East and Partner’s Martin Smith and Simon Klein discusses emerging Australasian trade finance trends and approaches to capitalize on them.
Voice of the Customer Analytics
In the face of global trade volumes falling from record highs as corporates digest damaging ‘trade war’ rhetoric, rising protectionism, and regulatory change, businesses have identified three key emergent trends that are shaping the future of trade finance markets: innovation in trade, traditional relationship management, and multibanking for trade.
Innovation in Trade
Long overdue advances in trade finance automation and straight-through-processing (STP) such as digital platforms, blockchain, and the Internet of Things (IoT) could radically reduce administrative costs, transaction fees, and document processing delays. Less friction undoubtedly will result in greater cross border goods and services flows in an area which has been criticised for falling behind the pace of digital innovation taking place in other business banking product lines such as transaction banking and merchant payments.
Benefits of further investment in ‘fintech’ for trade finance include faster transaction speed, lower fees, more appropriate facility matching, less administrative error correction requirements, and lowered fraud risk. Difficulties in linking disparate stakeholders including corporates, carriers, and financiers results in issues applying standardisation to electronic bills of lading, not to mention incorporating the complex legal implications. Streamlining these processes is a much-needed step in the right direction.
Traditional Relationship Management
Despite competitive pitching levels rising, aligning customer’s changing trade finance demands with a bank’s product and service offering is a difficult challenge given the rapid rate of innovation set to take place. Old fashioned relationship banking however is paramount with four out of ten Australian institutional enterprises highlighting a knowledgeable trade account manager as the single key bank initiative in winning their trade business.
Businesses are seeking specific trade advice for their business or sector vertical with the ability of account managers to deliver best pricing and general advice on trade finance funding strategies.
Businesses are increasingly seeking a single touch point with their bank for managing their specific working capital needs and structuring solutions that provide end-to-end solutions. Banks achieving best of breed Trade Account Officer satisfaction ratings are shown to convert that goodwill directly into superior wallet share outcomes, posing important customer volume retention implications.
Multibanking for Trade
Declining wallet share is a critical challenge for both domestic and international trade finance banks in the region. Wallet share, the volume of business per customer captured by their primary trade financier, is deteriorating quickly after a sustained period of growth, on average sliding by five percent year on year. Pricing competitiveness continues to increase as margins come under pressure, evidenced by higher customer churn intentions. Forecast customer churn is highest among SMEs however it is important to note three times more SMEs are unsure (22.4 percent) relative to the Top 500 (6.8 percent) if they will switch. Indecision has never been greater.
Why are customer’s switching? Trade Finance needs in Asia are still primarily driven by growth in the underlying trading business, followed by Currency Trading Support which has surpassed Supply Chain Management (SCM) initiatives for the first time. In Australia, Currency Trading Support is also one of the fastest growing areas of needs for institutional enterprises however one in two firms are primarily motivated by SCM initiatives for seeking out new trade financing or refinancing existing facilities. Competitor pitching activity and outbound sales action is relatively similar in intensity in Australia and Asia, with nearly one third of enterprises reporting that they did not receive a competitive approach for their trade business in the last six months.
The key takeaway for trade banks is customer preferences are changing rapidly and with significant variance by segment, sector, geography and trade profile. Can their trade product and service offerings keep pace with customer expectations? Providing practical guidance on innovation, allocating a knowledgeable trade account officer and limiting rising customer churn will be the telling factors for success in trade in 2020 and beyond across the APAC region.
About East & Partners
East & Partners, founded in 1987, is a leading global specialist market research and analysis firm working in the corporate, investment, business and SME banking and financial services markets, providing both multiclient and bespoke research and consulting services to client banks and financial services providers.