EXCLUSIVE: “Digitising Trade” – Vivek Ramachandran, HSBC in ‘The Paytech Magazine’

HSBC’s Vivek Ramachandran has an excellent vantage point from which to observe global trade. Here he explores its rapid transformation and why we ignore developing trends at our peril

Global trade is changing at a significant pace, with trade in digital services increasingly taking up more of the pie. China has been at the heart of international trade for, well, millennia, and along with Southeast Asia, is following this trend. This year, its capital Beijing will host Sibos, one of the world’s largest financial services conferences.

HSBC hardly need any introduction and has been in the business for more than 155 years, continuing to play a crucial role in the global trade finance ecosystem. We spoke to its head of global trade solutions, Vivek Ramachandran, to hear his overview of the current and future trends that are transforming this sector and why China is an exciting place to gather banks and financial institutions from around the world.

The Fintech Magazine How is trade and international business changing globally and what are some of the challenges that are facing banks like yours?

Vivek Ramachandran “Firstly, trade in services is outpacing trade in goods. Historically, we think of trade as products being shipped around the world on container ships. That’s still important. But almost 30 per cent of global trade today is made up of trade in services. It was 21 per cent a few years ago.

“And this isn’t just streaming on Netflix, it’s also cloud and software solutions. It makes the world a smaller place and opens a new set of challenges for companies to manage their working capital. This is a great opportunity but requires banks to understand new business models and the role we can play in helping with that.”

The Fintech Magazine How are supply chains being reshaped?

Vivek Ramachandran “Through a combination of cost considerations, geopolitics, sustainability issues or resilience factors. Some are getting shorter. Others are getting longer. And as new trading relationships are formed, a new set of challenges arise which bring with it its own risks.

“One huge change is around sustainability. Five to ten years ago, it was on the radar, but it’s now gone from a nice-to-have to a must-have. Companies are realising their sustainability obligations extend beyond their own activities to their supply chains too. That includes managing emissions, transparency around labour, building safety, and more throughout your supply chains.

“Companies are either doing this on their own terms or on those dictated by regulators or other stakeholders.”

The Fintech Magazine It’s not just the items being traded that are digital, right?

Vivek Ramachandran “Yes, almost half of B2B trade is now digital too. It’s not happening through physical channels which requires us to understand new counterparties. Suddenly, you’re trading with counterparties under the cloak of anonymity.

“So there are new ways of onboarding customers and new partnerships are going to change things for financial services and for banks. But broadly speaking, trade digitisation can feel likea step forward, and a few steps back.

“If we were having this conversation a few years ago, we’d be talking about distributed ledger technology and blockchain. What’s clear is the way global trade is going to digitise will be very different. It’s going to happen with some government-led initiatives like the UK Electronic Trade Documentation Act, the model law that the UN passed for electronic transfer of records that’s now been adopted by France and countries like Germany, UAE, and Singapore are also looking at it.

“Regardless, I think we will see a very different world emerge in the next five years with a lot of new business models and new data available.”

The Fintech Magazine So, some of these technologies are not playing as big of a role as we thought they might?

Vivek Ramachandran “We are still experimenting with a lot of new technologies, but we need to stay focussed on the underlying business need and not get too excited by the technology in and of itself because technology will be an enabler to solving business problems.

“So, it’s a fantastic time to be in trade and because as a trade professional, if you’re interested in tech developments, if you’re interested in sustainability, if you’re interested in new business models, we’ve got a little bit of all of that in terms of challenges and opportunities to go after.”

The Fintech Magazine How do you see trade finance developing in APAC and Southeast Asia, in particular?

“A more digital world is good for trade. And anything that’s good for trade is good for banks”

Vivek Ramachandran “Southeast Asia is at the heart of several themes I talked about in relation to global trade. In terms of supply chains, there are a lot more manufacturing activities going into Malaysia, Vietnam and Indonesia.

“Southeast Asia also happens to be at the heart of the e-commerce boom that we’re observing. So, business models are being challenged there, but there are also a lot of new opportunities emerging there. Singapore has been at the centre of trade digitisation.

“For HSBC, this is a very strategic region and we have a lot of our product development and innovation  coming out of the region too.”

The Fintech Magazine With Sibos being hosted in Beijing (and indeed mainland China) for the first time, what are the opportunities for fintech and financial services companies in the country?

Vivek Ramachandran “It’s hugely exciting to have Sibos in Beijing. China has a thriving digital economy with a huge amount of innovation, often different to what you see elsewhere.

“For example, we observe deep-tier financing platforms coming out of China where you have large buyers able to finance suppliers all the way through the supply chain, not just direct suppliers.

“It’s the largest exporter in the world. At least seven of the world’s largest ports are in China, so it continues to remain strategic to many supply chains all over the world. Our overseas direct investment out of China has also been growing. China has been active in investing and a lot of that is private sector-led.

“We have also been making partnerships with local platforms that fund suppliers trading internationally. The other point I’d make is that the manufacturing progress in China is very impressive. When I was last in Shanghai, I visited an EV manufacturer and it is genuinely inspiring to see the tech developments in factories there, whether it’s the EV space or the broader sustainable technology space.”

The Fintech Magazine Why is Sibos worth attending?

Vivek Ramachandran “Sibos is always fantastic because, beyond the huge business and commercial opportunities, we obviously work with other banks. So, it’s a great chance to meet our relationship banks. It’s also an opportunity to share some of the best practices that we’ve been leading in and collaborate on the big issues around sustainability and around digitisation.

“A more digital world is good for trade. And anything that’s good for trade is good for banks that help companies trade. So we’re incentivised to help digitise trade.”

The Fintech Magazine From the vantage point of well over 100 years of experience, what are the main areas of disruption you see taking place in this sector going forward?

Vivek Ramachandran “Beyond the big thematic issues, the single biggest factor will be the emergence of data. Digitisation will help us take out costs and introduce efficiency by gathering data in one place.

“This data will remove market inefficiencies, whether it’s informational asymmetries or other frictions. That for me is the single largest opportunity for the industry and I don’t mean just the financial services sector, but for the broader trading ecosystem.

“Artificial intelligence will form a part of that. It need not be generative; it might be predictive AI. The first step though, is to make sure we’re aware of the business model opportunities that emerge out of that, and how we can sell clients with data-led solutions.

“That, for me, is going to be the single biggest change over the next five to 10 years.”

This article was published in The Paytech Magazine Issue 15, Page 17-18