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Turkey leverages the power of now in trade

Turkish banks and corporates have a good reputation for using technology to improve trade process and efficiency. In a discussion hosted by BNY Mellon in Istanbul in July, and moderated by TXF, banks and corporates discuss how SWIFT gpi technology could help with trade and also how Bank Payment Obligations (BPOs) – which Turkey was an early adopter – could be best used, if it isn’t overlooked.

The participants:

Cihat Takunyaci, Managing Director, Country Manager and Senior Representative Treasury Services BNY Mellon

Baris Gokalp, Treasury and Finance Director from Sisecam

Honey Kirtley, EMEA Cash Management Treasury Services, BNY Mellon

Abdurrahman Ozalp, Trade Advisor, TEB

Batuhan Tufan, Head of Financial Institutions, Garanti Bank

Burak Ozmutlu, Director Credit Product Development, Softtech (a part of Isbank)

Ahu Acar, Head of Trade Finance, QNB Finansbank, 

Devrim Baykent, Manager Finance, BriSA, 

Katharine Morton, Head of Trade, Treasury & Risk, TXF (moderator).

TXF: Turkey is at the leading edge of technology adoption – e-invoices, etc. Can you set the context for trade?

Cihat Takunyaci: Regardless of all the challenges Turkey has had, foreign trade has always played an important part in Turkish history and will in its future. Turkey relies on its knowhow and technology is now important too.

Players are not only focusing on executing trade, but also trying to consider efficiency costs. There are many things that give you a leading edge in foreign trade against the competition, and technology is one. So great efforts are being made, particularly by intermediaries such as banks, who are leading on that front. They are educating their clients in terms of technology trends and products and engaging with the government and state agencies to help with processes.

Turkey is on the right track. There are certainly challenges ahead but I´m very optimistic about going forward with this effort. It´s going to pay back and also put the banks, companies and the country in a better position in the years ahead. So, in this context, BNY Mellon is a strong believer in technology, given its global presence and the capacities it has. Technology can only help us through better serving clients, improving market conditions and controlling risks and creating efficiency. We continue to cooperate with our clients’ counterparties in any form, whether that be technological companies or government agencies to help improve the groundwork for competition.

TXF: How is Turkey positioned with developments such as SWIFT global payments innovation (gpi), with artificial intelligence (AI), with bank payments obligations (BPO)? Perhaps I can turn to Sisecam, which was the first corporate adopter of SWIFT in the country?

Baris Gokalp: As you say, Sisecam was the first corporate with its own SWIFT code because we became a Turkey-based, international company. We are now in 13 countries with production facilities. In order to manage treasury activity worldwide we first needed to have bank connectivity. Outside of Turkey, banks were using SWIFT for bank connectivity, but inside Turkey, each bank had its own solution for connectivity.

As we were growing abroad, we realised in order to manage the bank connectivity for all our entities worldwide, we had to use SWIFT for managing all bank related activity. As an example when we began this project, there were no factories in Italy. Now we have two. We used to be in a joint venture in India, and now we own the company. So, when we go into a new country, instead of each bank’s connectivity solution we go via SWIFT. The first step is we will get MT940 [SWIFT transaction type identification codes] of all bank accounts.   

TXF: What percentage usage are you at on SWIFT?

Baris Gokalp: The percentage of the MT940s we receive is at 90% in Turkey and after we first talked with the domestic banks, we are talking with the international ones. There are many things you can do via SWIFT. So, our next step is that we will not issue any instruction manually in Turkey, we will connect with the banks and give instructions via SWIFT. We found that many of our banks were also using this with their international corporates’ Turkey branches.

That’s the smartest way to do this. Because otherwise, in each country you go into, you begin to talk individually with each bank for bank connectivity. The third step will be working on SWIFT gpi.

TXF: What is the attraction of gpi for corporates?

Baris Gokalp: In my past experience with some other companies, we have had a lot of fraud. And without SWIFT gpi, when the money leaves your accounts it’s very difficult to stop payments, and if there’s a time difference between you and the banks, it’s gone. With gpi you can see every step of the payment – where the money is going, via whom, and what is deducted from the bank in terms of commissions and also for the last step, as far as I know, you can stop the payment if there is something missing, or there’s been a double payment, etc.

And the second step is on the receiver´s side, it should be quicker than the standard SWIFT operation. And also, they can see that the payment has been made and the money is coming via the system, because they give you a transaction number for each transfer. Turkish Lira bank transfers are already very fast compared with the rest of the world and it’s a good thing for Turkey that it will also be [available on the] international side.

