Bankable Insights_Transaction Banking_January 2022
Read our very first Transaction Banking Bankable Insights, exploring the forces driving sustainable global growth and digitalisation, amongst others.
*Bankable Insights* Transaction Banking
1H 2022
Against the backdrop of a global pandemic and continuous disruptions – positive and negative – we at Standard Chartered remain focused on offering our clients transaction banking solutions to help them to take advantage of the emerging opportunities across our network. Client centricity, sustainability, simplification – enabled by digitisation – form some of the key pillars of our Transaction Banking business.
In this edition of Bankable Insights, we explore the critical role of financial inclusion in driving sustainable global growth and in accelerating the digitalisation of transaction banking. Sustainability is another recurrent theme throughout this edition. From digital solutions that simplify supply chain connectivity and strengthen collaboration, to a focus on bringing a disciplined approach to environmental, social, and governance (ESG) practices, we showcase tangible initiatives that are fostering financial inclusion, sustainability and resilience.
We also look at inclusion beyond the financial aspect in an article on diversity and inclusion (D&I) at the workplace. This is a priority for us across the Bank.
Our partnerships
At Standard Chartered, we speak of ‘banking the ecosystem’, a Transaction Banking approach that recognises connectivity as foundational to stability, resilience, and growth. In a complex business landscape, where innovation and accelerating digital transformation are critical, partnerships play a vital role in strengthening our value proposition.
You will read about some of our key partnerships with leading fintech players and how they are enabling us to navigate the rapid evolution of technology. These partnerships are complementing our strengths and allowing us to offer our clients practical solutions that address longstanding challenges.
Capitalising on future trends
2021 was a pivotal year for absorbing the lessons of supply chain disruptions and shifts in consumer expectations and, as a result, considering ways to shape the future of globalisation towards greater equality, inclusion, and sustainability. Furthering this reset, with its expansive opportunities, requires progressive strategies and innovative products and solutions that help our clients to become future-ready.
Several achievements and developments in 2021 to drive client business success across the globe are shown in our 2021 highlights section.
As we look to the future, we examine four trends that will impact transaction banking in 2022 and beyond. We also share how we are capitalising on these trends to advance transaction banking solutions that support our clients’ transition towards a more sustainable and inclusive future.
We hope you enjoy this edition of Bankable Insights.
Michael Spiegel
Global Head of Transaction Banking,
Standard Chartered
Transaction Banking
2021 highlights
*Digital transformation* Digital escrow: New ways of facilitating commerce
Digital escrow: New ways of facilitating commerce
Commercial relationships can be constrained by risk and complexity. The good news is there is now a solution that will help businesses keep up with this trend and the new opportunities it brings.
The surge in ecommerce sales shows little signs of slowing and is expected to hit $4.2 trillion this year. Commercial relationships however can be constrained by risk and complexity. The good news is that there is now a solution that will help businesses keep up with this trend and the new opportunities it brings.
Philip Panaino
Global Head of Cash Management,
Standard Chartered
Risk, complexity, cost, process inefficiencies and the resulting delays can all impose constraints on the free flow of trade. But the world is speeding up with the unstoppable roll-out of digital commerce, and buyer and seller expectations of a friction-free experience are rising with the growth of online marketplaces.
While the promise of these digital marketplaces is significant, the reality can be challenging. Many large corporates are setting up marketplaces but are not prepared to handle the funds exchanged on the platform, due to complexities around accounting, taxation and in some cases the requirement for a payment services license.
Meanwhile, small and medium-sized enterprises (SMEs) using B2B marketplaces face confidence issues from their trading partners: Will the business deliver? Will they remain credible? Will they pay? Partner due diligence currently relies on scant digital cues, says Panaino, meaning that SMEs have limited access to credit and require advance payments, especially in a cross-border trade context.
Irrespective of business size, unsecured trade finance requiring funds to be paid upfront is a huge risk for the buyer. Yet without sight of funds, the seller is exposed to considerable risk too. Further friction can be caused by a mountain of slow, costly, paper-based transaction processing in many markets.
But there is a solution, says Panaino: digital escrow. As the name suggests, its roots are embedded in its traditional counterpart but is very much a modern proposition.
A solution for the new economy
Escrow is essentially a contractual arrangement in which a trusted third party, recognised by all counterparties, acts as an administrator of a payment workflow in a commercial transaction. The escrow agent ensures all agreed terms and conditions are met by both sides before funds are released.
Historically, this arrangement has been used with great success in M&A deals, real estate, and joint venture transactions, but can be time-consuming and expensive to set up. Now, digital escrow has arrived. This solution mitigates many of these issues, including those arising from the commercial trust gap and the process inefficiencies that inhibit smooth commercial flows, especially for online marketplaces.
Digitisation of escrow also means new and simpler ways of accessing the product at the point of need. Standard Chartered’s recently announced MoU with Tazapay facilitates a seamless front-end user experience, and integrates with B2B marketplaces in multiple formats.
Philip Panaino
Global Head of Cash Management,
Standard Chartered
For enterprise marketplaces, the solution embeds a digital payment workflow into the marketplace experience that is governed by an appropriate legal framework, with funds held in a neutrally owned account by a trusted financial intermediary.
For SMEs, the solution offers a comprehensive ‘trust infrastructure’ comprising:
- Data services such as business verification, sanctions, and credit history
- Digital sign up and exchange of documents relating to KYC, escrow, transaction, and shipping
- Simple milestone/performance-linked payment workflows, administered by a trusted third party
- On-demand visibility of transaction status
Benefits of digital escrow
- Funds held in escrow are protected from insolvency of either party due to neutral ownership of funds
- Due diligence from an independent party to help determine that a commercial counterparty is a credible partner
- Payment upon performance or fulfilment of predefined criteria, e.g. delivery vs. payment
- Flexibility around different payment workflows e.g. milestone-based staged fund ins or pay-outs, payment on inspection or delivery
- Ability to work in tandem with working capital financing products e.g. financing the buyer to fund escrow
Stronger together: the benefits of co-creation
In addition to providing enterprise marketplaces and payment service providers with advice, Standard Chartered co-creates safeguard solutions with clients through its new eCommerce pay-outs platform, the Smart Contracts Suite. This enhances the trust end users have in clients, as the funds from end users will be operationally controlled and legally protected. Co-creating with a bank brings about several benefits such as access to a wide network of markets, a compliant
and technically advanced solution and safeguarding of funds by a secured counterparty, notes Panaino.
