The $1.5tn trade finance gap is a problem exacerbated by the difficulties that small and medium-sized enterprise (SME) suppliers often face when they try to access financing. To address this, collaboration between banks and fintech companies can offer a “best of both worlds” solution, as demonstrated by a new joint venture between HSBC and Nordic fintech Tradeshift.
Both have collaborated commercially for some years and HSBC itself uses Tradeshift platforms. Now, the bank has announced it is investing $35m into Tradeshift across two stages, initially enabling the development of embedded finance solutions and financial services apps.
HSBC’s chief growth officer for commercial banking, Vinay Mendonca, describes how – at its core – the joint venture represents a collaboration between the “best of a start-up mindset alongside the network and governance of a global bank”.
A deeply embedded customer experience
Mr Mendonca explains how the joint venture aims to use a “beyond banking lens” in the support of SME suppliers and to build a streamlined process, both to improve access to finance and simplify trading. The partnership enables HSBC to use a wealth of data and embed financing solutions into the core of Tradeshift’s processes.
Adopting a more integrated approach, customers will be able to access financing within their existing supplier or buyer relationship journey, without requiring additional steps. The joint venture’s embedded finance capabilities also enable access to flows in traffic, and uses data to inform quicker decisions about credit options for suppliers.
HSBC enables more than $800bn of trade flows annually and Tradeshift supports over $260bn of annual gross merchandise value across its platform. For Tradeshift, the collaboration enriches their offering to clients, in which financing is sourced from an exclusive HSBC partnership.
The joint venture will deploy a range of digital solutions across Tradeshift and other platforms. These include payment and fintech services embedded into trade, e-commerce and marketplace experiences. From a financial perspective, one key solution lies within its supply chain finance expansion.
Working with larger anchor clients, the partnership reduces potential supply chain disruption by allowing earlier payments to be made to suppliers. Another of the joint venture’s frameworks, which HSBC is uniquely placed to engage with, is its ability to support suppliers with trade receivables – offering finance from buyer-led or seller-led receivable finance.
Moreover, to support suppliers requiring working capital during earlier stages, the joint venture will also offer pre-shipment financing.
Continued collaboration and co-developments ahead
And it is not just financing capacity. As the venture progresses, Mr Mendonca foresees other solutions being co-developed within the partnership. These could include virtual cards as a method for payments, as well as better payment solutions within the foreign exchange market.
More broadly, the joint venture looks to change how trading is conducted. This is a move away from analogue methods of financing, and toward the development of digital enhancements focused on enabling synchronised, versatile decision-making that quickly adapts to evolving trends and needs. Using Tradeshift’s provision of technology and talent, the joint venture plans to continue co-developing solutions like these for the future.
More on trade finance
Success is a straightforward metric from the joint venture’s perspective, measured by how many customers HSBC can onboard for financing and how rapidly the venture can embed solutions into the market. It looks to onboard suppliers and offer financing quickly. Over the next six months, the incorporation of the joint venture will be finalised ahead of the second stage of the funding round. From then on, the bank-fintech partnership will focus on commercialising solutions.
As the joint venture progresses, collaboration with other partners can be expected. In its commitment to continually improving how suppliers receive payments – especially with regards to developing cheaper and more efficient payment solutions – the joint venture may offer other forms of assistance such as trade credit insurance or support with logistical features like shipping space.
Although financing solutions constitute the venture’s immediate focus, Mr Mendonca anticipates new advancements in the future, including unique payment solutions, new foreign exchange market approaches, and the development of “beyond banking” solutions.
The joint venture is planned to launch in early 2024.
