Media Appearances

Themes from BAFT: Globalization, Green Transition, and Preferential Financing

Via Trade Finance Global

TFG was delighted to partner with BAFT for their 2022 Global Annual Meeting in Washington, DC. Throughout the three day event, attendees heard from many experts discussing the current state of the industry, what they learned during the past few years, where the industry is headed, and the challenges and opportunities that lie ahead.

BAFT’s Role in Implementing ESG Best Practices for Trade and Transaction Banking

There is certainly a lot of ground to cover with regard to establishing robust definitions and standards.

BAFT has established its own working group to explore these but is also collaborating with the ICC and others to ensure that there is a clear set of definitions for ESG in a transaction banking context. 

Once standards are established, the next step is to develop the reporting and KPIs; these are where the real benefits come in but you must have the standards and definitions first. 

“BAFT has a group looking at what types of reporting should be done, what the relevance is, and what KPIs should be used,”

Tod Burwell, President & CEO of BAFT

The COP26 net-zero alliance has been working towards creating a carbon-neutral environment, but their work does not have a transaction banking context to it – which is something that the BAFT working group is hoping to address. 

The last piece is to educate the stakeholders, policymakers, and advocates so that any policy we end up with do not exclude certain markets. Not all parts of the world live in the same circumstances so any policy needs to be carefully designed to not exclude anyone.

Many experts also warn about implementing solutions that are policy-led rather than client-led.

Statistically, 80% of carbon emissions are generated by G20 countries, so it does not necessarily make sense for policies generated for this advanced minority to be applied to the geographies that only generate the 20% of emissions. 

Globalization is Here to Stay 

There has been substantial discussion recently about the fragmentation of global markets into regional trading blocs. 

While this may occur, there is no doubt that some degree of globalization is here to stay. 

There are certain countries, like Korea and Germany for example, that naturally do not have very many of their own commodities, meaning that they are forced to source these on a global basis. These countries also tend to have specialized economies that rely on global exports and trade.

This reliance from many different economies on global markets means that globalization will not go away any time soon. 

Energy Transition Agendas

All the talk about carbon emissions and the need to transition to green energy has created a sense of urgency in the industry. Unfortunately, it is simply not feasible to transition to zero-carbon overnight.

Too many countries have energy infrastructures so heavily reliant on brown energy sources that they will need to spend years, if not decades, building up green energy infrastructure.

We do need to start the transition as soon as possible, but we also need to be cognizant of the required timelines for an effective transition. 

It is also important to bear in mind that a lot of companies, especially smaller companies, do not have massive amounts of resources to commit to making a green transition. 

“Many small and medium-sized enterprises globally, although agile and adaptable, may face difficulties in developing an ESG strategy or have little data and know-how to supplement this.” 

Manish Kohli, Global Head of Liquidity and Cash Management at HSBC

“They are often less advanced in transition planning compared to larger multinationals, meaning they require a different approach and a different level of support.” 

The Incentivization of Preferential Financing

Preferential financing is when a bank agrees to offer a lower rate of financing to a client so long as that client adheres to a certain set of green commitments. 

The idea, in theory, is to financially reward companies that stick to their green commitments.

Some of the banking leaders at the conference fear that, despite being a noble concept, it may not work as well in practice. This fear stems from the idea that such a model misaligns the green incentives from the financial ones. 

While banks would like to see their clients succeed in their green commitments, under a preferential financing model, not only will a bank not receive any immediate financial benefit from going above and beyond to assist in these efforts, but doing so may actually cause them to lose revenue in the short term.  

Balance Is Key: New BAFT VP Deepa Sinha on Payments and Fighting Financial Crime

Via Trade Finance Global (TFG)

In April 2022, BAFT named Deepa Sinha as its new Vice President of Payments and Financial Crime. TFG’s Deepesh Patel interviewed Sinha to learn what led her to the association, her view on fighting financial crime, and her insights into the progress made in the payments space.

About Deepa Sinha

Deepa Sinha has been in the finance and treasury space for more than 25 years now, in both corporate and bank settings, accumulating a perspective on what’s needed from both.

