Trade Finance Guide PDF

52// A Guide to Trade Finance Copyright© 2020 Deutsche Bank AG. All rights reserved the goods to another off-taker. The limited recourse to the off-taker varies, typically between 10% and 25% of the loan amount, therefore, the lender has a performance risk on the exporter’s capacity to deliver th...

52// A Guide to Trade Finance Copyright© 2020 Deutsche Bank AG. All rights reserved the goods to another off-taker. The limited recourse to the off-taker varies, typically between 10% and 25% of the loan amount, therefore, the lender has a performance risk on the exporter’s capacity to deliver the goods and payment risk on the off-taker’s capacity to pay for the products delivered. The risk exposure for the lender is towards the exporter but the borrower of record in the lender’s books is the off-taker. PPF loans can take the form of term loans with an amortisation schedule but sometimes the amortisation of the loans follows the value of delivered commodities, i.e. when the value of the deliveries is higher than an expected reference price (the “price deck”) the loan will get repaid earlier than anticipated and when the value is lower the repayment will take longer. 4.2 Borrowing base finance (BBF) BBF financing refers to credit facilities extended to a processor of, or a trader in commodities to finance the purchase, processing, storage, logistics and the subsequent sale to end buyers of identified commodities or an identified commodity flow. Repayment is secured by a combination of pledged inventory and receivables, leading to self-liquidating cash flows generated from the sale of commodities to acceptable counterparties. Sales proceeds may be directed to be received on a collection account that is pledged to the security agent. The borrowing base amount is calculated based on an agreed reference price (usually the lower of cost price or market value of the pledged commodities) and advance rate and is redetermined on a regular and frequent basis. On a case-by-case basis, fixed assets may also be taken into account as security, and a portion of those assets may be included in the borrowing base. A BBF facility is typically a revolving credit facility where the value of the loan is determined by the lower of i) the value of the borrowing base and ii) the facility amount. The value of the borrowing base is the aggregate of the value of the eligible borrowing base assets (inventory, receivables, cash, etc.) multiplied by the relevant advance rates. The facility is fully secured by the very same borrowing base assets. The facility agreement will require the client to periodically (typically weekly, bi-monthly or monthly) submit borrowing base reports to adjust the borrowing base amount using the updated volumes and market prices for such assets as of the time of determination. During the life of the facility the client can draw down only the lower of the facility amount or the borrowing base amount. For example, if a facility is created with a US$500m facility amount and the value of the borrowing base is US$300m, then the client can draw down only up to US$300m. If the borrowing base is re-valued at US$350m, then the client can draw down up to US$350m. The client can never draw down more than US$500m, even if the borrowing base is worth more, since the facility amount is limited to US$500m. If the value of the borrowing base falls below the outstanding loan amounts the borrower has the obligation to remedy this shortfall by delivering additional eligible assets to the borrowing base, to pledge additional cash to the Security Agent or to repay (part of) the loans outstanding within the relevant remedy period (usually a few business days). A BBF can be provided on a committed or an uncommitted basis. Tenors vary from one year to four or sometimes five years. BBFs with a tenor of more than one year may (ideally) include a run-off period of six to 12 months before the end of the final maturity date when the available facility limit will be reduced gradually to zero. This supports an orderly wind down of the BBF in case it cannot be refinanced or repaid in time. The credit risk lies with the borrower(s) and where relevant the guarantors under the BBF and is secured by the collateral package of the borrowing base. //53 54// A Guide to Trade Finance Copyright© 2020 Deutsche Bank AG. All rights reserved 4.4 Warehouse financing Financing is provided to a manufacturer against the security of warehouse receipts representing the underlying commodity. Warehouse financing is a form of inventory financing arrangement in which a manufacturer, commodity broker or producer assigns its goods as collateral to be controlled by an agent (designated warehouse) on behalf of the lending institution. 4.3 Reserve-based lending (RBL) RBL is specifically dedicated to oil and natural gas exploration and production companies for the purpose of financing development capex and/or acquisitions. RBL typically provides for up to seven-year senior secured revolving borrowing base facilities collateralised by an approved basket of upstream oil and natural gas assets/reserves. The borrowing base amount is conservatively derived from the net present value of the cash flow generated by the assets divided by coverage ratios and is re-determined on a regular basis to reflect the assets’ performance and the evolving macroeconomic environment. The projected cash flows underpinning the borrowing base amount are derived using an agreed banking case for the underlying secured assets based on independent reserves reports. The RBL’s borrowing base structure is especially designed to accompany the corporate growth while typically providing the lenders control