Digital escrow provides users with a viable alternative settlement method when conducting marketplace commerce. There is optionality both in format and construct of the solution which means it is capable of mitigating several layers of risk and complexity, while safely extending existing relationships or opening up new opportunities in new territories. As such, digital escrow is a valuable solution and treasurers seeking to help their organisations grow would do well to explore further.
Philip Panaino
Global Head of Cash Management,
Standard Chartered
*Digital transformation* Digitalising collections with Straight2Bank Pay
Enhance the payment experience for your customers
The pandemic has accelerated the shift to online shopping, increased the use of digital payments, and forced institutions and consumers around the world to re-think the use of cash. As corporations take their businesses online and expand into new and emerging markets, they are confronted with an ever-growing list of payment options and service providers.
In this podcast, you’ll hear from Lim Weijern, the Head of Finance and Corporate Development at YouTrip, the Singapore-based mobile payments start-up and Mahesh Narayan, Global Product Lead for Mobile Money and eCommerce at Standard Chartered, about how these customer expectations varies across countries and regions, the challenges they pose to multinationals operating across the globe, ideas on how these challenges can be effectively managed and how Standard Chartered’s Straight2Bank Pay can help. Listen to the podcast here.
*Partnerships and collaboration* Marriage of banks and fintechs
Marriage of banks and fintechs
Four new partnerships that will change your client experience
Financial technology companies have been around for more than 100 years, and banks have long allied with them to deliver services. But, more recently came the rise of fintech startups. Banks and fintechs initially sought to compete. These days, they are thinking differently about each other.
Banks and fintechs are combining their strengths for their mutual benefit. The positive impact of the partnership is helping to support new business models and better ways of doing business, with far-reaching implications for clients and markets.
The partnership imperative
A collaborative approach has never been more important. The rise of digital ecosystems and accompanying regulatory changes to foster open banking have been key drivers in the evolution towards bank-fintech partnerships.
Open banking regulations have aimed to cultivate banking innovation while strengthening security for electronic payments and protecting financial data. They support an ecosystem approach to financial services delivery, for example, fostering the use of Application Programming Interfaces (APIs) that facilitate real-time interactions.
That’s vital amidst the increasing expectation for on-demand commerce and its impact to corporate treasury and finance as well as a company’s network of suppliers and partners. The COVID-19 pandemic has been a global accelerator of e-commerce and of the corporate urgency for digital solutions that enable real-time treasury and finance.
Combining complementary strengths
A strong model for an effective bank-fintech partnership involves identifying complementary skill sets and mutually supporting areas of expertise and capabilities that combine into unique value propositions. The resulting propositions, stronger than what a bank or fintech could deliver on its own, aim to solve practical problems and advance strategic objectives for clients and markets.
Banks excel as trusted providers with fiduciary responsibility in longstanding client relationships. They combine financial stability and scale with expertise in banking, regulatory, and compliance as well as having secure connectivity to banking infrastructure, such as payment clearing systems. Fintechs are known for disrupting entrenched ways of doing business. They bring agile execution of the latest technologies, with a key focus on digitalisation, to accelerate speed-to-market. Both partners should bring innovative approaches in which each offers unique attributes and insights.
A partnership approach accelerates client access to that innovation. Meanwhile, banking clients can take advantage of the stringent due diligence that banks bring to vetting their fintech partners.
Connecting communities into more effective and efficient networks
Banks and fintechs each have their own client ecosystems. A partnership approach links these ecosystems while simplifying the connections between participants to make it easy to do business. A key benefit of joining forces is to connect communities efficiently, transparently, and securely to better manage risk, efficiently operate, stabilise supply chains and sources of working capital, and to enhance their performance - this becomes a platform for accelerating growth.
This affords an opportunity for a new level of interoperability that addresses longstanding challenges and enables transformational change for clients and their networks. Better, more efficient, and more effective ways of operating become the basis for successful new business models for both digital-native companies and for traditional businesses that seek to digitally connect to remain competitive.
Big ambitions for transforming the banking experience
At Standard Chartered, fintech partnerships are powering digital-first banking services that address diverse client needs. In the last 12 months, our partnerships and ensuing new capabilities have helped clients to connect quickly, easily, and seamlessly to banking services while improving financial access for their clients and suppliers or other ecosystem members such as institutional investors.
Demica
Enrolling suppliers quickly in supply chain finance programmes
Standard Chartered has partnered with Demica, a leading fintech with an intuitive, cloud-based platform to enable financial institutions and corporates to automate and scale their working capital solutions, on a new supplier enrolment portal. The supplier enrolment portal uses a digital front-end while providing the Bank’s enrolment team with intuitive dashboards for monitoring and sending updates to anchor companies. Suppliers can efficiently onboard to supply chain finance programmes while anchors gain transparency into the enrolment process.
This is the first phase of a strategic partnership between Standard Chartered and Demica. The two organisations will continue to explore ways to use Demica’s next-generation technology to transform Standard Chartered’s wider catalogue of working capital solutions.
Olea
Bridging the supplier-investor gap with a digital trade finance platform
Olea is a joint venture between Standard Chartered and Linklogis, China’s leading solution provider for supply chain financing, which brings together institutional investors with businesses requiring supply chain financing. Supply chain partners can access financing via transparent and frictionless processes. Investors gain access to a full range of trade finance assets globally, particularly in Asia, with credible insights on asset quality.