During that time, she has worked for large banks such as Capital One and been on the advisory councils for J.P. Morgan, Wells Fargo, Bank of America, and Citi.

She also spent some time working for large corporates like the Carlyle Group and Caliburn International (now Acuity International), as well as non-profits like AARP.

Much of her experience lies with the implementation of treasury management systems and enterprise resource planning systems integrations, leading internal IT and business teams, and working with various internal and external stakeholders to build consensus and accomplish objectives.

PATEL: What led you to join BAFT and head up payments and financial crime?

SINHA: BAFT is the organization that international banks active in transaction banking look to for industry best practices, solutions, advocacy, policymaking, and knowledge-sharing.

I have been in the finance and treasury space for more than 25 years now and BAFT will provide me with an opportunity to fill an advisory role to our members on not only what their clients are looking for, but what is developing in the space, and how it can affect them and their business.

As technology advances and various international policies and regulations evolve, BAFT offers the knowledge and capabilities in this space to be ahead of those evolutions and advancements.

That’s why I wanted to join BAFT.

Fraud and Financial Crime

PATEL: What has been the impact of the pandemic on financial crime?

SINHA: The pandemic has been a time for both challenges and opportunities, with regard to financial crime, and associated regulatory compliance.

If we look at the data behind financial crime patterns, there is an uptick in cybercrime, which corresponds to an increase in electronic commerce and payments. The efficiency of newer payment methods presents an opportunity and a challenge for banks, regulators, and organizations like BAFT to strengthen regulatory compliance.

There is much work to be done, but the incredible team at BAFT is positioned well and has the ability to work closely with our members, partners, and policymakers in continually striving for success in these areas. 

PATEL: The trade industry has suffered some serious fallbacks due to fraudsters and issues around money laundering. Do you expect to see this increase moving forwards?

SINHA: We see trade-based money laundering and fraud as two distinct problems that require different solutions.

In most instances, trade-based money laundering is separate from trade financing and takes advance of fragmentation in the value and payment chains. Banks alone cannot solve this – it requires collaboration with customs, shipping companies and other stakeholders. Banks are using artificial intelligence and other tools to get better at mitigating money laundering, but it remains a stubborn problem.

As payments get faster and more frictionless, the risk increases. Fraud, however, is heavily driven by paper-based processes and we are seeing improvements in mitigating fraud as technology solutions are increasingly implemented.

As digital identity becomes more widespread, and duplicate financing solutions gain more traction, fraud mitigation will improve even further. However, we know that criminals constantly find new ways to evade the law, so we have to remain diligent. 

PATEL: Although within the industry there is a general consensus that regulation, reporting on and fighting financial crime are important, it’s also time-consuming, costly, and potentially at the cost of serving smaller MSMEs. How do we tread the line?

SINHA: As in everything, balance is the key. In order to protect assets and interests, and prevent financial crime, regulations, compliance, and due diligence are quite necessary.

However, in finding that balance, we also want to make sure that those same regulations, compliance, and due diligence responsibilities are not overwhelming, especially for smaller and medium-sized companies.

There still has to be some collaborative work between banks and regulators to fine-tune the “risk-based approach” to compliance. BAFT is committed to working with our international banks to understand and lessen the challenges associated with compliance, and also working with regulators to advise how ineffective regulations pose a hindrance to conducting business and actually increase overall risk. 

Progress in the Payments Space

PATEL: Has the pandemic accelerated the need for FIs to speed up and innovate in the payments space (real-time 24-7-365)?

SINHA: Not only did the pandemic accelerate the need for financial institutions to speed up innovation in the payments space, but it also accelerated the deployment of innovative solutions and adoption by corporate clients. 

Across the board, the name of the game is digitization. How we interact with the world as a populace is primarily online now, from shopping to groceries to paying our bills and both the banks and the clients they serve have responded accordingly.

With the advent of real-time payments from customer to customer, now business to business and between businesses and their customers, we are seeing an acceleration of the real-time-payment revolution.

