Joon Kim, BNY Mellon’s global head of Trade Finance Product & Portfolio Group Treasury Services, explains how digitalization helps companies cope with business disruptions.
Global Finance: What are the top trade finance challenges companies face today?
Joon Kim: The trade industry has experienced a high level of turbulence in recent years. Pressures from the pandemic, Russia’s invasion of Ukraine and rising commodity prices, combined with interest rate hikes and the resulting high cost of borrowing—to name but a few—have led to increased levels of uncertainty for companies. In response, a growing number of corporates are beginning to favor onshoring supply chains, which, in turn, is shifting traditional trade corridors and further disrupting the status quo.
Against this backdrop, corporates are increasingly focusing on payment risks and ensuring that they, and the chain of suppliers they rely on, have sufficient access to liquidity. Supply chain finance (SCF) can offer some relief in this respect, and many corporates are turning to trade finance as both a cash optimization tool and a means of ensuring supply chain security.
Amid these disruptions, however, it is important not to forget some of the long-term challenges—namely, the need to drive greater levels of digitalization within the trade space.
GF: What technologies are bringing the biggest efficiencies today and hold the biggest promise for the future?
Kim: Efforts have long been underway to help transform the historically paper-based and manually intensive processes associated with trade finance. Banks, for example, are increasingly investing in new technologies and fostering fintech collaborations to not only drive efficiencies in client-facing applications—our participation in the Marco Polo Network is a strong example of this—but also to significantly improve and automate back-office processes. At BNY Mellon, we have made significant investments in emerging technology solutions to help unlock greater levels of automation and reduce the risk and effort related to existing processes.
While the implementation of these solutions is an important step toward a digital future for trade, for the full potential to be unlocked, regulations will need to keep pace with the emerging technologies. It is for this reason that we continue to engage with regulators, as well as industry-standard setters, to develop rules that will promote digitization initiatives within trade.
GF: What benefits can BaaS in trade finance bring to banks and their clients?
Kim: Facilitating international trade is a critical part of doing business—and is increasingly relevant for companies of all shapes and sizes. It is, therefore, not something that small and midsize (SME) regional banks can omit from their trade finance offering. To meet these needs, resource-constrained SME banks often use third-party platforms to conduct their trade finance business. This not only comes with a high price tag, but also leaves them more vulnerable to market shocks, such as inflation and supply chain disruption.
By offering BaaS, BNY Mellon can provide clients with access to state-of-the-art capabilities, including our extensive global network, trade expertise and contingency planning infrastructure, all while lowering costs and freeing up client resources. It is for this reason that we see BaaS as a key strategic pillar of our client offering. We currently offer comprehensive trade outsourcing services—from trade reporting and document examination to delivery and LC initiation—to a considerable number of US regional and international banks.
GF: Why is network interoperability important for trade finance?
Kim: Over the past few years, the trade finance industry has seen significant advancements in technology, which, in turn, has invited new players that address specific pain points to enter the market. But by solving individual use case—often with proprietary technology—a longer-term challenge has emerged: closed loops of innovation, or “digital islands,” developed without common legislation and standardization. For instance, platforms that make use of new technologies often cannot connect to one another or integrate with banks’ existing systems. Bridging these digital islands is an important priority to ensure a collaborative future for trade. Unless participants adopt standards and start looking at the bigger picture when developing and implementing solutions, the technological advancements run the risk of not being used to their full potential. This has been acknowledged by the industry and some level of interoperability is now emerging.