The potential for Trade Finance Platforms

Using a Trade Finance Platform to Broaden Financing Opportunities in the GCC and Beyond

Digitalisation is touching and transforming all aspects of financial markets and the pace of change has been accelerated by the Covid pandemic and lockdowns.

Trade finance is not exempt from this trend: new financial technology has the power to challenge old ways of financing trade and to create new and exciting business relationships.

We spoke to Dominic Broom, the CEO of Fineon Exchange, a trade finance platform that connects businesses with financing banks, and which has particular relevance for trade finance in the GCC and the wider Middle East.

Arab Bankers Association: What is a digital trade finance platform?

Dominic Broom: A digital trade finance platform is an electronic marketplace that matches companies seeking finance for the sale or purchase of goods with banks and other financial institutions with funds to invest. A digital platform addresses the paradox that we see in trade finance today – that despite banks and other investors having plenty of liquidity, funding is not reaching the parts of the market where it is most needed, such as mid-market firms, and SMEs.

A platform such as Fineon leverages artificial intelligence and transaction management processes, which are informed by our management team’s extensive personal experience of how trade finance works, to create efficient ways to match those with money to invest with those who need money in order to trade.  

Why would an investor or a buyer use a trade finance platform rather than going to their usual partners?

A lot of trade finance transactions fail because the right data is not exchanged between those who need the finance and those who are, in principle, willing to provide it. When making a risk assessment, the financing institutions need to understand the parameters of the transaction, such as the seller’s ability to produce the required goods, its trading history, its domicile, its owners, and so on; and what we can do is to collect that core information and validate it, so that it is easily available. 

Banks or financing institutions can enter their lending criteria onto our website – their preferred products for financing, their preferred regions, their preferred deal size, perhaps even the rate of return they are seeking – and that is then matched against the validated data from those seeing finance. 

One result of this is that the financing institutions can move from ‘business enquiry’ to ‘execution’ much more quickly. To be clear, banks do need to do their own KYC and compliance checks – they cannot just rely on ours – but the basic information that they need to know, including whether a potential deal is aligned with their strategic objectives and with their credit criteria will be immediately available, in a form that is clean and easy to analyse. 

Furthermore, there are structural changes in the trade finance market that are increasing the value of platforms. Large international banks have been reducing the number of their correspondent banking relationships, especially in emerging markets. Many countries in the Middle East, including those in the GCC, have been affected by this. The large banks that continue to offer facilities in emerging markets, and in the Middle East, are increasingly focusing only on large companies to the detriment of the middle market and of new companies that are trying to grow. Even those middle market companies who have long-standing relationships with their ‘house banks’ are finding that those banks may now be offering a narrower range of services.

A platform such as Fineon immediately connects – with a few clicks of a computer mouse – companies seeking finance with banks and institutions that are interested in doing business with them; and for the financing institutions, as mentioned above, a platform such as Fineon can be used as a complimentary business acquisition channel, which makes the whole appraisal process quicker and more likely to lead to a transaction taking place. 

Financial crime in trade finance is a big issue for law enforcers and regulators. What’s to stop your platform being used by financial criminals?

The first thing to say is that Fineon is not an ‘open’ platform. We welcome new members but we do thorough on-boarding checks before they are allowed to access our platform. So, for example, we demand company registration documents, ownership details – including ultimate beneficial owners – and we check both financiers and those seeking finance against 50 risk factors that include AML, CTF and ABC checks as well as any adverse media coverage. The on-boarding checks we make are very similar to those done by banks – and that’s deliberate – but, as I mentioned above, banks still need to do their own due diligence checks. 

We also conduct ‘second stage’ checks, where we investigate the transaction, in addition to the counterparty initiating it. That entails ensuring that none of the parties to the transaction is on watchlists – such as sanctions watchlists – that the goods themselves are not subject to restraints or sanctions, and that the countries involved are also not on sanctions lists or under any other form of adverse international scrutiny. 

What makes Fineon different from other trade finance platforms?

First of all, we are instrument neutral, regionally and sector neutral, and we cater for a very wide range of transactions, from the small to the large.

Secondly, we don’t operate as a ‘closed network’. As I’ve already said, Fineon is not an ‘open access’ platform – you have to pass our checks to get in, but those checks are about compliance issues, not size, region, whether we’ve done business with you before, or whether you’ve been referred to us by someone we know. If you’re looking for finance or looking to finance, and you comply with international regulations and standards, then you’re welcome on our platform and, once there, you can interact with whoever else you want to interact with.  

I’ve spoken a lot about the checks we do to make sure that only reputable counterparties use our site but, without lowering our standards, we deliberately have low commercial barriers to entry. Everything we do has the end-user in mind – the more people who are active on our site, the better it is for us and the better it is for them. We’re soon going to be launching a new enquiry function that enables potential users seeking finance to log on to our website and register the basic details of a request for finance, and then they will be able to run checks to see whether, in principle, the kind of financing they are seeking, and the kind of conditions they need to be fulfilled, is going to fit with the banks and financial institutions that we already have registered.

What is the deal that you have just signed with the Qatar Financial Centre?

The Qatar Financial Centre is sponsoring the creation of a trade finance platform that is focused on the Middle East and Asia – the countries along what is sometimes referred to as the Silk Road. That platform is called Nebix, and Fineon is providing the trade finance technology and business know-how that will make it work. 

I’m really excited about Nebix and how Fineon is going to be able to be a part of its success. The Middle East and Asia is an incredibly exciting market for trade finance – the volumes of inter-regional trade have been growing rapidly and they are going to continue to grow. 

Qatar wants to facilitate those trade finance flows and benefit from them. Remember that the cargo division of Qatar Airways is the world’s largest cargo carrier (excluding dedicated freight operators such as FedEx and UPS) and Qatar’s Free Zone contains a logistics hub that gives access to transportation and storage facilities. 

 

Dominic Broom is CEO of Fineon Exchange. He previously worked for BNY Mellon as Global Head of Trade Business Development and Head of EMEA Treasury Services. Before that he worked for ABN Amro as Corporate Director for Trade & Supply Chain Finance, and for General Electric Corporation as Director of European Equipment Finance. He has a LLB in Law. Dominic lives in the UK. 

 

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