Various markets in Asia were early adopters followed by Europe, but we’ve seen an acceleration in Latin American and North America on the domestic level. The next major innovations will be in real-time cross border payments.

PATEL: Where is the payments space in terms of adopting best practices and standards?

SINHA: Some elements of best practices – such as straight-through rates, payment times, reporting, and digital deployment, offer competitive advantages, so firms are constantly driving towards what they believe is best practice.

At BAFT, we focus more on standards and best practices for functions that are common and necessary for a healthier ecosystem, such as interbank transactions and risk management.

In that regard, our members are very active in collaborating through our committees and working groups. The community is very engaged in driving towards new standards such as ISO 20022 and working with providers such as SWIFT and other payment service providers that offer technology solutions that improve on current practices.

The Road Ahead for BAFT

PATEL: What are your missions and objectives at BAFT over the coming months?

SINHA: First on my list, as well as an ongoing goal, is to be at the forefront of new payments capabilities as they develop, as well as the policies and regulations that guide them, and be able to disseminate that to our members as quickly as possible.

My goal is to assist our members in achieving optimum productivity by leveraging technology and industry best practices in operational efficiency.

I also want to entrench myself as a subject matter expert on the challenges that our members are facing in the area of financial crimes, policies and regulations that govern them, and how to tackle those challenges head-on, with new developments and solutions in technology to prevent financial crimes before they happen, and to solve for them when they do.

CBDCs Shouldn’t Be the Only Form of Money, Central Bankers Say

CBDCs should complement, not replace, existing forms of money, according to leading officials at BAFT’s 2022 Global Annual Meeting.

Via Financial News

As central bankers in advanced economies consider launching their own digital currencies, top officials have warned that CBDCs should not replace existing payments systems entirely.

“The legacy system has been worked at diligently and hardened for decades,” Robert Bench, Assistant Vice-President at the Boston Federal Reserve, told a BAFT (Bankers Association for Finance and Trade) conference on 3 May.

“What we want to do is understand what are the costs or the benefits [of a CBDC], but not disrupt anything happening in the steady state, because so much work has gone into making the money system so secure.”

The Boston Fed has partnered with the Massachusetts Institute of Technology to investigate the technical feasibility of a digital dollar in an initiative dubbed Project Hamilton.

Bench said he was not yet confident that a digital dollar was technically possible.

“There’s no higher stakes than the US dollar. So to understand technical feasibility, the level of hardening you have to do so that institutions are comfortable offering these services to clients, that’s a long way away,” he said.

Tom Mutton, Director of Fintech at the Bank of England, said the Bank would be agnostic on potential use cases and business models for any CBDC.

“We should be in the infrastructure game, rather than the product game,” he told the conference.

The Bank has also partnered with MIT, entering into a one-year research agreement with the university to look at the technical challenges and opportunities of CBDCs.

In most advanced economies, central banks are either exploring or are in the early stages of developing a CBDC. Some 89 countries accounting for 90% of global GDP are currently looking at developing a CBDC according to the Atlantic Council, a Washington-based think-tank.

In April, the Bank and Treasury announced a CBDC taskforce to better coordinate research into a digital pound.

The increased attention around a CBDC does not mean one is on the horizon, however; the Bank has said not to expect a digital pound before 2025.

Both the Fed and the Bank are still in the research phase, and both central banks have said they would require approval from elected officials before moving onto the design phase.

A major concern that central banks have raised when discussing CBDCs is the potential of undermining the traditional systems fractional reserve banking and commercial money.

Mutton said the goal of the Bank’s potential digital pound is not to become the dominant form of money, but to serve as another payment option for consumers as cash use continues to decline.

“What we don’t see is a world in which a [CBDC] is the only form of money we use,” he said. “The predominant form of money we use to buy our groceries and go on holiday and anything else is currently commercial bank money. As we have a more digital economy and as we have lower levels of cash use, we continue to explore the case — or not— for making central bank money available in digital form.”

But while the Fed and Bank continue with their research, other jurisdictions are pressing ahead.

