Removing complexities from trade finance with innovation

Julio Ois Lourenzo, managing director of Strategy & Portfolio Management at Enterprise Client Solutions, in collaboration with Carlota Sustacha, Head of Enterprise Financing Discipline, has shared his specific insight into supporting SME trade finance

In applying strategy, a key focus for Ois’ role, and that of his department, is defining the long-term view for enterprise business solutions. This in particular includes calculating how clients will be operating, transacting and generally doing business in the future. “This means that BBVA has to think outside of the box, and predict new behaviours, incentives, and available capabilities – so essentially everything in the ecosystem – and how they will change,” says Ois.

Trade finance as a subject can typically be difficult to define because of its broad remit. Ois explains: “The concept includes all the financial flows associated with import and export business in international trade and, more specifically, the financing of import and export flows.” In Spain, the trade finance ecosystem is particularly strong, which is important for management of business flows with the country’s main international trade counterparts that include the European Union, China and the US. “BBVA has the clients – importers or exporters – and the bank is in charge of financing their international business,” adds Ois.

The nature of trade finance makes the business process incredibly complicated due to the many different regulations and international borders there are to navigate. This informs a huge amount of what BBVA does to help businesses negotiate these complications. “A key point in what BBVA does is to advise clients, especially to smaller companies and startups who may not have the internal know-how of how these aspects work,” says Ois. “This advisory includes how and when to use the wide array of trade finance products and services BBVA offers to its clients in all BBVA’s geographies.” The importance of giving advice when complicated issues arise is vital to help SMEs succeed internationally.

Working to help small companies with trade financing solutions is central to what BBVA does and it requires relationships with numerous stakeholders. “BBVA works with export credit agencies to facilitate big cross-border projects, insurance companies who cover risk of non-payment and multi-bank platforms for pricing quotations to our clients and for receiving their instructions,” explains Ois. Managing all these different aspects can be very difficult for small businesses when having to manage other business functions as well.

The complexity of international business with the huge number of companies and authorities involved in the value chain, such as shipping firms, presents challenges for small companies and startups. “These main pain points can be tackled with Know Your Customer (KYC) processes on the clients’, counterparts’ and infrastructures’ side,” details Ois. “Also factoring in the traceability of transaction events to cover when what happens is very important to avoid uncertainty.” The process, for some products, is still heavily reliant on paper documents, so the challenge is to digitise such documents without losing the legal protections provided by the paperwork. Currently, there’s a lack of standardisation of bank-to-bank and corporate to bank instruction messaging, such as the way all the parties communicate to each other.

Fintechs have played a part in changing the way trade financing has been carried out in recent years, with some of the main pain points that exist in the world of trade finance solved by fintech. Ois believes “standalone fintechs are looking to solve some of the aforementioned pain points, but not many are focused on all of them.” This means the impact of the effort from fintechs is currently very narrow, he reasons. “Some exceptions can be found and include multi-bank platforms that compete with a bank’s own channel for clients, but sometimes can facilitate access to corporate clients’ trade finance business.”

Fintechs play an important role in any financial services ecosystem and this can extend to the trade finance sector as it’s clear the need is there. “From BBVA’s perspective, our purpose is to bring the age of opportunity to everyone, including startups,” says Ois. “Besides this main statement, BBVA is willing to help those fintech startups who can complement the solutions offered by BBVA. This applies to startups or to any other company, no matter its dimension, that can help our clients to perform better.”

There are numerous opportunities for startups to succeed in the trade finance sector and Ois says it’s a non-stop process to look for gaps in distribution and operational efficiency. “More recent trends have seen greater focus on optical character recognition (OCR) to help review the trade documents, contextual foreign exchange (FX), contextual international trade financing, blockchain applied to trade financing and traceability of transaction events through APIs.” Small businesses often struggle with entering the trade finance market because the market is very complex. In an industry that struggles with innovation, BBVA will continue looking for innovative solutions to remove those complexities – and tech startups can help with the ecosystem’s evolution.