What will competition, AI, block chain and automation do to Trade Finance? And some tips to thrive in the new world that’s dawning.

I used the recent holiday period to sit back and explore some of the emerging global themes around my current professional area of banking practice, which is commodity and structured trade finance (CSTF) with corporate clients. 
 
We all know that growth in global trade has been weak. The trade finance departments in most of the world’s banks have been under significant pressure from weak transaction growth, or actual declines in business.  Why is this and will it continue? Is there actually less business or is it going to the emerging non-bank competitors?
 
We also know that block chain, artificial intelligence (AI), machine learning and cognitive intelligent systems will have a significant impact on traditional trade banking roles – especially document heavy processing areas in the so called “back office” functions.  But how and where and how quickly?
 
Finally, what should individual trade finance bankers do to thrive in the new world emerging in trade finance. 
 
I’ve collated some of my research into a deck you can download (be warned – it’s over 30 pages!). 
 
These are my conclusions (2 minute read):

1. Global trade growth will continue be weak (probably around 1.5 – 2.5% over the next few years) – meaning traditional trade finance flows with the banking community will continue to be weak.  Non–bank competitors will continue to take market share away from the global banks, who are under significant pressure to maintain acceptable return on risk weighted assets and to reduce exposure to higher risk geographies (which have increased in number).

 

1. To minimise the impact of the strong and agile non-bank competition emerging in the trade finance vacuum (the Asian Development Bank says the global un-met demand for trade finance is USD 1.6 trillion), banks will accelerate their investment in AI, block chain and distributed ledger systems and automation.  This will lead to the exit of many traditional paper processing trade finance roles.

 

1. In my specific area of CSTF we will see an assertive entry by alternative funds who will be specifically targeting CSTF transactions with clients and in geographies that the global banks now find too difficult to operate (or the deals are simply too small to chase given the cost to service through regulation and compliance burdens).

 

1. For a Trade Finance banker to thrive in the world that is dawning right now, I provide the following tips:
   1. Understand and master AI – learn how to apply AI to your engagement with customers – they will prefer it.
   2. Apply AI and digital technology to all your customer interactions  – understand and master the technologies and management trends flowing from AI and digital technology such as block chain – and build better customer service outcomes that don’t rely on the old management hierarchy.
   3. Join or build a "customer activated" organisational culture – Look for an organisation (or start a new one) that is run by people who display the behaviours identified in the best customer activated organisations - and build these organisational cultures – focussed on collaboration, sharing, transparency, diverse skillsets and strong social engagement and networks.
   4. Focus on the customer and be a flexible learner– Build your creativity, “learnability”, social and emotional intelligence and be flexible, adaptable and open to new challenges. And always focus on the customer in everything you do. 

David L Thomas