| www.fintech.finance Autumn 201628

SIBOS

A shipment of chemicals from Shannon in Ireland to an automotive parts manufacturer in Genoa, Italy, made history in August.

There was nothing particularly remarkable about the cargo itself, but what was notable was the method by which the payment was executed – using the UK’s first Bank Payment Obligation (BPO) live transaction.

A proven digital settlement tool for international trade, and a clever combination of easy handling and secure payment, the first BPO was used by UniCredit in 2014. The solution consists of the irrevocable undertaking by the buyer’s bank to the seller’s bank, to effect the relevant payment as the invoice falls due. It relies on the electronic matching of trade data between participating banks using a digital platform.

The Irish consignment was the latest in several landmark moments for UniCredit, which has led the way in trade finance digitisation and in this instance processed the payment for the Italian purchaser.

Fintech Finance asked its Global Head of Trade Products, Raphael Barisaac, for his predictions on the wider adoption of trade BPOs, and the future of financial services at large.

Fintech Finance: What, in your view, are the biggest challenges currently facing the financial services industry?Raphael Barisaac: We are living in a very dynamic and changing world. For instance, the, often unexpected, geopolitical changes that affect macroeconomics in general, and the way we do business – including

FF: Trade finance is still quite paper-based. Why has it taken so long to adopt digital technology, compared to other areas of the industry? RB: I think it’s down to the complex nature of cross-country commercial transactions. From the simplest to the most complex, they typically involve a huge number of people, including regulators in the different countries. This means they are very complex to digitise end-to end. First and foremost, you need to have the right governance to ensure the actions you take in one country are appropriate to the others. So often the issue isn’t the technology, it’s the governance you need to apply to the transaction end-to-end. To a large extent, we can only develop at the pace allowed by the environment we are operating in, no matter how fantastic our technological solutions might be.

FF: Blockchain is sometimes referred to as a solution looking for a problem. However, trade finance seems to be a perfect example of using it well.RB: I think people who hold that view are confusing two things – the capability of the technology and the transformation businesses must undergo in order to be able to use it successfully.

There is no question that our distributed ledger is working, in proof of concept. So we have a prime example of what this technology is capable of, albeit on a very small scale, and thus far independent of the compliance considerations that will feature in an actual

Turning the ship around

All in good time: Cross-border trade transactions are slow and difficult to change

Raphael Barisaac, Global Head of Trade Products within UniCredit Group’s Global Product Portfolio, discusses how far digitisation of trade finance has come… the answer is that, while technological solutions have advanced considerably, their use is constrained by a fragmented regulatory landscape

the growing move towards cross-border, inter-country commercial transactions. Such developments impact the entire spectrum of trade, from commodities to the pricing of shipment containers, insurance, credit insurance, and the way transactions themselves are actioned.

In the finance industry itself, there is dramatic development going on, not least in the way that new players in the market are offering various services that no-one would even have dreamed of 10 years ago, and shifting power away from the traditional banks.

FF: How does UniCredit plan to tackle digitisation?RB: We are investing extensively in digital solutions across our whole spectrum of transactions. The BPO is one such example, where we are recognised as a forerunner, with our own digital platform for offering them in various countries.

We’ve had amazing feedback about our BPO service and this has led to us acquiring new businesses in areas where we haven’t had a presence previously.

On blockchain, too, we are very active, and have been involved in the R3 consortium from day one. We have also produced two proof of concepts, specifically related to the use of blockchain for trade transactions, linked to DLP software for trade flow. One focusses on an e-letter of credit presentation, the other on a bank confirmation of the invoice receivable. These concepts have proved successful.

FF2_p28-29_UniCredit.indd 28 07/10/2016 01:56

29

Turning the ship around transaction. In order to implement processes using this technology, every organisation involved in the supply chain, from the exporter to the shipper, the insurer, customs and, of course, the bank, would need to open up their core functions to this technology. This means each of them changing the way they do things. This is significant because we’re talking about core processes, not the small things around the edges. However, the fact remains that the products and technology exist to allow, for example, the use of electronic documents. So maybe the industry needs to ask itself, ‘why are we talking about this and not just making it happen on an industrial scale?’.

FF: From a non-blockchain, compliance point of view, what are the implications of digitisation for an organisation like UniCredit? Does it make it easier or harder?RB: We’re seeing a year-on-year increase in new compliance-related demands from regulators and this trend is likely to continue, with organisations having to juggle their priorities and investment accordingly. From a digital point of view, this is not all bad, as intelligent organisations like ours can apply digital solutions to necessary process changes and improvements, saving time and money.

FF: So what can we expect to see from UniCredit at Sibos? RB: Well, first of all, as a European bank, we've got to stay true to our Italian roots and offer excellent coffee! We pride

We can only develop at

the pace allowed by the environment we are operating in, no matter how fantastic our technological solutions might be

ourselves on our relationships with partners, so we’ll be looking to deepen existing ties and build new ones, as well as learning from our industry peers and colleagues and exploring opportunities for new collaborations.

Aside from this, we'll be sharing our blockchain ideas and gauging the adoption appetite among our industry peers.

FF: Lastly, how do you predict the financial industry will evolve over the next few years?RB: I think we’ll see some real settling-out within the industry. Bank profitability will be one of the things that dictates its future, because banks are likely to run with the products that offer the highest return with the lowest risk.

Increasing risk and compliance demands are inevitable and this will also have a significant bearing on the money financial institutions have to invest and where. There are also going to be dramatic changes in the kinds of financial offerings

Autumn 2016 www.fintech.finance |

banks are able to provide, due to increasing competition from fintechs, which are more nimble and rapidly taking market share. We ourselves plan to partner with other organisations to explore how we can participate in this.

It is also likely that regulation won’t match the pace of change

and this will create vulnerability in some organisations, by preventing them from doing what they need to do to compete, quickly enough.

FF2_p28-29_UniCredit.indd 29 07/10/2016 01:56