of the cash flow and a strong security package (including sales proceeds paid in pledged accounts, share pledges and/or asset level security) and covenants (including cash waterfall, regular re-determination of the borrowing base, reserves tail). For an example of RBL in action in the North Sea, see the flow articles, Sunset to Sunrise35 and After the Perfect Storm.36 Such arrangements generally involve the warehousing of non-perishable goods or commodities so that repayment can be tied to the utilisation or sale of the goods. In other words, the commodity itself is used as collateral for the financing resulting in an increase in working capital for the manufacturer, commodity broker or producer. Repayment can be structured so that it is made against the actual usage of the raw material. Events such as the 2014 warehouse receipts fraud involving the multiple pledging of the same collateral to raise financing in the Eastern Chinese ports of Qingdao and Penglai have highlighted the potential for problems with this type of financing if it is not closely monitored or controlled.37 In December 2018, Reuters reported that the Qingdao Intermediate People’s Court had found Dezheng Resources guilty on five counts of financial crimes spanning the 18-month period from November 2012 to May 2014.38 As with any type of financing, due diligence procedures should always be carefully adhered to including the choice of warehouse. “Due diligence procedures should always be carefully adhered to” //55 56// A Guide to Trade Finance Copyright© 2020 Deutsche Bank AG. All rights reserved 1 5 Structured trade and export finance, and export credit insurance Export credit insurance is an alternative method of assuring payment for goods, services or performance by mitigating risk and payment uncertainty. Export credit is the credit that a seller offers to a buyer in a sales contract. Such insurance protects against the risk of non-payment, and is provided by the private sector (brokers work with sellers seeking insurance to get the right policy from the underwriter) or governmental bodies. Policies can be assigned to banks as security. The insurance itself is generally divided into: “ Commercial risks (e.g. buyer insolvency, bankruptcy, liquidation, etc.) “ Political risks (e.g. war, civil commotion, terrorism, etc.) The Berne Union is an international not-for profit association, representing the global export credit and investment insurance industry via its 84 members from 73 countries.39 It is a useful source of information about the export credit and insurance industry whose members provide US$2.5trn annual risk capital, supporting 13% of cross-border trade, and have paid US$50bn in claims since 2008. Members report data on their export credit and investment business twice a year and this is all available on the Berne Union website on a non-commercial basis as a barometer of market activity.40 5.1 Export Credit Agencies (ECAs) ECAs are public agencies and/or departments that provide governmentbacked loans, guarantees and insurance to exporters from their home country that seek to sell equipment and services overseas. They have their origins in post-war Europe and over time have developed from straightforward government bodies with mandates to deliver public policy on supporting infrastructure and domestic exports, to agencies more generally promoting the national interest. They came into their own during the 2008 Global Financial Crisis, stepping in with increased trade finance support when their domestic economies were struggling and commercial bank liquidity was severely challenged. Using ECAs as a tool to export their way out of recession, governments also developed their own lending programs to provide attractive finance to their exporters’ clients when the commercial banks couldn’t. ECA policies are broadly consistent across different countries, with the OECD Arrangement on Export Finance (the “Consensus”) setting guidelines on the support that ECAs can provide, thereby limiting governmental subsidies to their exporters. However ECA support still can vary considerably between countries, with governments promoting their own national interests, such as whether an ECA loan is combined with a grant or loan – and where that is permitted to come from. Other issues that have to be navigated are whether an emerging economy country has reached its IMF borrowing limit, after which point the funding has to be provided by aid and not commercial lending. //57 58// A Guide to Trade Finance Copyright© 2020 Deutsche Bank AG. All rights reserved 5.1.1 OECD ECAs 5.2 As the OECD puts it, “governments provide officially supported export credits through ECAs in support of national exporters competing for overseas sales. Such support can take the form either of ‘official financing support’ such as direct credits to foreign buyers, refinancing or interest rate support, or of ‘pure cover support’ such as export credits insurance or guarantee cover for credits provided by private financial institutions. ECAs can be government institutions or private companies operating on behalf of governments.”41 With political uncertainty having stepped up more intensely than in the previous decade, businesses have delayed investment decisions, are taking longer to conduct project risk and feasibility studies and major financing deals are taking longer. However export finance is an impactful tool for public sector entities, government ministries and borrowers from emerging markets – deploying this to build infrastructure, improve economic growth and bolster employment. While the OECD is also a forum for maintaining, developing and monitoring the financial disciplines for export credits (enshrined in the OECD’s ‘Arrangement on Officially Supported Export Credits), its participants comprising Australia, Canada, the European Union (EU), Japan, South Korea, New Zealand, Norway, Switzerland, Turkey and the US do not include China – one of the most active ECAs today. The full list of OECD ECAs is available from the OECD website.42 5.1.2 China’s export financing infrastructure This comprises the three state-owned institutions: “ China Development Bank, providing medium- to long-term debt funding that serves China’s major long-term economic and social development strategies (according to its website43). “ Sinosure, providing export credit insurance to support Chinese exporters, and insuring overseas investments by Chinese enterprises. “ The Export-Import Bank of China, mandated to “implement state policies in industry, foreign trade, finance and foreign affairs.”44 Examples of Chinese ECA and development bank activity can be seen all along China’s Belt and Road Initiative (BRI) routes. More information about the BRI can be found in Deutsche Bank’s white paper, China’s Belt and Road Initiative, A guide to market participation.45 Export finance For this reason, financing through ECAs is more relevant than ever, providing security and stability. As Werner Schmidt, Deutsche Bank’s Global Head of Structured Trade and Export Finance observes, “The financial crisis had already shown that export finance was one of the few long-term instruments also available in that volatile situation. The largest export financing deals were actually made during that time. And the export credit insurance companies also supported considerably higher volumes than in ‘normal’ times.”46 He adds that export finance is an area of business involving a high level of customer proximity that is very transparent and “banks are keen to engage in”. When there is a lot of liquidity in the financial markets, one tends to find that other financing products such as capital markets solutions, bonds and classic loans all compete with export finance. Working with ECAs, global banks access ECA-backed schemes and help exporters expand their financing operations. They do this either on a sole lender/agent basis or within a syndicate of several banks. Historically, the larger syndicated loan deals have concentrated on core economic sectors, such as transportation and energy. Another way they extend their activities is with securitisation guarantees and structures that enable deals to be refinanced at lower rates on the capital markets. //59 60// A Guide to Trade Finance Copyright© 2020 Deutsche Bank AG. All rights reserved 1 6 5.3 Export credit insurance The role of commercially provided export credit insurance is to insure against the risk of non-payment. This comprises: “ Short-term cover or credit terms provided by the seller of up to 180 days; and “ Long-term cover where risks extend for more than 180 days. Banks’ use of insurance is recognised as an eligible credit risk mitigation instrument for regulatory capital relief. Article 203 of the Capital Requirements Regulations (CRR) does state that “Institutions may use guarantees as eligible unfunded credit protection”.47 Types of policies include: “ Whole turnover policies covering all sales on credit terms. These can be written to cover both domestic and export sales. “ Specific or key customer policies covering the default risk of one customer or of a small number of key customers where the seller/ exporter has the largest part of its turnover. “ Excess or catastrophe policies where for a lower premium the seller agrees to cover 100% of the losses up to an agreed threshold. Risks covered by such policies depend on what is actually agreed and on the insurer’s view of economic and political stability in the areas the cover is needed for. The main political or country risks, which may have differing degrees of cover available in the policies are: “ Confiscation or expropriation of machinery, goods and factories; “ Violence caused by civil unrest, coup d’état or local wars “ Inability to convert local currency receipts into hard currency “ Embargoes on imports and cancellations of import licences “ Government intervention that frustrates the contract “ Unfair calling of a performance or similar guarantee “ Kidnap of expatriate staff. Private sector provision is usually sourced by a broker, who will work with a variety of underwriters and advise the purchaser of insurance on the right policy for their needs. Development finance 6.1 Role of multilateral development banks (MDBs) MDBs are supranational institutions set up by sovereign states as their shareholders. They have the common task of fostering economic and social progress in developing countries by financing projects, supporting investment and generating capital for the benefit of all global citizens.48 As explained in the ICC Banking Commission’s Report, Global Trade – Securing Future Growth 2018, MDBs “are closely related to ECAs in their role of bringing net extra capacity to market at times of crisis and with noncommercial objectives”.49 Most MDB programmes provide guarantees to reduce the perceived risk of conducting trade operations in developing countries – they close the confidence gap between perceived and actual risk. Importantly, they cater for the small and medium-sized enterprise (SME) sector, whose //61 62// A Guide to Trade Finance “Most MDB programmes close the confidence gap between the perceived and actual risk” individual applications for trade finance face routine rejection to the tune of 50%.50 However, the ICC report notes that only 7% of MDB requests are declined and for this reason, SMEs represented more than 75% of the end beneficiaries in MDB trade finance programmes across 2017. “MDB programmes do not take the payment risk of the local firm applying for a trade finance instrument. But an MDB can influence the risk appetite of the local issuing banks for SME banking, by providing lines of credit dedicated to this business segment,” ICC commented. 