Olea’s rigorous risk analytics and secure platform offers investors access to investment options for returns that align with their risk profiles. The platform uses blockchain and artificial intelligence to provide a radically transparent, faster, and hassle-free way to access working capital for supply chain participants regardless of size while fulfilling institutional demand for alternative investments.
SAP MBC
Providing SAP multi-bank connectivity to open banking
Increasingly businesses are operating in digital ecosystems, and transacting is moving towards real-time. To support business operations and enable efficient growth strategies, treasurers need on-demand open-access banking through their ERP systems.
Many of our existing solutions already follow the direction of open banking, reflected in our partnership with SAP Ariba, which allows clients to connect with multiple banks directly from the SAP Ariba platform. In addition to digital and e-commerce clients, we are seeing considerable take-up from a wide range of industries, such as insurance, automotive, fast-moving consumer goods, amongst others, for instant policies and distributor incentive programmes.
FinLync
Easily connecting to on-demand transaction banking
APIs play a key role in the delivery of real-time treasury services. Corporates need to plug into APIs simply and securely to connect to multi-bank services through their ERP systems.
Standard Chartered’s partnership with FinLync, a global fintech company, enables clients to accelerate adoption of the Bank’s API offerings. The solution changes the banking experience by enabling quick API integration, easy multi-bank access, and a suite of transaction banking applications to support treasury activities. For example, instead of waiting for balance and transaction information to arrive periodically or at prescheduled times, the approach enables clients to access banking information when needed, through the desired applications.
As a result, corporate treasury and finance teams can quickly and easily connect to banking services via APIs. The approach supports clients in making the shift to real-time treasury and supports improved decision making, increased working capital efficiency, and reduced risks.
*Partnerships and collaboration* Built for speed: The API-powered treasury
Built for speed: The API-powered treasury
Application Programming Interfaces (APIs) bring a new level of speed, control, versatility and visibility to the treasurer.
On a regular day, with a few taps on a mobile phone you can order a meal through food delivery services or book a taxi for an upcoming journey, all without the need for cash or a physical card for payment. In both scenarios, a collection of application programming interfaces (APIs) works together seamlessly and invisibly to deliver a reliable and secure service, allowing you to go about your personal and professional lives with ease.
Corporate banking too, is on the cusp of becoming this efficient. Today it can be significantly easier and faster for you to meet your treasury needs through a level of access and automation that was unthinkable a mere few years ago. What then, can you expect?
Greater automation and autonomy
While treasury departments have lifted their level of automation over the last decade, a few functions remain manual. With most using multiple banks, reconciliation between various accounts is time-consuming, as there is little if any connectivity between the different entities. Furthermore, account and transaction information are extracted manually once a day, inhibiting timely oversight of the company’s cash positions throughout most of the working day.
Thankfully, APIs can resolve these types of issues and more. APIs provide a new level of connectivity between you and your bank, across multiple markets and regions, between head offices and local subsidiaries, as well as within your banking network.
API-powered solutions like those we have developed here at Standard Chartered enable treasurers to access informational needs in real time, 24/7. They also allow them to take advantage of the latest opportunities across markets quickly, conducting a wide range of transactions autonomously with reduced dependencies.
Rene W. Keller
Chief Information Officer of Corporate,
Commercial & Institutional Banking,
Standard Chartered.
In addition, APIs can provide a seamless connection between your company’s treasury management system, various services provided by your bank, and information from other providers, enabling automation and improved efficiencies for you.
Innovation through collaboration
Collaboration between the various entities within the banking ecosystem is strengthened with the use of APIs. These partnerships inspire possibilities that lead to the experimentation and execution of ideas.
We at Standard Chartered have a critical role to play in the co-creation process. We provide industry insights, data and technology, while developers and fintech players bring to the table niche services and specialist knowledge. Add to this, clients like you who provide vital feedback and help to improve the overall user experience. The result? A rich ecosystem of talent dedicated to solving challenges through easy-to-use solutions.
It is in this light that we launched aXess in 2019, a platform with over 100 APIs currently, offering developers access to our open-source code for banking products and APIs, apps and libraries. The proprietary architecture of aXess helps drive greater connectivity and collaboration between all actors – resulting in the co-creation of industry-leading solutions you can make use of.
Real-time oversight
If you are a corporate treasurer with operations across multiple countries and regions, you may find yourself facing a lack of visibility over your cash and liquidity positions. Information such as the amount of cash relative to expenses and other liabilities is typically only shared once a day. Plus, with operations in different time zones and involving multiple currencies, information from different markets can take some time to arrive at a regional or global treasury centre – hindering the monitoring of positions.
To meet this pressing need, we worked with a fintech partner to launch a new customised front-end which connects to our Straight2Bank NextGen banking platform via APIs. Critically, it also links to our liquidity management platform, which provides treasurers like you with timely access to your global balance positions, inter-company loan positions, reports and more, through engaging dashboards and analytics models.
Such API-based solutions are welcomed by the industry. Not only has the solution seen increased adoption, more importantly its self-service capabilities have vastly improved the user experience (of our clients) and delivered results especially for companies with regional and global operations.
Michael Spiegel
Global Head of Transaction Banking,
Standard Chartered
In the payments space, a similar information delay occurs between buyers and sellers of goods and services — whether online, in-person or over the phone, due to the need for payment validation by an independent organisation.
Buyers usually must wait a few days before their order is confirmed by the finance teams of sellers, or worse, that their payment has been rejected or that their order is now out of stock. For sellers, the matching and reconciliation process that is undertaken by their treasury departments is typically time-consuming, sometimes leading to customer complaints and refunds.
