Shop Talk: TFG’s Nikhil Patel sat down with ITFA Chairman, Sean Edwards, discussing the highs (and lows) of 2019, from a trade, tech and regulatory perspective. We asked ITFA’s view on whether the fireworks of trade wars might slow in 2020, and what’s needed for blockchain to work for trade in 2020.
In this 2020 interview series, TFG spoke to 20 experts in trade, receivables and supply chain finance.
An Interview with ITFA
Name: Sean Edwards
Interviewed by Nikhil Patel (NP), Analyst, Trade Finance Global
US-China Trade War – An Opportunity?
Nikhil: In 200 words, what were the key highlights and opportunities of 2019 from an industry perspective in trade, receivables and supply chain finance?
- The effect of US-China was compensated to some extent by the continuing spin-out of the supply chain to lower-cost countries in APAC which resulted in opportunities for banks (not always taken). The final result of US-China is uncertain given its genesis as a political contest (and so resolvable by politicians but using different measures than banks) rather than a more fundamental trade issue. Banks and other lenders have gritted their teeth and got on with it regardless during the year. South America has been strong as has Africa although the former has been hurt by the recent imposition of US tariffs.
- In tech, the consortia continue to grow thereby laying down strong roots on which networks can grow and to which utilities (KYC/AML, track and trace, IoT etc.) can attach themselves. Blockchain offers the greatest long-term transformative potential.
- Changes to Basel III continue to worry banks as trade maybe be penalised even more and lobbying is going on to raise awareness. The growth of credit insurance is impressive and ITFA is lobbying for better recognition. Sanctions have become more and more difficult for banks to administer and navigate as they become increasingly weaponised and dependent on what seems like a political whim. The AML/KYC burden has not lessened
NP: What are your top predictions for trade, supply chain and receivables in 2020?
- US-China will be resolved constructively although I expect fireworks late into next year. The UK economy will recover and work out its relationship with the EU which will be more favourable than many expect but this will not translate into a stronger global position or presence for the UK. I foresee a lot of pressure from EU regulators on UK regulators to ensure there is no race to the bottom on standards. It is an open question whether a conservative government would fight back on this – my prediction is not. In the US I believe Trump will be re-elected but that he will become more moderate in his second and final term. The election of a Democrat president could make the outlook less predictable (unless, possibly, Bloomberg is elected). I’d like to see the UK Government encouraging innovation on trade and trade finance. This is more likely if Brexit occurs (it should happen regardless) but I don’t get a sense that they are just waiting to uncork a genie – business must help on lobbying and education. Many are hoping for a Brexit “bounce” once the election is over, but this is less significant globally.
- The network benefits of blockchain will become increasingly apparent but next year will be dominated by the effort to bring corporates on board which will be expensive for banks as they are forced to underwrite some or all the cost. The bigger challenge will be to explore how the technology can allow banks to acquire new business opportunities, clients and penetrate markets. Whilst costs reduction should not be the only, or even the best reason, for adopting technology, tech can make a rapid difference in this regard and some “quick wins” will help cultivate internal support. OCR is such a technology as it can help with the review of documents in traditional trade areas
- There will be a lot of activity in Brussels and other capitals lobbying and educating legislators about the impacts of the Basel revision on trade finance. Real opportunities exist to make a difference. Sanctions remain a volatile area and about the only safe predictions that they will not lessen -the real question if they will get worse.
2020 Predictions in Trade and Supply Chain Finance – A ITFA Perspective
NP: In 200 words, what are the biggest challenges in trade, receivables and supply chain finance you predict for 2020?
In terms of revenue growth, I see a slow start to 2020 but many lenders will need to make a decision on new investments or continuing existing investment to take proofs of concepts and the like to a new level which will be difficult against this background. Courage and vision are needed; the latter doesn’t even need to be long-term, medium-term will get us there but some may run out of breath. Receivables and supply chain finance needs for growth in APAC especially which means more transparency and data neither of which the region is always good at producing.
NP: What are the key priorities for ITFA in 2020?
For ITFA, this will be about education and spreading the word as widely as possible geographically. We have a stable of old, new and cutting-edge products and techniques and we will be trying to break down boundaries and siloed thinking to do new things with existing products e.g. getting funding from insurers and create new products by combining the best of old and the new, such as our Digital Negotiable Instruments Initiative.
NP: What’s your top prediction for a technology that you think will truly kick off / have the most success in 2020?
Getting blockchain through its current position in the hype cycle is the biggest challenge for this technology. If this can be done, I see that the network effects of this technology as tremendously powerful and transformative.