TXF: You´re not actually using gpi yet, but you´re investigating it? 

Baris Gokalp: Yes, also, as far as I know it´s also new in Turkey and the banks aren’t advertising yet. But it’s important that banks and SWIFT educate corporates about gpi. Foreign investments are increasing and banks will get more international demand about using SWIFT and gpi.

Honey Kirtley:  From November SWIFT have made it mandatory that the UETR [unique end-to-end transaction reference] number will apply to all payments. If you´re in the SWIFT community, which some of you already are for gpi, you apply for the unique reference number. But, even if you´re not in the community, you will have to apply. Will this encourage more corporates to be aware of the gpi service?

Baris Gokalp: People do not know about it. When I say to banks we also have corporate SWIFT it´s surprising because many people do not know about it.

TXF: Garanti Bank are on gpi – what is your view on it?

Batuhan Tuhan: We have been live on gpi since May and, as far as I know, we are the only institution in Turkey at the moment live on gpi. Our limited experience over the past two or three months is that it has been appreciated of course, by the corporates and not only the corporates, but the whole client universe. We are offering it to everyone, we are not limiting it.

At the same time, it is also very much appreciated by the operations teams. That’s because, as you may know, fraud is one issue, but tracking a payment where and at what stage it is, how long it will take, what is the cost, etc always results in a lot of queries or investigations being relayed to our operations teams. With SWIFT gpi all these issues have now been addressed.

TXF: Does it help with reconciliations?

Batuhan Tufan: Certainly, but for us to get the full benefit of gpi, the network of banks who are live on gpi needs to be expanded. Obviously, we are sending and receiving gpi messages only with the banks who are enabled on gpi and we’re expecting the others to catch up quite soon with the mandatory transitions that SWIFT is introducing.

One additional benefit of gpi that will come later is enriched payment data. With gpi it´s not only the tracker, or the observer, or the directory, the three important parts, it’s also the additional data. To simplify, you are able to attach certain documents and additional information to the payment you´re sending or receiving. This may include AML documents, specific transactions related to documents such as invoices, etc. So far, our experience is positive and we expect that to even grow further.

TXF: Many Turkish banks are in the process of going live. What about QNB Finansbank?

Ahu Acar: We are very aware of being fast to market and technology driven in this competitive environment and we really appreciate the approach of SWIFT gpi. As QNB group we had our necessary arrangements and we´ll be live with SWIFT gpi in the last quarter. We’ve already started our restructuring.

We are aware that we have to supply technology-based products to clients and not only to [large] corporates but to all clients from SMEs to the commercial clients because cost efficiency is the major concern for all banks and clients in this evolving economic environment.

At QNB Finansbank, nearly 20-30% of our foreign trade customers make import transfers from [the] internet, not the branches. They realise import payment transactions from the internet with minimum cost. This is cost efficient for both the branch and the client and it´s also increasing customer satisfaction.

Increasing usage of internet banking is a KPI [key performance indicator] for the trade team and for the branches for trade finance products. We are also planning to issue import letters of credit (LC) via the internet in the next phase, which we believe will be appreciated by our clients.

By using a product such as SWIFT gpi, we will be an asset for both the banks and the clients. That’s not only because of the tracking that’s been mentioned, but also being fast and accurate will be a preference among clients.

At QNB Finansbank we have a separate IT department dedicated only to trade finance and cash management issues and now their focus is fully on SWIFT gpi.

TXF: That´s interesting, so, you are already using SWIFT gpi as part of your trade finance strategy going forward. Maybe it is a good time to come to Softech (part of Isbank) on the technology side whether this all fits together for you as well. 

Burak Ozmutlu: We will be online by November this year with SWIFT gpi. I think SWIFT has been a little late taking these actions [with gpi] as companies like Moneygram and PayPal etc have already been very active in the money transfer market and have taken a major share on the customer to customer side. Better late than never.

Our customers will be very happy [about gpi] as their payments aren’t currently visible. They don’t know how many funds will be assigned to their beneficiaries and at what stage their payments are, so this change will be welcomed.

But it will force a change in the way our operations manage liquidity. For the time being we are managing on a T+1 basis, so one day after we see whether payments have been made to our subsidiary banks, for instance. It will force operations to convert to a real time basis.

TXF: Would the anti-fraud side of gpi appeal to BriSA?

