Winds of change are sweeping across the financial services landscapes within the Middle East and North Africa.
The innovative thinking moves away from traditional banking and finance set-ups, burdened as they are with legacy infrastructures from the 1980s and 1990s. This movement is being spearheaded by fintech companies and ably supported by governments, regulators, financial centres and regional investors.
The region is fast catching up with Western economies when it comes to adopting new ideas due to that strong level of support from government. Regulators, too, are playing a distinctive role as they seek to adopt and promote global best practice.
There are broadly four key areas where fintech is impacting banks, businesses and corporate treasuries:
Less than half the population in the Middle East and Africa have access to banks, and only 35% of women in the Middle East have bank accounts.
Firms focusing on mobile payments, online know your customer, digital banking and microlending can partner with banks and local organisations to help deliver financial services to this ‘bottom of the pyramid’ segment at lower costs.
Whether it is providing cheap and fast foreign remittance services to blue-collar expatriates or microloans to female entrepreneurs in Jordan, fintech firms are making the ‘inclusion through innovation’ dream a reality and capturing a wider range of customers for banks and corporates as they do so.
Imports and exports oil the engine of the Gulf economy. However, the trade facilitation mechanism remains complex, with a large number of players (banks, corporates, logistics providers among them) exchanging numerous data points across multiple locations and links in the supply value chain.
This leads to onerous paperwork, loss of precious time and, unfortunately, fraudulent activity, where fictitious transactions are created to aid money laundering.
Fintechs can work with key players to completely overhaul a decades-old system of trade finance by a) automating mundane and repetitive tasks using digitisation and robotic process automation tools, and b) adopting distributed ledger technology (DLT) for decentralised data exchange.
There are early signs of success, with HSBC recently completing the first live end-to-end trade finance transaction for the issuance of a fully digitised letter of credit, using DLT (or blockchain in common parlance).
The application, built using R3’s Corda blockchain, was used to track and trace information as it moved between parties in a fully secure and immutable environment, reducing the time taken for exchanging and checking documents from the typical five to 10 days to less than 24 hours.
However, there are barriers to implementation due to low adoption rates within the participants.
Picking up the phone to call your bankers to take deposit rates or FX quotes is still the long-favoured method for many treasury and finance teams in the Middle East.
This creates inherent inefficiencies, time delays, poor price discovery and a requirement for a manual process with the core treasury management system (TMS) to book and settle trades.
Emerging fintech marketplaces with quotes from multiple banks on FX rates using an automated trade process and connection to the TMS through application programming interfaces (APIs) will benefit corporates in terms of better prices on trades and will carry out end-to-end settlement in a fast, secure and seamless manner.
The payments landscape globally and regionally is bound to change from the old and settled ways of correspondent banking to a more disintermediated and faster process using elements of blockchain technology and other evolving payment infrastructures.
Fintech companies like Earthport (see below) are creating independent state-of-the-art networks enabling businesses to send payments to any part of the world, cutting the average delivery time to T+1.
On aggregate, prevention of the loss of value in transit can be a huge source of cost savings to corporate treasurers.
There cannot be a better time for corporate treasurers to embrace innovation and make a significant impact to their businesses.
1. MARCO POLO NETWORK Launched in 2017, the Marco Polo Network is the largest and fastest-growing trade and working capital finance network in the world.
It is a joint undertaking between technology firms TradeIX and R3 plus the world’s leading financial institutions and their corporate clients.
The network provides an open enterprise software platform for trade and working capital finance to banks and corporates, and a distributed, blockchain-powered solution that allows for the seamless and secure exchange of data and assets.
Its mandate is to provide a dramatically improved customer experience using cutting-edge trade and working capital procedures. This type of network provides the basis for revenue growth and a simultaneous reduction in costs, time and risk.
The network enables its members to benefit from ‘network effects’, and can be accessed in multiple ways. You can use the full enterprise offering for working with various banks and legal entities, utilising a range of solutions.
These can be provided via software as a service, as a dedicated managed instance or hosted by the corporate. Members can also use the Marco Polo ERP embedded directly in their enterprise resource planning (ERP) system.
2. NEWBRIDGE FINTECH is the first open banking platform and wholesale deposit marketplace connecting banks, treasury and asset liability management looking for high-value funding with global corporate and institutional depositors.
Large corporates and financial institutions can discover special deposit rates from global and regional banks, allowing them to place a deposit through a central custodian in a fast, secure and seamless manner. The platform helps treasurers and CIOs achieve significant yield enhancement on their cash pool.
Clients such as non-banking financial institutions, corporates and family offices will use the platform to discover best rates and facilitate the transaction through one central account, doing away with the need for onboarding with multiple banks. They can also run request for quotations for their bespoke requirement.
This is completely free for corporates, with no minimum funding commitment. Smaller corporates can also pool in deposits to get access to special bulk-funding rates.
A bank’s treasury uses the platform as a free distribution channel to raise wholesale funding from global depositors in the form of deposits and private placements of euro medium-term notes.
The bank’s treasury reduces its cost of funds and diversifies the customer base by bringing new-to-bank clients outside the existing coverage area. They also avoid the extensive and costly process of account opening and maintenance. Click here for further details.
3. EARTHPORT is a financial institution regulated by the UK’s Financial Conduct Authority, transforming the future of cross-border payments. The company supports the trade, commerce and remittance operations of corporates and financial institutions.
Earthport provides clients with access to the world’s largest independent global payment network, maintaining local banking partnerships, through which client business is settled directly via local clearing to banked beneficiaries in 88 countries. Through a single integration, businesses can start sending payments in a fast, secure and flexible way.
With the largest independent automated clearing house network in the world, Earthport enables businesses to seamlessly settle payments in 80+ countries with an average delivery time of same day or T+1.
It can convert payment instructions in any format with simple, clean APIs. It provides FX services and can provide an indicative quote for a singular payment or for bulk payments as part of an optional service.
Siddharth Bhandari is CEO and founder of DepositBook
This article was taken from the August/September 2019 issue of The Treasurer magazine. For more great insights, log in to view the full issue or sign up for eAffiliate membership