Building the New Financial Ecosystem – Collaboration and client-driven solutions powering the digital revolution

The transaction banking landscape is transforming in front of our eyes. With the field awash with new technological capabilities, Jan Kupfer and Luca Corsini, Global Co-Heads, Global Transaction Banking at UniCredit, discuss the latest trends, their likely impacts, and how the industry can draw together to maximise the benefits for all.

What innovations and trends are you seeing in transaction banking?

Jan Kupfer 
This year is a momentous one for the digitisation of payments. SWIFT’s global payments innovation (gpi), is already up and running – providing a secure and scalable cross-border payments solution that meets corporate demands in terms of speed and transparency. UniCredit launched a SWIFT gpi pilot with one of our financial institution clients back in January – a project that has grown to the point where, today, we are processing thousands of payments a month. And with 110 other major banks currently part of the SWIFT gpi initiative, momentum is set to continue building.

Moreover, the introduction of instant payments in Europe later this year will also have a profound impact. Banks and corporates alike are hard at work preparing for the switch, with many corporates – particularly in the B2C space – looking to adapt their operations to seize the new opportunities posed by real-time functionality. Sectors such as e-Commerce are particularly well placed to benefit – with instant receipt of payments meaning goods can be prepared, dispatched and delivered quicker than ever before. A prime example of this transformation phase is our collaboration with Alipay, the world’s largest online and mobile payment platform. Users can purchase goods and services in Italy simply by using the app to which they have grown accustomed. We are also the first bank in Italy to offer Apple Pay to its six million card-holder customers, making it possible to pay using Apple Pay in shops, through apps, and online.

UniCredit, again, is prepared for the shift. We recently started testing instant payments with RT1, EBA Clearing’s pan-European, real-time payment platform – a key milestone as we prepare to roll out euro instant payment products later this year.

Luca Corsini 
On the trade finance side, the shift from traditional documentary trade to transacting via open account is causing relationships between buyers and suppliers to evolve – with supply chain finance programmes rising in popularity as a means of supporting smaller businesses along the supply chain in mitigating the risks associated with open account trading.

It can be no coincidence that this popularity spike comes alongside an increasing corporate focus on integration, co-operation and alignment among procurement, sales and treasury departments – the key players in any trade finance deal. Procurement, typically siloed within an organisation, is now much more closely aligned with the treasury in terms of goals and KPIs, and supply chain finance programmes are gaining favour for their capacity to address the potentially conflicting priorities of each department.

What impact are new technologies such as blockchain having in the transaction banking space?     

Jan Kupfer
Blockchain-based solutions haven’t entered the mainstream yet, but experimentation and testing of various use cases are well under way – and showing significant promise. Proof-of-concept projects, particularly in the areas of payments and documentary trade finance, bode well for the future, but in the short term, we will have to wait for significant impact.

Progress towards wider adoption and scalability, for instance, will likely be slowed by regulatory and legal issues, but we see mainstream adoption as an inevitability in the longer term. Achieving this will be a matter of promoting collaboration and consensus on technical specifications and formats, and, while this poses a considerable challenge, we can take heart from the fact that the vast majority of trade finance participants share a desire to move away from today’s slow and costly paper-based processes. 

UniCredit, for its part, is actively involved in the development process. Along with six other European banks, we are currently working on a blockchain-based initiative called Digital Trade Chain (DTC), aimed at dramatically improving access to trade finance for European small- and medium-sized enterprises (SMEs). DTC will accelerate the order-to-settlement process, reduce paperwork, and facilitate transparent transactions from start to finish. The solution, designed to boost SMEs’ ability to onboard new trade partners throughout Europe, could become the first viable blockchain solution for trade finance to go live later this year.

Luca Corsini 
Indeed, as bank resources become increasingly constricted, many banks are looking both to new technologies, such as blockchain, and existing tools, such as the Bank Payment Obligation, as highly efficient ways to meet the more standardised needs of clients. It’s an undertaking that breeds benefits in both directions. Banks improve efficiency and reduce the strain on human resources, while corporates enjoy more standardised, streamlined, and cost-effective solutions with improved geographical reach. 

What role do fintechs have in the development of solutions?     

Luca Corsini
Without a doubt fintechs have an increasingly important role to play, but it’s not necessarily the one many foresaw. While some transaction banks feared that fintechs would challenge their dominance, this now seems unlikely – not least due to the high level of product tailoring and risk appetite required for trade finance innovation.

Instead, collaboration between banks and fintechs looks to be the most fruitful approach – combining the industry know-how, resources and client base of banks with the innovation and agility of fintechs. Transaction banks are also proving useful as advisors to corporates in this space – giving their expert opinions on areas of promise and potential for specific collaborations. Certainly, client requests for information on the burgeoning fintech landscape is something we are experiencing more and more at UniCredit.

How might bank-fintech partnerships work in practice?

Jan Kupfer
When it comes to the question of how banks and fintechs can join forces productively, a number of different models are now emerging. Firstly, transaction banks can acquire or financially support promising fintechs, and we are witnessing a growing number of bank venture capital funds and growth accelerators. UniCredit has moved quickly in this area, establishing UniCredit evo – a USD200m  fund that focuses exclusively on identifying and investing in fintech companies. More direct partnerships are also proving popular – whether the bank integrates a fintech innovation into its existing offering, or uses its industry expertise to support a fintech’s growth and development in the market.

Meanwhile, we are seeing a growing number of banks providing financing capabilities to underpin fintech solutions, often connecting multiple businesses with multiple banks and outside investors. 

Luca Corsini
Building on Jan’s point, bank-fintech collaboration is enabling the bundling of products such as supply chain finance, factoring, and securitisation on a single, web-based platform accessible to multiple parties.

UniCredit has recently worked on just such a project – offering a comprehensive supply chain finance platform to one of our clients. The platform enabled them to combine, or switch seamlessly between, a range of supplier financing solutions, with UniCredit able to offer advisory support even when bank financing solutions weren’t needed. This combination of bank expertise and funding working alongside fintech IT capability to create client-centric solutions looks to be the model for the future.

How will banks’ corporate clients benefit from these trends?

Jan Kupfer
Banks are aware that corporate demands in terms of quality, security and integrity have never been higher – and the incoming generation of innovations are devised specifically to address these needs. Corporates can look forward to faster, more convenient and more robust services from their banks – with trade and supply chain finance, in particular, set for drastic reductions in terms of cumbersome documentation and unwieldy processes.

Luca Corsini
What’s more, these innovations promise benefits for corporates of all sizes – giving the lie to the old complaint that banks only innovate for multinational clients.  Both DTC and all-purpose supply chain finance platforms bring greater choice and flexibility for banks’ smaller clients as well as their larger counterparts, while simultaneously opening the door to more competitive pricing.

It’s also worth noting that such solutions automate processes not only for corporates, but also for banks – meaning employee time can be freed from rote tasks and re-allocated to more important jobs such as client service. Combine this with the fact that automated client service will provide far faster and less-error prone support than has been previously available and corporates will find that their banks’ capacity to serve has increased immensely.