Devrim Baykent: BriSA is a joint venture between Bridgestone and Sabanci Group. It´s one of the only joint ventures actually as, normally, Bridgestone has its subsidiaries worldwide. We don´t have direct access to SWIFT as yet. Going forward we are considering it, but we don´t have specific plans right now. But, I think it will be important.

Sisecam’s case is a bit different because they have operations outside of Turkey and they need to reconcile and they need to track payments. Right now, our operations as BriSA is mainly dominated by Turkey. So, we have to look into the efficiency cost and benefit analysis.

We have a yearly import volume of more than $300 million and an export volume exceeding $180 million [around 60% of production is exported]. We export to everywhere. The security issue is an important one.

TXF: What potential do you see for AI and SWIFT gpi? What is happening with artificial intelligence? 

Burak Ozmutlu: There are opportunities with SWIFT gpi as all the data will be visible. If you just simply record what´s going on, you can provide your customers analysis like the cheapest remittance route or the fastest remittance route. Also, compliance checks can be carried out more effectively and easily. 

Batuhan Tufan: Rich data – and the ability to add information to messages – is actually offering room for AI development. Banks, their customers, corporates, we all need to take a view on this development soon, because it could take some time to implement.

Honey Kirtley: I agree. We’re all excited by virtual assistants and chatbots with AI, but really the benefit for businesses and banks will be at the back end in terms of the real data, mining it and understanding how we can make the efficiencies in terms of where payments are going and how to avoid fraud.

But before you rush into AI, you´ve got to understand what you´re trying to achieve. Why do you need to do it, where do you need to do it? It’s extremely important because otherwise the strategies are going to be very fragmented. SWIFT gpi is a good place to start. You will be collecting a vast amount of data which will just be sitting there. So, why not mine it and make efficiencies for your business from an operational perspective, but also, to give that benefit back to the customer?

Cihat Takunyaci: Engaging with fintechs which already have solutions can also be a quicker way to gain the benefits of AI, and there are those that also specialise in KYC, visual recognition, etc, which can help with onboarding.

TXF: You mentioned you were digitising trade – how is that happening?

Ahu Acar: You have to leave the traditional way of working, like LCs, which are mostly out of fashion, and find something new and embrace new technologies and link clients together. We are working on platforms, which leave the traditional way of working.

We have different platforms and we have a [inhouse fintech] company eFinans. This provides innovative solutions for all e-transformation products, including e-Invoice, e-Ledger, export and tax-free e-invoice applications, etc. We’re dedicated to transforming all of our services to more digitalised platforms both in cash management and foreign trade. 

We have to change the way of working in trade finance and cash and liquidity management because they are very worldwide and global issues. When you speak with a customer, you don’t get a portion of this customer’s business if you only talk about traditional things. You have to be technology-oriented and tailormade and there must be a finance link with your technology-based product.

TXF: Abdurrahman, you are on the technology committee of the ICC. How do you view disruptive technologies in Turkey?

Abdurrahman Ozalp: We’re not yet using SWIFT gpi at TEB, but we will be in a short while. The data [visibility] will be important. On the other hand, we are interested in other technologies like blockchain. It seems very important because it´s disruptive technology.

We intend to use some instruments on the blockchain such as LCs, bank guarantees and BPOs. We can use them through the blockchain and we’ve talked with technology companies who think this is logical and feasible and so we are now working on it.

On the other hand, BPOs are one new payment method that is already fully digital, not traditional, and can be used instead of LCs. LCs remain very important payment instruments internationally, but they have some problems such as international rules, discrepancies and it’s been a declining part of international trade.

SWIFT introduced BPO a few years ago. It works like an LC but there’s no paper and physical documents. Only electronic information and data may be presented and if they are confirmed with the BPO’s base line and they match, then it is payable and it´s a very quick and practical payment method. We are using it. In our bank we have had about 150 transactions just with large corporate clients using BPO with us. For example, TemSA is using BPO and is pleased with it. We can suggest it´s a good payment method for the international community.

TXF: The BPO seems to have taken off in Turkey more than it has in many places. What’s the attraction of BPO for BriSA?

Devrim Baykent: We are investigating it both inside and outside Turkey with local and international banks. Our purpose is simply to improve our cash management and to do that, we would like to look into opportunities of delaying some of our import payments.

Our teams are already negotiating with exporters to delay terms and we would like also to introduce some banking products. Of course, as BriSA, we can always go to a bank and get a loan for import financing to delay the payment, but that´s not our objective.