To bridge this gap, we created a pre-credit validation service developed in close collaboration with a technology partner. Using a suite of APIs, this service directly transfers payment from a buyer to the seller’s account without the need for intermediary steps for payment reconciliation. It works by integrating with the client’s API to automatically check for matching of payment against the invoice, enabling real-time processing of the transaction.
For sellers, this solution alleviates the matching and reconciliation process, saving both time and cost.
It also improves the cash flow for sellers as funds can be utilised instantly. For buyers, the instant confirmation of payment provides greater certainty and a peace of mind.
Driving business growth
These are just some examples of what APIs can do and how API-based solutions by Standard Chartered can help advance, while simplifying, the banking experience for treasurers and beyond. Not only do APIs provide mission-critical information in real time 24/7, they enable you to act immediately and with greater control, versatility and visibility.
These underscore our commitment to co-develop solutions with other players within the banking technology ecosystem, including developers, fintech companies, clients and regulators. The collective effort not only advances capabilities for you, it also fosters a seamless and highly efficient banking experience that further facilitates the growth of your business.
*Sustainability* Future-proofing supply chains for the new
global economy
Future-proofing supply chains for the new global economy
As businesses chart a path forward in the wake of the Covid-19 pandemic, building stronger, more sustainable supply chains will be vital to success.
The 2020s are a decade of transformative change in trade. The challenges are significant, but so are the opportunities. As businesses chart a path forward in the wake of the Covid-19 pandemic, building stronger, more sustainable supply chains will be vital to success.
It is fast becoming clear that rebuilding trade and shoring up supply chains in the wake of the pandemic will take a collaborative approach from all actors in the ecosystem. However, ensuring success in the new world economy is both a challenge and an opportunity to be managed – and there is still some way to go.
According to Standard Chartered’s Critical indicators of sustainable supply chains, a survey of over 900 global companies, approximately 90% confirmed that key indicators of supply chain success cover both resilience and sustainability, including the environmental soundness and transparency of direct suppliers and indirect or deep-tier suppliers, financial robustness, flexibility and adaptability, and collaboration and connectedness throughout the ecosystem.
However, for nearly two thirds of companies, real world performance lags the importance they place on meeting each of the indicators.
Speaking at Global Trade Virtual Week 2021, held between June 28 and July 2, three experts from Standard Chartered outlined the main areas of focus, and highlighted the enablers companies should consider adopting in addressing their supply chain gaps.
Environmental, social and governance (ESG) threats are intensifying, challenging the durability of existing business models and bringing reputational risks to the fore. Meanwhile, emerging regulatory actions are driving an overhaul of supply chain practices and presenting new compliance issues to be managed.
Multinational corporations surveyed by Standard Chartered, in its Carbon Dated report, say that supply chain emissions account for an average of 73% of their total emissions, and as they transition away from carbon, they expect to exclude 35% of their current suppliers, but gaining visibility into the environmental performance of supply chains remains a difficult task.
We listened to our clients, and have created a financing toolkit to help companies and their supply chains meet sustainability goals. The Bank’s new sustainable trade finance proposition builds the Loan Market Association’s Green and Sustainability-linked Loan Principals into its trade financing framework, encouraging improved disclosure, reporting and focused investments towards a sustainable future. By working with our clients, we have developed a sustainability framework we are now introducing to industry groups to set global standards for our industry.
Kai Fehr
Global Head of Trade & Working Capital,
Standard Chartered
As part of the wider ESG agenda, governments around the world have been working to enhance climate change action and sustainable solutions. The Asean region is a leader in this area, with plans afoot to build solar energy powered infrastructure and managing plastic waste, as well as environmentally friendly solutions to meet rapidly growing consumption needs.
Investment in smart cities, electric transport and clean energy initiatives is opening up new opportunities for trade, and with numerous new free trade agreements (FTAs) being signed, a unique opportunity is opening up for corporates to access new markets and consumers.
However, European and North American companies looking to expand into the region must understand the opportunities and challenges pertaining to sustainability, and build capabilities and infrastructure for incorporating ESG considerations into local business operations alongside their banking partners.
Governments have wholeheartedly recognised the importance of sustainability and social impact. For banks, this means helping ensure that clients are transitioning to net zero. It also means increasing our suite of sustainable finance products and bringing investors and our own balance sheet to bear where it’s needed.
Simon Cooper
CEO, Corporate, Commercial & Institutional Banking and
CEO, Europe & Americas,
Standard Chartered
The strength to seek out new markets
It is not just the Asean region that offers opportunities for expansion. As illustrated by the blockage of the Suez Canal, disruptive events in trade are fast becoming the rule rather than the exception, forcing manufacturers to reassess their supply chains to mitigate risk exposure and increase resilience.
Incorporating supply chain diversification as part of an overall strategy will allow companies to be more flexible and better anticipate, adapt to and recover from events in an uncertain environment. Companies should, however, adopt a holistic approach to risk diversification which extends beyond supply and production networks and also encompasses financial and operational resilience.
Speaking to many of our clients, supply chain resilience and prioritisation is a top priority as lessons learned from geopolitical tension and impact from the pandemic. We meet clients today who are speaking to us for the first time about supply chain finance solutions, because they are looking for advice on how to address prioritisation within their procurement and how to mitigate dependencies and counterparty risk.
Kai Fehr
Global Head of Trade & Working Capital,
Standard Chartered
Harnessing data for visibility
The complexity of supply chains has created a major challenge: a lack of visibility, meaning that problems only come to light when the entire system comes to a standstill. Without a centralised system that can consistently pinpoint the location of a specific item as it travels along the chain, corporates are unable to identify bottlenecks, or track ESG risks.
What’s more, this lack of ability is hampering access to finance for smaller suppliers, since the data required to complete robust risk assessments simply isn’t available. As a result, the trade finance gap – which was already as high as US$1.5tn prior to Covid-19 – is now thought to have reached as much as US$3.4tn.
