With the World Trade Organization predicting the growth in global trade activity in 2016 to remain at the same level of 2.8% as it was last year, trade finance banks are scrambling to manage through difficult times even as competition worsens trade margins. Some predict it would accelerate industry consolidation. Others, however, are opting to focus on their core competitive advantage. The Asset spoke with two heads of trade at Standard Chartered and Wells Fargo, on how they are coping and their strategy to maintain their competitive edge.

 

“World trade is bobbling along. The connection between world trade and trade finance has gone from a couple of times multiple to less than one times multiple. That is really down to value,” says Michael Vrontamitis, global head of trade at Standard Chartered. “Our response has been to drive our ecosystem strategy, which is how we want to run our business into the future.”

 

Vrontamitis says that the ecosystem for Standard Chartered is about not just connecting the organization, but also enabling key clients to be able to connect their ecosystem together. The bank is then able provide financing, cash management and foreign exchange tying the supply side and the buy side of their business.

 

“It is not just about trade finance,” he continues. “It is about treating each of these individuals as clients and effectively enabling them to deliver.” Corporate clients are similarly facing a lot of challenges. “You are seeing unbundling of the supply chain, increased use of robotics, 3D printing and increased competition overall. Also, there is continued pressure to reduce costs particularly given the low-demand environment.

 

Vrontamitis says the bank’s strategy of building around what clients need has a number of components to it. “Digitalization is a component and so is data analytics, which is a critical part.” Underpinning these components, he adds, is the suite of products such as supplier financing, buyer financing – the end-to-end offering the bank is able to deliver. “We have taken a lot of the learning and the delivery and added to it. There is a significant investment and across multiple levels.”

 

It is specifically targeted at the network drivers and within that network driver who are the suppliers. “Either we have an anchor base programme where we talk to the anchor and we bank the suppliers and its ecosystem,” he says. “Or we have a conversation with the suppliers and buyer as we have the data and bring that together with the corporate that has the credit limit.”

 

And then there is the organizational structure piece. He indicates that it is about aligning the organization to deliver to the clients. “The feedback we had from some corporates was that our commercial banking guys do not know what the institutional banking guys are doing, which is a hard-hitting criticism. We have taken steps to address that fundamental issue especially in how we connect our commercial bank with our institutional bank especially in aligning incentives. The commercial bank now sees this as a way to onboard new clients. No more yellow pages.”

 

At Wells Fargo, Kai Fehr agrees the trade business is not in a good place. “We are in a strange environment where the markets are not doing well and there is spread compression,” says Fehr, head of trade, Asia-Pacific. “[But] trade remains a pretty sexy asset class – it is self-liquidating, it is short-term and under Basel III, it still attracts less capital requirement. The return-on-equity for individual trade asset is still quite attractive.”

 

Fehr says that in this environment the key differentiator is the service offering. “The way you process such as letters of credit (L/C) that is all the same. The price is the same as that is the market price and there is a lot of appetite for these. But you want to be the easy-to-deal with bank.”

 

What the bank has done to service its corporate clients – the US clients operating in Asia, Fehr continues, is to put a service model in place called Trade Accelerator. “The name has been registered in Singapore and Hong Kong.”

 

The way it works, he says, is to get clients to dictate their mode of operation. “Instead of telling clients that this is our set-up, we will give them the gold-class service. We ask clients what they want; the clients dictate the SLA (service level agreement).”

 

Fehr details that these are customized SLAs, bespoke and high-touch. Following the launch a year ago, the bank has been able to onboard more and more clients. “It is a differentiator for us,” he points out.

 

One mindset between the operation and the business is critical to provide the best-in-class model. “We have regular dialogues with our operations team and that of the clients,” he shares. “They have a phone number, they have a face and they have a direct link to the person processing the L/C. It is not outsourced to somewhere in India or the Philippines. It is onshore in Singapore.” The business, he says, has seen an uptake in volume of more than 300% in one year.