6.2 Trade finance/facilitation programmes Six MDBs work together under a G7 initiative51: “ African Development Bank (AfDB) “ Asian Development Bank (ADB) “ European Bank for Reconstruction and Development (EBRD) “ European Investment Bank (EIB) “ Inter-American Development Bank (IDB) “ World Bank Group Others offer specialised solutions such as Islamic finance, soft commodity facilities, and equity support. The following comprise the main programmes in place: “ AfDB. The overarching objective of the AfDB is to spur sustainable economic development and social progress in its regional member countries, thus helping to reduce poverty in these regions.52 Copyright© 2020 Deutsche Bank AG. All rights reserved “ ADB. ADB’s Trade Finance Program (TFP) fills market gaps for trade finance by providing guarantees and loans to banks to support trade.53 A substantial portion of the TFP’s portfolio supports SMEs, and many transactions occur either intra-regionally or between the ADB’s developing member countries. The programme supports a wide range of transactions, from commodities and capital goods to medical supplies and consumer goods. In November 2017, Deutsche Bank AG teamed up with the ADB to provide more than US$200m a year in financing to SMEs across developing Asia.54 “ EBRD. The EBRD Trade Facilitation Programme aims to promote foreign trade to, from and amongst EBRD countries and offers a range of products to facilitate this trade.55 “ EIB. The EIB provides finance and expertise for EU projects supporting innovation, SMEs, infrastructure and climate action.56 “ IDB. The IDB’s current focus areas include three development challenges – social inclusion and inequality, productivity and innovation, and economic integration – and three cross-cutting issues – gender equality and diversity, climate change and environmental sustainability; and institutional capacity and the rule of law.57 “ World Bank Group. This includes the International Finance Corporation (IFC) and has set two goals for the world to achieve by 2030: end extreme poverty by decreasing the percentage of people living on less than US$1.90 a day to no more than 3% and promote shared prosperity by fostering the income growth of the bottom 40% for every country.58 Although not part of this G7 initiative another important participant is the International Islamic Trade Finance Corporation, an autonomous entity within the Islamic Development Bank Group created “with the purpose of advance trade to improve the economic condition and livelihood of people across the Islamic world.59 //63 64// A Guide to Trade Finance Copyright© 2020 Deutsche Bank AG. All rights reserved 1 7 Other forms of trade finance 7.2 Countertrade There are five main types of countertrade transactions: 7.1 Islamic finance There have been three key attempts to establish modern Islamic financial institutions over the past century.60 Currently, the main provider is the Islamic Development Bank that hosts an autonomous entity within its structure in the form of the International Islamic Trade Finance Corporation set up to “improve the economic condition and livelihood of people across the Islamic world”.61 The key difference between conventional and Islamic financing is that, while the time value of money is not permissible in a pure ‘cash now for more cash later’ transaction, it is allowed if the financing is an integral part of a real trade in goods. 7.2.1 Countertrade Popular in some emerging economies, countertrade is a reciprocal form of international trade where goods or services are paid for in whole, or in part with other goods and services, rather than money. It is often used when foreign currency is in short supply or when a country applies foreign exchange controls. 7.2.2 Barter The buyer and seller agree on the direct exchange of goods in one contract, i.e., money is generally not involved. Only residual amounts, which may be left after netting imports and exports, are actually paid in currency. So while the organisation is not allowed to lend US$100,000 in cash now in return for US$110,000 payable in a year, it is allowed to sell an asset with a market price of US$100,000 for US$110,000 payable in a year. For this reason, Islamic finance is often described as an asset-based financing system. The key Shariah contracts used for trade financing are murabaha and salam. 7.2.3 Counter-purchase With murabaha, it is the buyer that needs financing to acquire the goods; in salam, it is the seller that needs working capital to buy items such as seed in order to grow a crop. Murabaha is also referred to as cost-plus sale; sale against a deferred price; instalment sale; or sale with profit. 7.2.4 Buyback Since it is a sale-related financing, Murabaha is considered ideal for trade finance or working capital requirements and is used extensively with documentary credits, documentary collections and open account purchases, among others. This involves two separate contracts to cover the goods delivered and those taken in return. The first deals with goods delivered by the seller and in the second, the seller undertakes to purchase goods from the importing country equivalent in value to a certain percentage of the export. Two contracts are usually signed. One for the agreed export of machinery, plant or technology transfer and the other for the subsequent purchase of products made by using the equipment supplied, either for the full or part of the purchase price. 