Australian and New Zealand Banking Group Ltd (ANZ), Barclays Plc and the Bank of Montreal have agreed to form a new venture that will take their existing trade finance services online. In addition, the new venture will target third party banks globally that wish to outsource their trade finance processing.
The new venture proposes two models. Under the first model, the importer will use their bank's existing technology to initiate the process, with which the venture's system will interface. Under the second, and venture-preferred model, companies will be able to initiate the trade finance process themselves via the internet using software provided by US based American Management Systems. Using this software, companies will have direct access to the venture, and will be able to track the status of instruments they generate, for example letters of credit, online. They will also be able to drill down on individual transactions viewing images of accompanying trade documentation, such as bills of lading and insurance certificates. This should allow companies to better manage their cashflow.
Wayne Jobson, head of strategy, global transaction services at ANZ banking group says that the venture will not threaten the relationships that exist between third party banks and their clients. "This is an important feature of the venture," says Jobson, "it is not a bank and cannot disintermediate its client banks. The internet-based software provided will be 'white labeled' to reflect the client bank's name and branding."
Jobson also stresses that the venture's client bank will remain the primary contact point for their customer. This aspect is essential for risk management by client banks. The venture will not undertake any risk assessment or make any credit decisions. Client banks will be evaluating the creditworthiness of the importer or exporter, and setting their own pricing for credit provision and trade risk mitigation services. But Jobson admits that the system "will eliminate some customer contact altogether as customers [will] serve themselves using the internet system". This will be a cost reduction for client banks, he maintains.
No figures can be provided at this stage in relation to the potential cost savings of outsourcing trade finance services to the venture. However, Phillip Simpson, head of service delivery, global transaction services at ANZ banking group estimates that there will be "considerable savings, even for the most efficient banks with their present model".
The venture will charge a service fee based on each item or instrument processed. Simpson says that the service fee will vary on a client-by-client basis depending on volume and type of item or instrument, which the client bank refers to the venture.
Simpson is optimistic about capturing the trade finance processing business of banks in Asia. "Given the greater prominence of documentary letters of credit and collection in Asia there will be considerable processing to be done," he says.
All three banks have a substantial share of the trade finance market within each respective home base. According to Simpson ANZ has more than 25% of the Australian market. For ANZ customers, the service will be available mid-2001.