Fintech Platforms Within a Trade Finance Context

LAGOS (Capital Markets in Africa) – Much has been said about the upcoming “fintech disruption”. About 4 years ago, emerging technology companies identified as “fintechs” were mostly finger-pointed as attempting to create the next wave of competition against established financial institutions (FI’s). At that time, most bankers viewed fintechs as new entrants trying to enter the financial services industry using advanced technologies and innovative business models. Fintechs were perceived as attempting to grab market share from the trusted incumbents. 2017 and 2018 have shown that the tide has turned.

The last 18 months have proven indeed that this new fintech competition made a U-turn as it gradually transformed into a strategic opportunity for FI’s. If any disruption, it is now generally accepted it won’t be driven by those highly specialised technologists. On the contrary, the recent fintech news are reporting various “bank – fintech“ adoption contracts. In many cases, banks become clients of fintechs as they recognize the important value brought by those innovators.

Disruption in some areas of the financial services industry such as consumer payments may be expected though. But it will most probably find its roots with dominant platforms such as the so-called GAFAs (Google, Apple, Facebook, Amazon) as recently reported on finextra.

Fintechs as new partners of trusted incumbents
In addition to the growing adoption of fintechs by banks, we can also witness new partnerships being sealed between banks and fintechs as the former engage as long-term fintech investors. Examples includes SC Ventures (by Standard Chartered Bank) as well as InnoVentures (by Santander) and ING Ventures.

Fintechs bring new propositions that differentiate drastically in approach vs. traditional software development. Here are the key characteristics:

1. Fintechs are laser-focused on delivering specific value propositions; they often become the best at it
2. Fintechs are very agile and will consider their early adopters as partners in their product development roadmap; co-design becomes the norm
3. Fintechs are best positioned to take advantage of very recent technologies whilst caring about the need to integrate seamlessly with banks’ legacy systems; co-existence with banks’ internal systems is a no-brainer
4. Fintechs sometimes operate common communications or trading platforms and are therefore creating new eco-systems, also called market networks, for financial institutions, their clients and/or suppliers; platforms often become new sales/distribution channels for banks
5. Fintechs are not biased by legacy revenues (e.g., software license fees) and technology models (e.g., messaging vs. APIs) – they want to demonstrate their value add in the fastest and most cost efficient way
6. Fintechs want to prove themselves by facilitating adoption without forcing their clients to take a CapEx decision (e.g., software license acquisition); this drastically reduces risks for early adopters.

As a consequence, partnering with fintechs bring many benefits to transaction banks, their clients and their investors:

• Short time to market thanks to use of cloud-based platforms
• Non-intrusive technologies ensuring seamless integration with existing systems
• Low set-up cost and usage-based running cost
• Optimal user experience
• Continuously and fast evolving products
• Strategic enablers for banks to innovate as a community (multi-bank infrastructure)
• Best at combining legal and business expertise with the latest technologies.

An extract from the INTO AFRICA July 2019 Edition: Trading Africa’s Prosperity. The article is written by André Casterman (Chair Fintech Committee, ITFA and CMO, INTIX) and Duarte Pedreira (Chair African Regional Committee, ITFA and Head of Trade Finance Crown Agents Bank). To read the full article, please download by clicking: INTO AFRICA PUBLICATION: July 2019 EDITION.