7.2.5 Offset This is often used for a transfer of technology. The seller agrees that components supplied by the buyer will be incorporated into the end product, and such supply will be used to offset the cost of the ultimate technology transfer to the buyer. //65 66// A Guide to Trade Finance Copyright© 2020 Deutsche Bank AG. All rights reserved 1 8 Foreign exchange (FX) In Section 1.3, we explained why currency movement is a significant risk for importers and exporters, and how this is subsequently managed in trade finance transactions. All businesses should have a strategy for dealing with currency movement risk and monitor the extent and timing of the exposure. 8.1 Terminology The International Organisation for Standardisation (ISO) publishes a list of standard currency codes referred to as the ISO 4217 code list.62 7.3 Smart asset financing (SAF) SAF consists of working capital solutions and customised fixed asset financing. On the working capital side, SAF enhances the product offering around inventory (Days Inventory Outstanding) with a just-in-time solution, allowing immediate access, full flexibility and liquidity; paying only for that what the client uses when they use it. On the fixed asset side, SAF allows, among others, a “Pay-per-Use” model, mapping the future payments of an asset based on the usage by a provider’s clients. Deutsche Bank has developed a solution based on the Industrial Internet of Things (IIoT) and real-time data, transferring financial benefits to clients based on clients sharing asset usage data with the Bank. SAF products can have an on-balance or off-balance-sheet consideration depending on the selected solution. Currency codes are typically composed of a country’s two-character Internet country code plus a third character denoting the currency unit. For example, the British pound code (GBP) is made up of the UK Internet code (“GB”) plus a currency designator (“P”). Some currency codes – such as the euro (EUR) or Mexican peso (MXN) – do not use a currency designator initial as third letter. Some currencies have changed their currency code from its original form – the Russian ruble, for instance, was changed from RUR to RUB in 1997. “Trading with different countries in different currencies will result in an exposure to currency exchange risks” //67 68// A Guide to Trade Finance Copyright© 2020 Deutsche Bank AG. All rights reserved 1 9 8.2 Spot and forward rates The simplest form of currency trading is via spot transactions. This provides the option to ‘exchange’ one currency against another and is often carried out within two working days. Spot transactions do not require a contract and the short transaction tenor means interest does not need to be factored into the transaction. Therefore, a spot transaction is solely dependent on the exchange rate at that particular time and any small margin applied by the counterpart (often the bank).63 Sustainable trade finance 9.1 Trade and the planet In contrast, a forward transaction relates to a currency exchange that will take place at a fixed exchange on a fixed future date. While there is a positive correlation between trade and economic growth, the same cannot be said for the environmental impact of goods, where 90% of trade is seaborne. As the Financial Times observed on 30 May 2019, “More than 90,000 ships criss-crossed oceans last year, burning nearly two billion barrels of the heaviest fuel oil made from the dirtiest dregs of a barrel of crude and carrying oil and gas, chemicals, metals and other goods.”65 8.3 9.2 Managing risk Trading with different countries in different currencies will result in an exposure to currency exchange risks. In addition to cross-currency payments, identifying, monitoring and managing FX exposures is a core treasury task given the material impact that FX volatility can have on corporate earnings. This is an area where banks provide a valuable service – such as Deutsche Bank’s FX trading product suite FX4Cash.64 Sustainability reporting and market performance In December 2015, the ICC Commission on Environment and Energy issued a Policy Statement on ‘Sustainability Reporting – Future Directions’.66 The statement highlighted that sustainability reporting had become a key way for corporations to disclose information relevant to their sustainability, in a way that complements and adds nuance to standard reports on financial performance. It went on to propose an eight-point approach with key considerations on which each business should reflect as they determine how to advance their corporate sustainability reporting. 1. An indispensable part of corporate sustainability: This covers the disclosure of “material information about corporate activities which are relevant to sustainable development”. 2. Scope and materiality: This specifies more detail about the flexibility to report on material issues, “which may differ from one company to another, based on the scale, nature and location of their respective operations”. 3. Harmonisation: Here, the guidelines suggest that “using one or two global reporting standards could help reduce inefficiencies, and also serve the interests of users seeking comparability and substance”. However, they need flexibility to cope with the different issues and a simplified framework should be available for SMEs. //69 70// A Guide to Trade Finance “More than 90,000 ships criss-crossed the ocean in 2018” Financial Times, 30 May 2019 4. Verification: This is about confidence in the verification process. “Companies and the assurance industry should continue to work constructively together to raise the professional acumen of the assurance industry with respect to verification of non-financial reporting so that competition can expand service provision and lower costs over time”. 