“The gap is acute in developing markets,” says Jordane Rollin, Head of Trade & Working Capital, Americas, at Standard Chartered. “This is largely due to the need for data. When you’re talking about SMEs, it’s a large scale operation to gather sufficient information to do credit assessments. To tackle this, we are working on using new sources of data from marketplaces and supplier networks.”
One promising and sometimes overlooked solution is blockchain, and Standard Chartered has invested in platforms such as Contour, which eliminate inefficient paper-based processes and improve transparency among transaction parties, enabling the provision of finance at even earlier stages for second and third-tier suppliers – so-called ‘deep-tier’ financing.
It is really by combining and joining forces that we can democratise trade finance. We have been successful in collaborating with fintechs and regulators to come up with new solutions.
Jordane Rollin
Head of Trade & Working Capital, Americas,
Standard Chartered
The 2020s thus far have been characterised by crisis management in supply chains. As corporates now shift their focus to future growth, there is an urgent need to take a more holistic view of supply chains to make them more flexible and resilient.
Fortunately, the tools to achieve this already exist: from digital solutions that enable connectivity and collaboration, to sustainable supply chain finance programmes that incentivise ESG improvements and promote financial robustness.
After over 18 months of extraordinary disruption, the supply chain performance management playbook has changed. Beyond a focus on the cost of goods sold and increasing profit, going forward, resilience and agility will become more critical measures. For corporates to survive and thrive in this new environment, they must build resilient, sustainable, digitally enabled supply chains – or risk being left behind.
Global Trade Virtual Week 2021 Interview with Simon Cooper
Simon Cooper, CEO, Corporate, Commercial, & Institutional Banking and CEO, Europe & Americas shares his views on the role of banks in the new world economy and enabling sustainability.
Global Trade Virtual Week 2021 Panel: Borderless Business – Sustainable business with the ASEAN Market
Leaders from Standard Chartered, ASEAN Economic Community, Roche and Siemens Energy discuss how to sustainably expand business and investment opportunities across ASEAN.
Global Trade Virtual Week 2021 Panel: What will it take to democratise and decentralise digital trade finance at scale?
A panel discussion of experts from Standard Chartered, Tradeshift, Nextrade Group, Windward and the World Economic Forum explore the future of digital trade finance.
*Sustainability* Mainstreaming ESG and resilience through
supply chain finance
Mainstreaming ESG and resilience through supply chain finance
Through supply chain finance, improvements can be made to promote healthier and more sustainable supply chains, and future-proof trade against emerging risks.
Hastened by shocks over the last year, companies are rethinking supply chains, presenting a historic opportunity to build back better. Through sustainable supply chain finance, improvements can be made in environmental soundness and financial robustness, creating flexibility and adaptability throughout the ecosystem to face new challenges ahead.
In recent years, societal and cultural shifts combined with regulatory imperatives have brought sustainability across all its dimensions – environmental, social and governance (ESG) – to the fore. But after Covid-19 exposed vulnerabilities deep in the supply chains of firms worldwide, ESG risks, which up until now had been seen as reputational and regulatory issues, took on operational-level importance.
This has given new impetus to corporates, which are increasingly broadening their supply chain goals beyond cost efficiency to sustainability and resilience commitments.
A massive mindset shift is underway, and it is gaining momentum at an incredible pace. ESG has changed from a side topic to something that is now very mainstream, and we have been pleasantly surprised by how quickly things are starting to change. We’re seeing multinationals making commitments around emissions reduction and recycling to social issues like labour standards or employment equality, and corporates are becoming a lot more thoughtful in their procurement strategies. However, there is a lot to do to turn commitments into reality, especially in supply chains.
Roshel Mahabeer
Executive Director of Sutainable Finance,
Standard Chartered
ESG is not the only operational risk that corporates must now focus upon. After the pandemic upended supply chains, bolstering the financial resilience of suppliers also became a strategic imperative.
Nearly three quarters of businesses experienced supply-side disruptions due to the pandemic. Often this was due to lower tier suppliers being unable to access adequate financing which meant that their production levels were constrained, or in some instances procurement was paused, causing strain on their weak cashflows.
Pradeep Nair
Global Head of Structured Solutions,
Standard Chartered
However, while there is near-universal agreement about the importance of making supply chains both sustainable and resilient, putting this into practice is more difficult.
A survey carried out by Standard Chartered polled over 900 companies globally on key supply chain indicators, and found a major gap between their performance today and what they need to do to achieve more viable supply chains. Although the vast majority of respondents said that the environmental soundness and financial robustness of their suppliers was important to them, nearly two thirds said their actual performance lags the importance they place on meeting these indicators.
The gap is due in large part to the complexity of today’s supply chains. A large multinational’s supply chain ecosystem can extend to hundreds of tier-one suppliers, which in turn rely on thousands of tier-two and tier-three suppliers. With these tiers spanning the globe, achieving transparency throughout the ecosystem becomes a serious challenge. Indeed, recent Standard Chartered research found that only 6% of firms said they had full supply chain visibility, and this is likely to have been exacerbated even further as a result of the pandemic.
This lack of visibility creates higher risks for companies, who find themselves unable to identify ESG risks and measure financial robustness of their suppliers – until it’s too late.
Setting the right targets
In recent months, progressive corporate leaders in numerous industrial sectors have set ambitious targets to improve their sustainability performance. In order to achieve these, however, they need to be able to better identify and address sustainability and labour rights risks and abuses in their supply chains, or potentially face serious financial and social risks.
“Clients ask us how they can get the right set of commitments, and how we can help them understand the right set of methodologies,” says Mahabeer. “We are increasingly co-creating new solutions. Instead of simply looking to protect themselves from risks, companies are looking at the positive impact they want to encourage and how best to go about it.”