China’s e-CNY has been piloted in a number of cities around the country and was given a high-profile test run at this year’s winter Olympics. The People’s Bank of China reported that during the two-week sporting event, around $315,000 worth of e-CNY transactions were processed everyday.

European Central Bank president Christine Lagarde said the advanced stage of China’s CBDC project has spurred the ECB to move faster on its own digital euro project.

Banks, Corporates Worried EU Capital Requirements Shake-Up Will Hurt Trade Finance

Lenders, banking associations and trade finance users are lobbying the European Commission, European Parliament and member states to scrap planned amendments to the treatment of off-balance sheet instruments such as technical guarantees, performance bonds, warranties and standby letters of credit.

Via Global Trade Review (GTR)

Proposed changes to the treatment of trade finance in the EU’s capital requirements regulations could push up financing costs for businesses and allow insurers a bigger slice of the guarantees market, banks and borrowers claim.

The European Commission published the final text of its proposed changes to the Capital Requirements Regulation (CRR) in October last year, part of the bloc’s implementation of the Basel III banking reforms.

Lenders, banking associations and trade finance users are lobbying the Commission, European Parliament and member states to scrap planned amendments to the treatment of off-balance sheet instruments such as technical guarantees, performance bonds, warranties and standby letters of credit.

The Commission has proposed that those products be categorized as medium risk for determining the credit conversion factor, which is used to calculate what a bank might have to pay out under those instruments – taking into account the likelihood the payout obligation will materialize – and therefore the risk they represent on its books.

The planned change would hike the required credit conversion factor for those off-balance sheet trade finance products to 50%, from the 20% under the current CRR.

The lobbying campaign has stepped up in recent weeks. Lenders, corporates and trade groups have sent a flurry of written submissions to the Commission arguing that the increase is incongruous with trade finance’s relatively low risk profile and high rates of recovery in the event of defaults.

In a position paper published in December, the International Chamber of Commerce (ICC) says it is “deeply concerned” that the two amendments “may have severe unintended consequences for the provision of cost-effective trade finance to the real economy”.

According to BAFT (Bankers Association for Finance and Trade), default rates on technical guarantees are only 0.24%. Upping the credit conversion factor to 50% “is therefore excessive and does not seem justified or appropriate”, the association said in a submission to the Commission last week.

“European banks are likely to price technical guarantees at higher rates to clients” if the change goes ahead, BAFT argues. “The effect will be to discourage these business activities and make it more costly to offer trade finance for banks and their corporate clients,” the submission says, disadvantaging small and medium enterprises and making European companies less competitive when bidding for major infrastructure projects.

The proposed changes will increase the capital charge on the trade finance instruments by 150%, according to a joint submission from banking associations in Denmark, Finland and Sweden.

Under the proposal, the cost of a €10mn performance guarantee for a corporate customer would rise from €50,000 to €125,000, the submission says.

Technical guarantees are frequently used by infrastructure, energy and defense companies fulfilling large contracts. Governments can call on the guarantees if the company fails to deliver or meet its performance goals, and often require firms to enter bid bonds when taking part in tender processes.

Engie, the French utilities giant, says in a submission that it has exposure to bank guarantees amounting “to several billions” and that “the proposed revision would imply a severe cost increase for Engie and potentially difficulties to get access to those guarantees, as banks may decide to prioritize activities with higher return on equity”.

It adds that “some banks have already alleged the potential revision of Basel requirements to justify an increase of existing guarantee line[s] that have recently matured”.

Airbus estimates its financing costs will increase by “several millions” per year if the changes go ahead, including the corporate undertakings its parent company makes with its subsidiaries.

The aircraft manufacturer says in a submission that the possible drying up of credit lines due to steeper capital requirements could hinder its ability to meet contractual obligations when its customers request technical guarantees and put its supply chain “at risk”.

“It is very important to underline we are in the real economy,” says Christian Cazenove, group head of trade oversight at Société Générale. “The things that we are dealing with are goods and services…. We are dealing with what allows corporates to succeed abroad.”

