Joining the dots: the evolution of correspondent banking
Simone Del Guerra, UniCredit: a “network of networks” for correspondent banking
Simone Del Guerra, UniCredit’s global head of financial institutions cash & trade sales, explores how the correspondent banking space is evolving and assesses the potential benefits of joining several digital platforms to form a “network of networks”.
New connective solutions such as we.trade and the Trade Information Network have garnered significant media attention for their potential to bring greater efficiency to trade and working capital processes. Yet, by working in harmony, these networks – connecting corporates to corporates, and corporates to banks, respectively – stand to take a further step forward. In the near future, we could see such platforms come together to form a “network of networks” – managing corporate interactions from end to end, and feeding in financing as and when required.
Tightening corporate-to-corporate interactions
As a primarily corporate-to-corporate platform, we.trade is well-suited to handle the initial stages of the trade process. The platform enables transacting corporates to negotiate and finalise contracts within a secure, standardised, blockchain-based environment. Designed primarily for small and medium-sized enterprises (SMEs) – who do not have the well-established purchasing structures of multinational corporations – we.trade serves to avoid the proliferation of lengthy, ambiguous email chains during contract negotiations, which can create a complex, and time-consuming audit trail.
Banks can also offer value-added services via the platform, including working capital finance, pre-export finance or invoice discounting – creating a seamless link between business workflows and banking services. The result is a better service for the corporate, and fewer missed revenue opportunities for banks.
In a broader sense, this focus on the initial stages of corporates’ trade interactions represents a first step away from the traditional transaction-focused approach to trade finance banking, towards a more interaction-focused model.
Expanding the range of financing options
This is a promising start, but there is potential to take a second step here. This would see transacting corporates migrate the associated contracts to a corporate-to-bank platform, such as the recently launched Trade Information Network, which enables corporates to submit purchase orders and invoices in order to use them as collateral for trade finance.
Seeking to address the unmet demand for financing earlier in the supply chain – by enabling corporates to securely communicate trade information directly with banks of their choice – the Trade Information Network would be a natural partner for we.trade. Where we.trade allows banks to offer corporates a selection of financing options, the Trade Information Network – as a dedicated corporate-to-bank platform – stands to boost the array of banks and financing programmes to choose from. What’s more, by supplying the chosen banks with access to trade information, Trade Information Network can lessen the risk of fraudulent trade information and double financing.
In recent years, we have seen a number of banking consortiums unite to form a single body. The Trade Information Network and we.trade could follow a similar trajectory. If initiatives such as these can be made interoperable, correspondent banking could develop into a “network of networks”, seeing the role of the bank broaden from simply facilitating transactions to supporting entire commercial relationships – offering transacting corporates greater transparency when it comes to financing options and giving banks the opportunity to engineer high-quality value-added services.
There is much discussion about the need for industry collaboration when it comes to developing new transaction banking solutions. This is the kind of collaboration that is needed in the trade finance space, facilitating smooth and mutually beneficial interactions in a quick and straightforward fashion.