To help companies carry out a “health check” on their operations and highlight which areas they need to focus on to achieve their aspirations, Standard Chartered has launched a sustainable supply chain benchmarking tool based on the following
indicators: environmental soundness and transparency of direct suppliers and of indirect or deep-tier suppliers; financial robustness; flexibility and adaptability; and collaboration and connectedness throughout the ecosystem.
With this tool, companies can now benchmark the resilience and sustainability of their supply chains, based on comparisons with peers across regions and sectors. We are no longer and haven’t been for some time just a source for credit lines, limits and currency. We are moving towards an advisory and consultancy capacity, where we can give advice and solutions to clients as they rethink their supply chains. And by combining this with encouraging better practices for access to finance, we are facilitating real change.
Michael Harte
Global Head of Receivable Finance,
Standard Chartered
Supply chain finance as an enabler
While point solutions exist to improve the transparency of supply chains, connecting appropriate financing to ESG performance means that corporates can reach beyond direct suppliers to the indirect suppliers that may be the greatest source of vulnerability, and thereby increase robustness.
Corporates need and want their supply chains to be sustainable. To ensure that their supply chains are healthy and viable, they need to ensure that their suppliers have liquidity. Supply chain finance has become a tool to enable all of this to happen.
Michael Harte
Global Head of Receivable Finance,
Standard Chartered
Recognising the scale of both the challenge and the opportunity that building sustainable and resilient supply chains poses, an increasing number of corporates are taking up buyer-led supply chain finance programmes, which shore up liquidity to suppliers while cascading consistent standards, says Nair.
“Supply chain finance as a product and a proposition is already mainstream but it is getting broader,” he explains. “During the pandemic, we saw how sovereigns and governments used the structure to push liquidity down to smaller companies, which was a key use case for the product. We are now seeing a huge increase in interest around linking it to ESG.” He adds that climate risk in particular is gaining more traction: “Our report indicates that about 62% of our multinational corporate clients will remove suppliers that endanger their carbon transition plan in just three years’ time.”
Because of its deep reach, supply chain finance is ideally suited to supporting trade for suppliers who meet acceptable thresholds against ESG ratings or metrics, such as gender equality, responsible sourcing criteria and labour practices.
“Global supply chain activities are estimated at US$19tn by the World Trade Organization,” says Nair. “The scale is immense, and as investors look to finance more sustainable activities, this is leading to clients wanting to put programmes in place which can tap into those pools.”
A holistic view of supply chains
The results of Standard Chartered’s survey reveal the extent to which corporates are seeking to take a more holistic view of supply chains to make them more flexible and resilient. Covid-19 demonstrated the speed at which ESG risks can propagate across the entire economy, and while a global pandemic is seen as a black swan event, the likelihood of future risks magnifying the weaknesses and fragility of today’s complex supply chains is high.
The direction of travel is clear: if you are not conscious about ESG and the management of issues such as climate and labour risk, you might not be financeable in the future, and you certainly won’t be relevant to your customers. This shift is a market opportunity. Early movers that show leadership managing the sustainability of supply chains will gain a serious competitive advantage.
Roshel Mahabeer
Executive Director of Sustainable Finance,
Standard Chartered
The advent of new technology such as blockchain and smart contracts is already helping to improve transparency, finality and verifiability of transactions across long value chains. Of the companies polled in the Bank’s Critical Indicators of Sustainable Supply Chains survey, 80% said that they used data to address supply chain optimisation challenges. They report using a range of solutions – from standard process automation solutions to more cutting-edge tools that facilitate tracking and tracing, to financial tools and platforms provided by their banking partners. This, in turn, is reinforcing the ability of supply chain finance to reach further down the tiers of suppliers.
“Supply chain finance will continue to evolve, and the real crux of this is the data,” says Harte. “By capturing the quantitative and qualitative data points that corporates have on their suppliers, we can take supply chain finance from post-shipment and post-approval potentially to the purchase order, getting liquidity into the supply chain at an earlier stage of the working capital cycle.”
He adds that Standard Chartered has already put this into practice in some markets. “We are not just financing the buyer’s supplier; we are seeing examples where the supplier’s supplier, and further, are also benefiting from this really broad ecosystem,” he says. As the scope of supply chain finance continues to broaden, it is fast becoming a conduit for far-reaching transformation. The result is quicker and targeted financing solutions that bolster suppliers’ financial robustness, promote healthier and more sustainable supply chains, and future-proof trade against emerging risks.
*Future forward* Four trends that will advance
longstanding business goals
Four trends that will advance longstanding business goals
Four key trends in transaction banking that will support global trade growth while advancing long-held, shared business objectives.
Globalisation continues to evolve. In 2021, intra-regional trade growth was a key focus area in response to pandemic-led disruptions, along with growing consumer demand in developing markets. However, growth paths have not been limited to physical proximity. In 2022 and beyond, important trade corridors will continue to cut across continents. Corridors are flourishing between South Asia and the US, Africa and Asia, Europe and East Asia, and the Middle East and Asia.
There is a long-term focus on making global trade growth more equitable, sustainable, financially inclusive, and secure. Mutually reinforcing trends in transaction banking are supporting this. For example, the acceleration of digitalisation brings networks together—more tightly integrating buyers, sellers, and financial services providers—to make banking simpler, easier, and more immediate. This interconnectivity, in turn, broadens access to affordable banking services, enabling greater financial inclusion for consumers and small businesses.
Here are four over-arching trends in transaction banking to pay attention to in 2022.
1. A push for (financial) inclusion
Banks continue to focus on diversity and inclusion (D&I). Customers expect it, and regulators in Europe and the U.S. have proposed to increase its oversight1. Employee belonging and well-being is of central concern, and banks will continue to formalise policies and programmes to foster D&I within their organisations.