“The additional capital costs may lead the banking sector to some extent to disengage from the guarantee business,” Cazenove, who has rallied other banks and clients to campaign on the issue, tells GTR. “Trade finance by nature is still a paper-based industry and not extremely profitable – we, together with clients, really don’t need these additional costs that we would charge to our clients.”

Banks are also wary that the changes will benefit insurance companies at the expense of banks. Baft says its members are concerned that the “excessive pricing of credit risk… will accentuate the current outflow of guarantee business from banks to insurance companies” which are allowed to internally model guarantee risk.

The ICC agrees that the mooted revisions to the law could create “an uneven playing field” between banks and insurers.

Maturity concerns

Those lobbying the Commission are also concerned that a second proposal under the update of the CRR will increase the costs to EU banks of providing letters of credit and other trade finance instruments.

They say ambiguities in the draft text concerning credit risk rating approaches will effectively force financial institutions to treat key trade finance instruments such as letters of credit as having a 2.5-year maturity when they are provided to large corporates.

Currently the CRR exempts trade finance from a maturity floor in recognition that instruments in the sector mature relatively quickly. Most trade finance products have average tenors of under 130 days, according to ICC data.

“Applying an average 2.5[-year maturity] to this kind of transaction will create a significant price increase for European corporates – the main users of trade finance – putting EU exporters in a weaker position than their competitors outside the EU,” the ICC says in its submission.

Banks in the Nordic region fear that adding costs to their trade finance businesses will add further pressure to already expensive correspondent banking networks that underpin global trade.

Michael Friis, a senior adviser on banking regulation with Finance Denmark, tells GTR that the group’s members are concerned that a loss of performance bond businesses and more expensive letters of credit will mean “that some of the volume will go out of the business and make it more sluggish and more expensive”.

The Commission’s proposal will be the subject of negotiations with the European Parliament and member states through the European Council. The trade finance measures are only a small part of a much broader Basel III package being put forward by the Commission and are unlikely to come into effect until around 2025.

A spokesperson for the Commission says that its draft will not be altered following the submissions received since October, but they will be used to inform the talks with the Parliament and Council.

Industry groups are also lobbying EU lawmakers and member states, Friis and Cazenove say. The French finance minister Bruno Le Maire has been made aware of the industry’s concerns over the proposed legislation, Cazenove says.

To Advance Sustainable Trade Finance, Agreeing on a Common Definition is Paramount

In this latest op-ed, Diana Rodriguez, Vice President of International Policy at BAFT, talks about ESG, sustainable trade finance, and BAFT’s role in sustainable transaction banking.

Via Trade Finance Global

Market Standard Definitions, Methodologies, and Measurements

Sustainability and ESG have become public and private sector priorities, with consumers and corporates alike increasingly focusing on sustainability practices when making financial decisions, and governments considering a wide variety of policy initiatives to drive behavior.

As nations work to meet the UN Sustainable Development Goals (SDGs), there is an important role for the transaction banking industry to help achieve them.

Trade finance has a crucial role to play in supporting corporate efforts to position sustainability at the core of their business strategies, and throughout their supply chains.

For several years, banks have been offering ESG-linked products including green bonds and sustainable loans, and we see informal markets developing for the trading of carbon credits.

However, in order for sustainability-linked trade finance to gain traction and ubiquity, there is general agreement that market standard definitions, methodologies, and measurements are needed.

Towards a Common Standards Framework

The difficulty of defining workable sustainability standards for international trade should not be underestimated.

The volume of global trade transactions that cross multiple jurisdictions to form part of complex supply chains presents an inherent challenge to defining what constitutes sustainable trade finance – a market that accounts for more than a third of global trade.

Additionally, institutions are at different stages of their own journey toward sustainability, and have different priorities based on their geographic footprint and client base.

This complexity heightens the importance for the trade finance industry to coalesce around a common standard that reconciles the divergent banking landscapes and provides rigorous yet implementable standards.

