example of this concept in action.

By integrating with RIVO, organisations can easily connect their existing in-house trade finance solutions with external platforms and services, enabling them to customise their offerings and adapt to evolving market needs without the need for significant in-house development or procurement efforts.

As a scalable and modular platform, RIVO allows banks and corporates to adopt a phased approach to digital transformation, enabling them to start small and expand their digital capabilities as needed over time. This flexibility reduces the risks associated with large-scale, upfront investments in unproven technologies or platforms, allowing organisations to better manage their resources and focus on achieving their strategic objectives.

“With RIVO, we aim to drive seamless trade by enabling banks and corporates to optimise their trade finance processes as easily as possible, enabling them to participate in the digital future of global trade without having to wait until the market matures,” says Enno.

By serving as a central hub for innovation, RIVO enables banks and other financial institutions to experiment with new technologies, platforms, and services, without the need for extensive integration or development efforts. This ability to quickly test and deploy new solutions can help organisations stay ahead of emerging trends and gain a competitive edge in the rapidly evolving trade finance landscape.

RIVO also facilitates collaboration and information sharing between banks, corporates, and technology providers, fostering the development of new, industry-wide standards and best practices. By participating in this collaborative ecosystem, banks and corporates alike can contribute to the advancement of the trade finance industry while gaining valuable insights and expertise that can be applied to their own digital transformation initiatives.

Embracing the future of trade

The world of trade is at a crossroads, with the relentless march of digitalisation forcing banks and corporates to re-evaluate their traditional processes and systems. The benefits of embracing digital transformation are clear, yet the challenges and decisions that institutions must navigate along this journey are complex and multifaceted.

Ultimately, this will not be a one-size-fits-all endeavour. Each organisation must carefully assess its unique needs, resources, and objectives to determine the most suitable path forward. However, what is clear is that those who proactively embrace digital transformation, whether through buying, building or adopting a hybrid approach, will be best positioned to thrive in this rapidly evolving landscape and instrumental in bringing forth a more efficient, transparent, and inclusive global trade ecosystem.

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