The Business Times: Transforming trade finance through digitalisation

LIKE many e-commerce players, home-grown digital commerce solutions provider SCI Ecommerce saw exponential growth during Covid-19, as brick-and-mortar retailers flocked online.

But as online sales soared, the group found itself in a fix: it was repeatedly bogged down by the sheer amount of trade documentation needed for each loan application to pay its suppliers.

Founded in 2011, SCI helps brands and merchants set up and manage online stores in South-east Asia and China. It works with e-commerce marketplaces such as Shopee, Lazada and Alibaba Group’s Tmall Global, and counts Nestle and Nintendo among its brand partners or suppliers.

In 2021, the group was ranked the second-fastest growing company by The Straits Times, and the third-fastest growing company in Asia-Pacific by Financial Times.

Joseph Liu, founder and chief executive of SCI, noted the surge in e-commerce transactions by consumers in the region’s emerging economies – which the group soon struggled to keep pace with.

At the onset of the pandemic, SCI was using a traditional import loan from HSBC to make payments to its suppliers. Each transaction required the group to fill up an application form, following which it had to submit respective trade documents including purchase orders, invoices and bills of lading for every loan drawdown.

This meant that the whole payment cycle could take anywhere from three days to more than a week for completion, said Liu.

This timeline could be extended should the bank require further amendments to the documents, resulting in even slower payments to suppliers, he added.

As a player in the highly competitive, fast-moving cross-border e-commerce industry, the stakes could not be higher for SCI Ecommerce. The global e-commerce market is expected to grow by US$1 trillion and account for half the growth in global retail by 2025, said global market research company Euromonitor International.

SCI’s chief financial officer Robin Yang said: “It’s a chain effect – if payment is delayed, it will delay procurement, then shipment, and delivery. This will not only affect SCI, but our brand partners, the logistics vendors and eventually the end-consumers.”

On top of that, the group may risk not being able to secure certain in-demand products from its brand partners, especially during major shopping seasons, he added.

“If a certain stock-keeping unit (SKU) is in high demand and multiple parties want to buy it, the brand partner will sell it on a first come, first-served basis to whoever makes the payment first.”

“Should we miss out on these SKUs, it will impact our financial performance and business growth.”

Trade finance has traditionally involved fragmented, paper-intensive and manual processes. A 2020 global survey on trade finance by the International Chamber of Commerce found that document verification was a notable laggard when it came to eliminating physical paperwork.

About 45 per cent of the survey’s trade bank respondents said they had not made any progress in removing the use of physical paper for documentary transaction.

Liu noted that some banks in South-east Asia and China, which provide working capital financing to SCI, still only accept physical paperwork. A few, in fact, are even using fax machines to send and receive documents, he added.

So when HSBC approached SCI in July this year to be part of a pilot programme for its first digital solution for trade loans, the group jumped at the opportunity.

The Trade Working Capital (TWC) facility helps businesses by digitalising and simplifying the fragmented, multi-step process typically attached to conventional short-term revolving loans into a single step.

With the TWC facility, SCI can draw on loans with a payment instruction file, without needing to submit any trade supporting documents.

Loans are processed directly and in less than a minute, after which supplier payments are triggered automatically.

“As compared to traditional loans, the TWC facility brings about a lot more convenience for us with more streamlined drawdown requirements,” said Yang.

Today, its suppliers can be paid as quickly as within 24 hours, down from a turnaround of at least 48 hours in the past.

HSBC has since launched its TWC facility in Singapore and in the United Arab Emirates. It plans to roll out the solution in Australia, Bangladesh, Hong Kong, Indonesia and the United Kingdom next year.

For SCI, the facility has allowed it to process 50 per cent more payments than before, as the processing time for each transaction is reduced, Liu said.

“In the old days, my staff had to spend a lot of time preparing paperwork and going through a lot of procedures,” he said.

“Our employee productivity is much higher today; the same number of employees can handle much bigger volumes without us requiring more hands.”