Policymakers in certain regions are outlining public policy frameworks and taxonomies to support policy positions for companies operating within their jurisdictions.

In some cases, private enterprise is well ahead of the policy requirements, while in others they are being influenced by policy requirements.

An appropriate balance between the public and private sectors will shape policy in a way that incentivizes behavior without creating unintended consequences with negative economic implications.

Industry advocates must strive to ensure that public policy reflects some consistency across jurisdictions, so as not to create undue advantages or burdens based on geography.

BAFT’s Role in Sustainable Transaction Banking

In the past year, we have seen the market become more collaborative, with institutions working together through industry working groups and consortia to find innovative solutions to address sustainability in transaction banking.

Last year, BAFT launched a Sustainability Working Group to address the needs for standards, tools, education, and policy advocacy on behalf of the industry.

To address these challenges, the working group will be developing resources, training, and best practice standards to promote sustainability across the trade finance and global payments industry.

The working group is focusing its efforts on five work streams:

  • Developing standards for sustainable transaction banking
  • Principles on how to apply net zero to transaction banking
  • Guidance on sustainability reporting
  • Advocacy and education on sustainable transaction banking
  • Defining an industry approach for the full spectrum of ESG – beyond the “E”

It is the objective of this working group to advance the interests of the transaction banking industry, while complementing and leveraging the work of other bodies.

To that end, the BAFT Working Group welcomed the ICC Standards for Sustainable Trade and Sustainable Trade Finance positioning paper published in November 2021. 

The roadmap is a positive development and moves the industry closer to agreement on a common standard that the industry can reference.

An Equal-Weighted ESG

As a common standard begins to take shape, much work remains to ensure broad industry support and wide adoption.

The first consideration is to ensure that equal weight is given to all elements of ESG. While social and governance factors are generally taken into account for the calculation of an ESG rating, most of the taxonomies are still primarily focused on the “E” for environment. The true impact of trade finance extends to the social and governance elements of ESG, and should be effectively represented in the emerging standard.

Second, recognizing the transition needed to make business more sustainable, such standards must not only recognize positive activity, but also guide those involved towards what best practices, or even minimum acceptable standards. While specific goods may not in themselves be sustainable, they can often be used for purposes that lead to sustainable ends.

Lastly, underpinning the development of any standard, care must be taken to be inclusive of the global nature of the business. For a global sustainability standard to take hold, geographically diverse stakeholders must be an integral part of the development and adoption.

The sooner the industry can stand behind a shared understanding and common vocabulary of what is considered sustainable trade, the more effectively the industry can dispense with concerns over ESG-washing and realize the potential of sustainable trade finance.

The Banker: Attracting New Talent in Transaction Banking

The war for talent has never been greater, as many people have reassessed their lives and work during the Covid-19 pandemic. Transaction banking’s digital transformation, as well as its role in supporting the real economy, may give the industry an edge in attracting and retaining staff.

Via The Banker

The changing image of transaction banking – often seen as less glamorous and exciting than investment banking – is helping the industry appeal to new talent, according to panelists at industry association BAFT’s Virtual Europe Bank to Bank Forum.

Speaking on a panel entitled ‘The way we work post-Covid-19: attracting and retaining talent in transaction banking’, participants highlighted how the industry is at the forefront of innovation, making it a complex and stimulating environment. Additionally, transaction banking’s role in supporting economic growth – through cross-border payments and trade finance – is proving attractive to those wanting to make a positive contribution to wider society.

“While transaction banking is the foundation of the core product offering, it is also at the heart of the digital disruption and close to the real economy,” said Maria Chiara Manzoni, head of corporate and investment banking (CIB) people and culture strategic partner, CIB process and operational excellence at UniCredit. “As an industry, we need to communicate even more effectively to illustrate how diverse and dynamic transaction banking is.”

“It’s clearly an exciting time for transaction banking, which presents many opportunities for transformation,” added Emma Dunlop, vice-president and global head of human resources, Royal Bank of Canada (RBC) Investor and Treasury Services. She believes that demonstrating how it can link to the purpose of supporting the real economy, ESG or international trade could be a real differentiator for transaction banking. “Employees are seeking opportunities to align their personal purpose and values to an organization’s or to the work that they do. This is an opportunity for transaction banking leaders to promote and harness that thinking,” she said.