5. Local and global relevance: The guidelines state, “A company’s sustainability report must both be relevant to the local context of its activities, and be connected to evolving global standards and industry norms. In other words companies should continually consider, where relevant, not only legal requirements, but also emerging trends, standards and best practices that may be relevant.” 6. Internal and external consultation: The guidelines say that a company “should adopt an inclusive approach to sustainability reporting, both internally and externally”. In particular, it adds, “companies should actively use the reporting process to engage with stakeholder groups who are most impacted by the company’s operations”. 7. Continuous improvement: As the field of sustainability reporting is still evolving, the guidelines recommend that companies should “continually seek to enhance and extend their reporting to support their sustainability strategies and performance”. In other words, reporting is an integral part of the process of target setting, benchmarking, and review. Copyright© 2020 Deutsche Bank AG. All rights reserved 8. Integrated reporting: As the field of sustainability reporting continues to evolve, there should, say the guidelines, “be continuous efforts to integrate non-financial aspects of corporate reporting into business strategy and financial reporting”. Various studies have been conducted to examine the relationship between economic, social and corporate governance (ESG) practices and financial performance. The IFC observes, “Companies that do good by the environment, their labour force and communities, do well financially”.67 In addition, the Deutsche Bank’s Corporate Research team published a study in November 2019 showing how companies that experienced positive press on climate change saw their share prices outperform by 1.4 percentage points per year over the MSCI World Index, while companies with negative press underperformed.68 //71 72// A Guide to Trade Finance Copyright© 2020 Deutsche Bank AG. All rights reserved 10 9.3 Sustainability initiatives Digitalisation 9.3.1 ICC Banking Commission The ICC Banking Commission has established a Sustainable Trade Finance Working Group with the goal of promoting sustainability in trade finance and leveraging banks’ role in financing sustainable trade to encourage sustainable business practices. It aims to do this by helping provide clarity to banks in their implementation of sustainability policies and standards.69 9.3.2 International Finance Corporation (IFC) In addition, the IFC defines clients’ responsibilities for managing their environmental and social risks with a set of performance standards that apply to all projects going through the IFC’s initial credit review process after 1 January 2012.70 9.3.3 Banking Environment Initiative (BEI) The chief executives of some of the world’s largest banks created the Banking Environment Initiative (BEI) in 2010. Run from the Cambridge Institute for Sustainability Leadership, its mission is to lead the banking industry in collectively directing capital towards environmentally and socially sustainable economic development. The BEI worked with the IFC to launch a sustainable shipment letter of credit and formed a ‘Sustainable Trade Finance’ Council in 2016 to “leverage banks’ role as facilitators of international trade and thereby accelerate the transition to a world where importing sustainable produced commodities, at scale, is a new market norm”.71 Members include Barclays, Deutsche Bank, Santander, Standard Chartered Bank and Westpac as well as major commodities importers and traders such as Olam, Unilever and Wilmar. 10.1 Move to digitalisation In the context of financial services, “digital” has been described as “gaining an understanding of customer processes and their end-to-end needs, and then re-imagining what the banking provision should be, given these needs and the availability of new technological solutions”.72 And this is a good way to understand the difference between “digitisation” and “digitalisation” of trade finance: the former revisits the whole transactional journey and explores if any of it could be replaced with a digital solution; the latter takes existing processes and instruments with a view to finding a digital alternative – such as an electronic bill of lading. The entry of financial technology (fintech) companies into the world of trade finance provides a set of skills and experience not hitherto available. However, barriers still exist and it will require a great deal of willingness on both sides for full digital transformation to be achieved. As has been noted, there are many web- and data-based financial products that customers cannot obtain from either their bank or a similar provider. This gives rise to a new competitive environment.73 But what actually is fintech? Simply put, it is new technology for the delivery of financial solutions and services. A broader definition has been provided by the Financial Stability Board (FSB) as “technologically enabled innovation in financial services that could result in new business models, applications, processes or products with an associated material effect on financial markets and institutions and the provision of financial services”.74 But data is all about people and that carries a responsibility for data holders and data providers. In the Deutsche Bank white paper, Regulation driving banking transformation, the dynamics of the data-led relationship between bank and client is explained in terms of a trusted partnership. //73