These internal gains have had a spillover effect: the group now enjoys better relationships with its brand partners, while end-consumers receive their goods more quickly.

Time and efficiency are especially critical for SCI in the lead up to major sales campaigns, said Yang. He cited the example of the recently-concluded Singles’ Day – China’s biggest holiday shopping season every Nov 11 that has been steadily catching on in South-east Asia.

“For example, Tmall Global will tell us that they’re predicting certain categories of products to be in high demand, and will need us to supply more. So we will need to procure more from our brand partners to prepare for the surge in demand,” Yang said.

As SCI could pay their suppliers within a shorter turnaround this time, it was able to secure goods from them for online marketplaces more quickly, in turn expediting the fulfilment of orders to consumers.

The integration of the TWC facility into its supply chain has brought SCI a step closer to realising its ambition: to build a next generation integrated cross-border e-commerce network across South-east Asia and China, said Liu.

“There was previously a missing link in our value chain, which has since been filled up by the TWC solution. We want to link suppliers, end-consumers and platforms together in a chain where capital flow, payment flow and product flow are fully digitalised.”

Yet, this is hardly the end of SCI’s journey to strengthen its digital capabilities. The group is now conducting its own research and development on the use of artificial intelligence in digital marketing, said Liu.

“South-east Asia’s e-commerce market is still at a relatively early stage, as compared to more mature markets such as North America or China,” he observed.

“So there are definitely a lot of gaps to be filled by technology – and that’s exactly what we are doing right now.”

When the pandemic first hit in 2020, Iain Morrison, country head of global trade and receivables finance at HSBC Singapore, recalled how there were a number of bank clients who were “not quite ready to go digital” to submit their trade applications, having been so used to manual submissions.

“If there’s one lesson businesses learned from the pandemic, it’s the importance of agility to not just survive, but to thrive,” he said.

With that, HSBC’s priority has been to help clients get onboard with digital transactions – particularly in the area of trade finance, which has been highly paper-based to date.

Between 2020 and 2021, the bank saw digitally-initiated transactions in trade finance rise to 95 per cent, up from 30 per cent in pre-pandemic times.

“Digitalisation is and remains the most crucial step for enabling most businesses to continue operating through lockdowns and closed borders, and to grow internationally,” said Morrison.

“We are seeing a huge push in the industry to achieve a truly end-to-end digitalisation of trade.”

But digital adoption does not happen overnight. First, clients need to be aware of the additional value that digital trade and payments solutions can bring to their firm’s operations.

A mindset shift is required too, and firms need to go beyond their comfort zone to try out new solutions.

Today, HSBC sees more clients looking to streamline their procurement and sales behaviour and build further resilience in their supply chains, as they seek to reduce costs amid ongoing supply chain disruptions.

The critical importance of sustainability has also emphasised the need for visibility in supply chains, Morrison pointed out.

According to HSBC’s 2022 report on Asia supply chains, increasing the level of digitalisation across supply chains was the top priority for 76 per cent of corporates.

The report also revealed that 95 per cent of corporates do not have sustainable finance solutions in place for their supply chains.

The demand for accelerated financing has challenged banks to innovate and digitalise, Morrison noted.

HSBC has invested in digital solutions and artificial intelligence that eliminate paper-intensive processes and enable working capital funds to be pushed out within seconds – from the time a request is made, to payment.

The bank also sees an opportunity to deepen its relationships with clients via embedded finance, which refers to the integration of financial tools and offerings into the infrastructure of a non-financial provider.

In September, it launched embedded banking services into a cloud enterprise resource planning system, NetSuite AP Automation, in the United States.

The solution aims to simplify and automate the entire invoice payment process, which has been slow, tedious and error-prone to date, making it easier for customers to pay vendors.

Said Morrison: “By embedding banking and enabling services through application programming interface-enabled automation, we’re helping to boost our customers’ agility and open up a world of opportunity for businesses.”