We have our KPIs both on cash management as well as on debt to EBITDA [earnings before interest, tax, depreciation and amortisation]. So, in order to comply with those KPIs we have to be inventive. BPO is also used by one of our sister companies [TemSA] so the benefit is there.

A BPO can still look like a trade payment obligation. It´s been extended and at maturity there is the principal together with interest. For instance, if you are already making a 90-day payment and you wanted to extend it for a further 90 days, then a separate message can be sent or a separate type of BPO can be structured. Alternatively on day one you can originate a BPO for 180 days and for the first 90 days X party can pay and at 180 days Y party can pay. So, you can work on those flexible structures. Also, there is no tax [with the domestic banks] because, normally, if you have a loan of under one year then it is subject to [different taxation]. And the accounting treatment is important.

TXF: Does BPO fit well into working capital management and do you use it within supply chain finance programmes?

Devrim Baykent: Exactly. Supply chain finance for the international part. We have a programme structured for the local side with a fintech company and local banks and local companies. This [BPO] will be for international parties, exporters which we do a lot of business with. Banks favour these type of products.

Baris Gokalp: From an exporters’ perspective there must be some tools for discounting the BPOs because with LCs, if they need cash they can discount the LC. But for the BPO, as far as I know there is no tool for discounting. This tool could make it easier to use the BPO.

Abdurrahman Ozalp: Actually, it may be discounted and there are now discountable BPOs that have been used.

TXF: So there is a secondary market potential?

Abdurrahman Ozalp: Yes. BPO has some difficulties of marketing. Some counterparties don’t know about it. If they don’t have the SWIFT TSU (trade services utility) they think that they are not ready to use BPO, but they can be convinced on a case-by-case basis.  

Ahu Acar: SWIFT needs to put more energy behind marketing the BPO. When it was first on the scene there was a lot of effort, but that seems to have stopped. We were very excited at the beginning. Now there is some usage, but the counterparties are mostly far from realising a BPO deal.

TXF: Is BPO a SWIFT marketing failure?

Ahu Acar: Unfortunately BPO needs more attention, because SWIFT gpi is perfect with product but in the current economic situation, a product with a finance tool is also important. That´s why BPO has so much room to grow. And SWIFT has to be more active and supportive. And [to] put more effort to increase the awareness of the product among correspondent banks.

Abdurrahman Ozalp: With ICC we have a sub-group of the digitalisation group for BPO only which has fixed many of the problems, so that is positive.

Burak Ozmutlu: We have been using BPO at Isbank and have faced the same problems for the past four years, so it’s not widely used. But marketing isn’t the only issue. If the correspondent bank has difficulties using TSU, that’s a problem. I think SWIFT should focus on simplifying those processes.

Cihat Takunyaci: Education for exporters in different countries like China, which may not be at the same level, is a difficulty for correspondent banks. Correspondent banks who have access to non-Turkish clients could pick this up by engaging training programmes or focussing on certain flows which could be a solution.

TXF: Finally, which developments on the technology side are you most excited about and which do you think Turkey will really embrace that will affect trade?

Batuhan Tufan: In the short run we´ll try to get full capability of SWIFT gpi and there´s a lot of information that we can extract and we can actually mine and make sense of. In the medium term blockchain technology and how it´s implemented in trade finance will be interesting. We´re already seeing several collaborations of bank groups and projects.

Internationalisation of trade and the facilitation of trade is going to be one of the focus points at the moment. On the domestic cash management and liquidity management side, Turkish banks are quite advanced in the services that they can offer to their clients, but taking it to an international level, finding the right partners and utilising the right technology is going to be the next focus point.

Baris Gokalp: For the corporate side, one issue for us is treasury management systems working in the cloud. Because if you are doing international business, there are too many banks, countries and counterparties for managing all the treasury activities, so you need something on top of the umbrella to manage it all effectively.

With so many legal problems internationally I will be interested to see how blockchain will work. We have too many roads on this.

Abdurrahman Ozalp: I spoke with a customs company the other day. They are making their transactions able to work on the blockchain. They are ready to make transactions with banks and state authorities. State involvement is important.

Cihat Takunyaci: We need to strategise first, prioritise things. Set up our partners. Collaboration is the key. Then, try to achieve something rather than focus on all spending money. The message is focus on what you think, what you need, what your clients need and then build up from that.

The views expressed herein are those of the participants only and may not reflect the views of BNY Mellon. This does not constitute treasury services advice, or any other business or legal advice, and it should not be relied upon as such.

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