Barclays is using new technology to help steer through unpredictable economic seas. We explore how it’s applying blockchain, AI and the Cloud to give clients safer passage
Global trade is slowing and, some say, could be on the point of stagnating, not least as a result of markets struggling to come to terms with shocks such as the Brexit vote (which wiped $2trillion off the markets in 2016) and the US/China trade standoff that rumbled on for most of last year.
The new president of the European Central Bank, Christine Lagarde, was quoted in September as saying that the threat against trade is currently ‘the biggest hurdle for the global economy’, warning that ‘risks will come from where we don’t anticipate’.
Meanwhile, Bank of England governor Mark Carney is watching the markets’ canary in the cage: China, which now makes up a third of global trade growth. If the economic dragon catches a cold, a three per cent shrinkage of growth in its economy will cause a one per cent fall in global growth and a 0.5 per cent fall in the UK’s, he told an audience last autumn. The 2019 US/China tension on its own was predicted to wipe 0.8 per cent off global economic prosperity in 2020, such is China’s influence, graphically illustrating how vulnerable business is to politics.
All in all, many financial institutions and their clients are gazing with increasing trepidation into their crystal balls. But in such a world of deepening divisions, could technology be used to promote more inclusive and collaborative trading relationships, thereby protecting business against such existential threats?
Banking giant Barclays thinks so, and it has already started to help its clients save and prosper by driving forward an ambitious technology programme in its trade finance business using blockchain, artificial intelligence (AI) and the Cloud.
James Binns, who heads Barclays’ Global Trade and Working Capital business, says such advancements have a huge role to play in what he concedes are uncertain times.
“Clearly, there are lots of challenges out there for our clients – around trade wars, geopolitical uncertainty and economic volatility – and the challenge is how we, as banks and large trade finance organisations, can help our clients better navigate those risks and opportunities,” he says.
Barclays intends to do that by leveraging the deep relationships it has with corporate customers and correspondent banks, increasing focus on sustainability and judicious application of new technology (as Binns says, AI in and of itself doesn’t solve everything). In particular, the bank has identified blockchain’s broad potential to bring financial institutions closer together and make global collaboration easier, as well as creating real efficiencies in the way it processes data.
To that end, Barclays led a $5.5million investment package for Crowdz, a Silicon Valley-based startup behind a global blockchain-based invoice exchange. It has created a built-in business-to-business (B2B) payment gateway that allows companies of all sizes to automatically digitise invoices, speed up invoice payment collections, accelerate the cash conversion cycle and automatically associate orders, invoices and payments with one another. The exchange’s proprietary auction platform also lets companies submit their invoices for bank or investor financing without filing additional paperwork, finding funders at the lowest possible rates.
Barclays’ investment in the startup came after Crowdz took part in the bank’s 2018 Accelerator programme, which also led to a partnership with Barclaycard.
Binns says: “I think technology can play a huge role in volatile and uncertain times, because it’s driving more and more transparency into the supply chain. So, instead of large corporates being able to look at just their biggest suppliers and help them access the right trade finance and funding solutions with technology, you can start to drive that penetration much deeper into the supply chain – not just to smaller suppliers, but suppliers of suppliers as well.
“You can start to look at working capital and funding, not just at an individual entity level, but across the entire ecosystem of a supply chain, bringing benefits to all parties. It can drive a more sustainable and certain funding environment, which enables those suppliers and buyers to survive volatility more effectively.”
Beyond that, he believes artificial intelligence will be pivotal in modernising financial transactions. “It’s early stages, but the impact will be huge,” he says.
“For us, the first part of AI is optical character recognition (OCR). Trade is an inherently paper business and, to some extent, will remain so, but the moment you can start to digitise paper documents, you can start to use AI and robotics to automate their processing, which drives a lot of benefit – both in terms of taking cost out of trade finance transactions, and significantly increasing speed and certainty around those transactions, too.”
Cloud at the centre
Core to the bank’s ambition to update, modernise and invest in its trade finance business, is to have its trade platform hosted by an external party and on a Cloud-based system.
Binns says: “Unless you have the right core, it’s very difficult to have the level of efficient connectivity with the outside world that you need to drive the trade finance technology solutions of tomorrow. Those will include blockchain, different external supply chain platforms, OCR/AI solutions and other technologies.
“For us to really to deliver the value of that to our clients, we need to be highly connected, not just across banks, but across all counterparties in the trade finance and supply chain environment, so that we can start to offer clients more bank-agnostic solutions that leverage data throughout the supply chain.”
He believes that, far from undermining the bank’s brand recognition and relationship with customers, employing the services of external partners will actually strengthen them by offering greater flexibility, adaptability and functionality.
“While we may be relying on other parties to provide or process data for us, for example via a third-party supply chain finance platform, we will still be very valuable to our customers in terms of mitigating the risks they face, such as counterparty risks, and providing them and their supply chains with the working capital funding they require to sustain their businesses,” he says.
Barclays is also determined to use technology to encourage sustainability more broadly within trade finance. It has already introduced a green trade loans programme for clients who meet its environmental and social responsibility criteria.
“Sustainability will become increasingly important,” says Binns. “We’re already starting to see this, with corporations, large buyers and certain industry sectors adopting environmental, social and governance (ESG) criteria, around which they can judge suppliers based on their environmental friendliness and social responsibility record.
“The moment you can start to do that more effectively, using technology, you can begin only dealing with certain types of suppliers, or incentivise your supply chains so that all suppliers become more responsible. You can then demonstrate to your consumer that you’re delivering a more responsible product.”
Swapping data for benefits
Barclays is one of a consortium including BNP Paribas, Rabobank, Sainsbury’s, Standard Chartered and Unilever, which is led by the Cambridge Institute for Sustainability Leadership in creating a sustainable supply chain finance model called Trado. It uses blockchain and smart contracts to collect and record social or ecological data on suppliers, who in return get preferential access to trade finance – a so-called data-for-benefits swap. The idea was tested on a tea shipment from Malawi in early 2019. Binns is confident that technology will help create a brave new world in trade finance within which collaboration like this will be key.
“The challenges we need to address now, to make sure that realisation comes true, are making sure that, wherever possible, we’ve standardisation in technology and technology standards so systems can talk to each other and connect with each other; also in terms of legal frameworks and rulebooks, so that you haven’t got lots of different people having to sign up to lots of different legal rulebooks to transact with other parties across different platforms.”
Mark Carney would agree with that. He even believes that, if got right, a Brexit agreement on future trade could act as ‘quite a positive signal in terms of how the collective should structure trade and services, which is one of the solutions to a more inclusive globalisation… setting the rules and tailoring it to local circumstances’.
The message seems to be that out of chaos could come a new world trade order. And technology will be at the heart of it.