Another area for D&I focus is on enabling small and medium-sized enterprises to participate in more equitable and financially inclusive global economic growth. For example, transaction banking solutions that enable digitalisation are unlocking new opportunities and increasing access to global trade for smaller businesses through the adoption of e-commerce platforms and collaborative tools that efficiently connect buyers and suppliers and make finance more accessible.
Global trade flows have been shifting toward higher-growth and emerging markets in Asia-Pacific, Africa, and the Middle East. Additionally, the Regional Comprehensive Economic Partnership (RCEP)*, a free trade agreement among 15 Asia-Pacific nations that account for about 30% of the world's population (2.2 billion people) and 30% of global GDP ($26.2 trillion)2, came into effect 1 January 2022. RCEP will provide even more opportunities for companies of all sizes.
2. A focus on sustainable finance and investment
Increasingly, consumers are holding transaction banks accountable for investing in responsible and sustainable initiatives. As providers of financing and risk mitigation, transaction banks are heightening their efforts to develop Environmental, Social, and Governance (ESG) practices that help clients to achieve their sustainability goals. A key focus is on continuing to reduce greenwashing through methodologies that ensure investments truly support sustainable end-uses. Islamic finance is projected to exceed USD 3.5 trillion by 2024, with banking sector assets and capital markets comprising 75% and 20% of all activities4. Increasingly this important finance sector is focusing on and contributing to sustainable development. For example, the Islamic Development Bank Group has launched a green sukuk, which is a Sharia-compliant financial product5.
Banks are keen to contribute to global supply chain sustainability, building on the special attention they have given to supporting the financial stability of smaller suppliers during the pandemic. Expect banks to continue to take a disciplined and transparent approach to understanding and addressing the evolving working capital needs of supply chain ecosystems and to deepen efforts to address these needs. Alongside this, there will be a continued focus on technology platforms that support the diversification and distribution of risk while broadening investor access to trade assets as an alternative investment.
Another aspect of supply chain sustainability that will remain in focus in 2022 involves the shift from just-in-time to just-in-case supply chains. The just-in-case strategy arose from the need to keep inventory close to consumers in order to avoid localised supply chain disruptions. The resulting safety stock has caused a material increase in Days Inventory Outstanding. Unlocking working capital, using tools such as distributor finance, will be crucial to alleviating balance sheet stress.
4 “How Islamic Finance Contributes to Achieving the Sustainable Development Goals,” OECD Development Policy Papers, June 2020 No. 30, page. 10 (How Islamic finance contributes to achieving the Sustainable Development Goals (oecd-ilibrary.org))
5 “A glimpse into the future: The role of Islamic green financing”, by Muhammed Al Jasser, November 12, 2021, The Jakarta Post (A glimpse into the future: The role of Islamic green financing - Academia - The Jakarta Post)
3. Expanding on-demand commerce and instant payments
Global digital commerce grew 11% in the third quarter of 2021 according to the Shopping Index from Salesforce6. The dramatic rise in e-commerce during COVID-19 pandemic lockdowns has fueled a longer-term shift in consumer buying behavior towards e-commerce.
Payments are front and center in the digitisation trend. Transactions are increasingly cashless, mobile, and instant. With cashless transaction volumes on track to more than double by 2030, 97% of respondents to a recent PwC survey agreed that there will be a shift towards more real-time payments. In Asia-Pacific, cashless transaction volume will increase by 109% between 2020 and 2025, the world’s fastest growth rate7. Cashless payments enable financial inclusion because they are accessible, affordable, and convenient. This includes real-time cashless remittance payments that enable migrant workers to send money home instantly across borders. The high rate of smartphone penetration in emerging markets across Africa and Asia continues to drive this expanding financial inclusion.
6 “The Shopping Index: Global online shopping statistics and ecommerce growth trends” (The Shopping Index - Salesforce.com)
7 “Payments 2025 & beyond”, PwC (Payments 2025 & beyond : PwC)
Banks are integrating their service offerings to enable an e-commerce experience that is seamless and immediate. For example, businesses need to embed frictionless payments regardless of currency into the flow of on-demand commerce. In response, banks are coupling real-time payments with the instant presentation of competitive FX to enable businesses to localise the e-commerce experience.
Digital self-service goes hand in hand with accelerated digital transformation. Consumers and businesses are demanding self-service options for more tasks through more channels. They want seamless access to digital service, whether via computer, mobile device, ATM or banking branch.
In response, traditional businesses and digital natives have been extending their online presence. This trend will develop in 2022, and companies will continue to adopt transaction banking solutions that enable on demand e-commerce, instant payments, and digital self-service.
4. Accelerating digitalisation and innovation
Transaction banking solutions will increasingly help companies advance towards a real-time treasury operating environment that supports on-demand business models. This includes the use of API-based banking microservices and other technologies such as blockchain, for greater transparency, speed, connectivity, and security.
Out of urgent necessity, companies of all sizes have accelerated the digitalisation of treasury and finance processes since the onset of the COVID-19 pandemic. Digitalisation efforts will continue in 2022 and will support the heightened pace of technology-driven innovation.
Risk management provides a strong use case for investing in artificial intelligence, machine learning, and advanced analytics to mitigate and distribute risk. In a banking landscape marked by unprecedented systems connectivity and processing speed, cyber criminals exploit human and systems vulnerabilities. Artificial intelligence and machine learning will help to monitor and analyse vast amounts of unstructured data to help detect and prevent fraud attempts. Other use cases include distributing trade risk and hedging FX risk.
To enable an accelerated pace of disruptive innovation, banks and fintechs will continue to shift from competition to collaboration. According to Forrester, in 2022 tech spending by banks will achieve double-digit growth, and this will be a strong year for banks to invest in fintech8. Bank-fintech partnerships are a means for rapidly evolving transaction banking capabilities to enable just-in-time treasury and finance in an increasingly on-demand e-commerce global operating environment.