Both agreed that digital skills are essential when recruiting in transaction banking. “[For example] how artificial intelligence is changing how we process information and data – this is crucial for our people to understand. [We are looking for] more hybrid profiles, with experience in banking, fintechs and digital platforms, as well as business acumen, digital literacy and high-end skills,” said Manzoni.

The bank also looks for a vast array of soft and hard skills, she added. “For a big transformation, there are some personal characteristics that UniCredit looks for in our talent, such as accountability and constructive criticism. In one word, we’re looking for courage – the courage to take some risks but also flag when we’re taking the wrong turn,” she said.

The Human Side

“Data and digital literacy have been a huge focus for our future skills agenda, as we look to accelerate digitization of manual processes,” said Dunlop. “However, as mentioned, digital skills are only one aspect and it can’t replace some of those customer-facing human-centric skills that are fundamental to transaction banking, which is a very relationship-based business. We want resilience, as well as problem solving, critical thinking, collaboration, communication, and financial and commercial acumen.”

Dunlop reports that RBC recruits from different sectors, such as technology firms and fintech start-ups, not solely from other banks. “There many different players that banks are working with, which is far more common now than in the past. We need to look at that as an opportunity for internal talent to collaborate and learn from other players in the market,” she said, adding that this helps with retention efforts. While RBC is focused on talent development and internal mobility, it also looks in the market or to partnerships to supplement staff skills sets.

During the pandemic, the number of fintech collaborations with transaction banks have increased, according to Tarun Khosla, head of trade and working capital loans, Europe, the Middle East and Africa at Citi. In trade finance, for example, transaction banks are working closely with fintechs to develop digital solutions – “basically co-creating solutions”. He believes that this engagement is also resulting in the movement of talent between fintechs and transaction banks and vice versa. “When we are working on a holistic solution design, the traditional boundaries melt away,” he added.

Another conference panel, ‘Fintech venture experience: sitting on the same side of the table’, showcased two successful bank-fintech partnerships: Barclays and SparkChange, which provides specialist carbon investment products; and Société Générale (SocGen) and Treezor, a banking-as-a-service platform.

There are numerous reasons for a bank to partner with a fintech, such as providing specialist capabilities that the bank doesn’t have internally, as in Barclays’s case, or enabling a faster time to market, as in SocGen’s case.

From the fintech’s perspective, a bank can help validate its business or product proposal, provide investment (SocGen acquired Treezor in 2019; Barclays led SparkChange’s $4.5m funding round in late 2020), as well as act as a dedicated sales and distribution partner, an advocate and a marketing machine.

But fintechs still have a difficult time accessing the right people within the bank. That is why SparkChange joined the Barclays accelerator program. “We partnered with Barclays [three years ago] because we heard good things about its accelerator program and found them to be very accessible and progressive in their views towards working with start-ups,” said Joff Hamilton-Dick, founder of SparkChange.

Onboarding Issues

Additionally, the onboarding process remains onerous. “We had to overcome some pain points when we [started working] with SocGen in terms of compliance, security, best practice, processes, etc.,” said Éric Lassus, co-founder, CEO, Treezor. But once it is completed, this can be a competitive advantage for the fintech, especially when dealing with corporates, according to Jean-François Mazure, head of cash clearing services at SocGen.

One of the biggest challenges is aligning the culture of a large incumbent with a start-up. In both panel examples, this was solved by a degree of independence for the fintech. Treezor, for example, remains a standalone project with its own roadmap and budget, and it is free to follow its strategic objectives, according to Lassus.

SparkChange has had “zero interference from a strategic perspective” from Barclays, according to Hamilton-Dick. “But, as with any good investor, Barclays is not afraid to challenge our decision-making from time to time, which makes it a very welcome and much needed sounding board to our strategic operations,” he said.