Trade financing has undergone something of a revolution in the past decade, with an estimated 70% of all deals now being done via open market transactions.

The trade finance industry is in upheaval at present while it seeks to do away with the costly, time-consuming, paper- based processes of old. However, the result has been the growth of the open account environment. This is where, instead of issuing bank-guaranteed letters of credit, trade companies are moving to open account transactions between each other, with no bank guarantee. One of the largest non-bank systems is TradeCard, which enables companies to agree payment bilaterally.

Industry move

Trade finance has undergone an about-turn in the past 10 years, with an estimated 70% of business now transacted via open account transactions, with just 30% using traditional letters of credit. Not only is this replacing an old risk with a new risk but it is also cutting banks out of the process for much of the small and mid-sized deals. The simple fact is that better supply-chain management has meant that trade finance deals are getting smaller and that banks can no longer rely on the large blue-chip, high ticket deals for revenue.

Alongside this, Bolero, the trade finance electronic platform that is part-owned by banks, is building another alternative: a hybrid system offering an online document settlement system using existing messaging standards to bring the industry a one-stop, open trade finance system.

To claw this business back, the banks are developing low-cost internet platforms that echo the open account environment but offer payment guarantees. Since Sibos last year, several of these internet platforms have gone live: HSBC decided to extend its trade finance system to internet users last December and Standard Chartered users are now live on its B2B eX system for creating electronic documents.

New entrant

Last year, JP Morgan introduced its own electronic letter of credit service for its customers. Today, JP Morgan Treasury Services offers a single online portal that combines the bank’s trade services with the related cash management processes. Companies can manage their procurement process online using JP Morgan’s Electronic Invoice Presentment & Payment solution, which enables the integration of information reporting with accounting systems, and the trade origination process allows clients to enhance efficiencies and lower costs around the trade initiation process.

JP Morgan’s Trade Information Exchange then provides supply-chain participants a customised analytical tool, which allows data to be shared across the organisations to improve the decision-making process around cash flow, risk management and payment. JP Morgan also offers a flexible document preparation solution that enables exporters to prepare their own trade documents online, or outsource the entire document preparation process to the bank.

Craig Weeks, senior vice-president and head of Western hemisphere trade sales at JP Morgan Treasury Services, says: “As a proven global leader, JP Morgan Treasury Services offers advanced technologies that allow it to share its web-based solutions with regional banking providers who need support in enriching their trade capabilities with corporate clients.

“JP Morgan provides private-labelled document outsourcing solutions to regional providers that wish to offer document preparation services to

their own clients. And it delivers reliable systems support and continued product innovations to provide regional banking partners with market-leading capabilities.”

Relevant sessions

Thursday October 2311am-12.30pmThe global trade chain – new intermediation roles for banks?

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