8 “Predictions 2022: Banks Will Double Down on Innovation” by Aurelie L’Hostis, November 2, 2021. (Source: Predictions 2022: Banks Will Double Down On Innovation (forrester.com)
A year of acceleration
The global pandemic continues to spur changes in consumer behavior and in the ways that businesses operate as we collectively adapt, recover, and work to strengthen resilience. As such, 2022 promises to be a year of continued change, and we expect the pace of solutioning to accelerate in the endeavor to address longstanding challenges and create better opportunities for all.
*Future forward* Embedding diversity and inclusion into our
value proposition
Embedding diversity and inclusion into our value proposition
Diversity and inclusion are distinct concepts that complement each other. A diverse organisation has a broad representation of people. Inclusiveness indicates that everyone has an equal opportunity to participate, contribute, and grow. Organisations that combine both stand to gain the most benefit. Research by Deloitte found that firms with inclusive cultures are three times more likely to be high performing, six times more likely to be innovative and agile, and eight times more likely to have better business outcomes.1
Michael Spiegel
Global Head of Transaction Banking,
Standard Chartered
In this interview, Michael Spiegel, Global Head of Transaction Banking at Standard Chartered, discusses why the Transaction Banking business is focusing on diversity and inclusion (D&I) and what this means for clients.
1. Why is D&I important for Transaction Banking at Standard Chartered?
Organisations with a diverse and inclusive workforce create an environment where everyone can thrive. When employees feel psychologically safe at work, and have equal access to opportunities, they tend to bring their best selves to their jobs. Research shows that employee retention is more than five times higher in a diverse and inclusive workplace, with employees nearly 10 times more likely to look forward to going to work.2 This benefits business performance and our clients.
More broadly, by championing D&I, we strive to live up to our brand promise ‘here for good’. Our aspiration is to be the best place to bank, the best place to work, and we want to be active contributors to the communities where we operate.
2 “Why is Diversity & Inclusion in the Workplace Important?” by Matt Bush, 13 April 2021
2. What does D&I mean to Standard Chartered and Transaction Banking in particular?
In April 2021, Transaction Banking formed a D&I committee comprising six teams, each focused on an aspect of our D&I agenda. These six pillars are: gender, nationality and ethnicity, disability, LBGTQ+, generations, and well-being.
This structure provides visible commitment from senior leadership, encourages truthful dialogue, and involves everyone in driving meaningful change. We adopt a global approach that respects local sentiments and practices, with team members volunteering in each of the six pillars to contribute to an organisation-wide agenda. Today, there are more than 70 volunteers across the globe bringing their energy, passion, and enthusiasm to realise this vision.
3. What are the benefits for Transaction Banking clients, and how do these benefits translate into tangible daily client experiences?
Our Transaction Banking business continues to be disrupted by new technology, regulatory and market changes, and shifts in customer behavior and expectations. A transforming landscape requires a mindset of innovation, a spirit of collaboration, and the ability to respond to change with agility.
People working in organisations that strive for diversity and inclusion develop deep listening skills. The business learns to pay careful attention to unique needs. Out of this comes a culture of innovation because people also develop critical thinking that enables agility and adaptiveness. Diverse thinking enables you to look at a problem from many vantage points.
We recognise that a culture that cultivates D&I directly translates into an elevated client experience.
It also enables our business to challenge the status quo. That is essential to evolving the industry to keep pace with emerging client needs.
4. What are some important considerations as you execute a diversity and inclusion strategy globally?
Creating a culture that is diverse and inclusive requires more than a list of action items or occasional events. At Standard Chartered, for example, we continue to recognise key global dates, such as International Women’s Day and Pride Month, as opportunities to raise awareness and educate.
However, when we launched our TB D&I committee, we went beyond events clusters. We reframed our strategy towards sustainable initiatives. One example is We Care, an ongoing programme that supports mental well-being throughout 2021 and 2022.
Another consideration is that there is no one-size-fits-all approach to D&I. Standard Chartered is a global organisation with a unique footprint and expertise. It’s important to understand your organisation’s strengths and weaknesses around D&I and how to close the gaps.
Finally, it is important to demonstrate commitment to real change that is enduring. Inclusive leadership must be a constant. This creates accountability starting at the top by setting the tone and priorities.
5. What are the team’s proudest D&I achievements this year?
In 2021, Standard Chartered created a Pride Charter, which is our roadmap for upholding an inclusive workplace for our LGBTQ+ colleagues. The initiative began in Transaction Banking. The LGBTQ+ team, one of the six teams under our D&I committee, drafted the charter. The challenge was to take a charter as an unproven concept and develop a defined strategy for operationalising it, backed by a strong commitment from the senior leadership team.
According to research by the Human Rights Campaign Foundation, 46% of LGBTQ workers say they are closeted at work.3 This underscores the imperative to create a safe place where LGBTQ+ employees can thrive at work. We are very proud to have originated the charter, which established a model for other business units to follow. The Pride Charter now has Bank-wide adoption.
3 A Workplace Divided: Understanding the Climate for LGBTQ Workers Nationwide, Human Rights Campaign
6. What are long-term benchmarks of success?
The Bank uses Key Performance Indicators to gauge and track our D&I progress. However, there is a danger in relying solely on metrics to measure success.
Diversity is easier to measure than inclusion. For example, you can achieve diversity on paper but not truly cultivate an inclusive workplace. One challenge of quantitatively measuring inclusion is that it is fundamentally a qualitative experience. It is difficult to put metrics around things like empathy and a sense of belonging. You can have a great metric, but do you understand what it really means?
That’s why it is vital to measure success both quantitatively and qualitatively. For example, in Transaction Banking at Standard Chartered, we have integrated the topic of psychological safety into our annual My Voice survey. We’re delving into survey findings through employee focus groups to better understand employee responses. We are listening as an organisation and giving employees opportunities to speak.
