CGI: A pause for thought – Trade architecture for a multichannel world
What is the current state of how corporates are interacting with banks and fintech platforms? Patrick DeVilbiss, Senior Offering Manager, Trade and Supply Chain Solutions, and Frank Tezzi, Vice President of Trade and Supply Chain, at CGI discuss what’s changed in 2022 and where the industry is heading. Where next for blockchain consortiums, API connectivity and omnichannel platforms? The days of walled gardens are over.
“It’s been a fascinating year,” says Patrick DeVilbiss, Senior Offering Manager, Trade and Supply Chain Solutions at CGI. “One of the biggest issues to jump out is the changes at blockchain consortia over the summer which created a bit of reverberation through the market, and some cause for pause.”
In particular, the closures of one consortium (we.trade) and a bank blockchain-based platform (Serai) in June 2022, took some of the air out of enthusiasm and expectations for distributed ledger technologies (DLT) and blockchain for trade. DeVilbiss says, “The belief was that there was going to be an ecosystem view for world trade and that there were new technologies being deployed that were going to solve some of the age-old challenges. A lot of platforms have already had more than five years of runway to get established and the closures have made everyone take a step back.”
While the majority of banks have not led in the blockchain space, nor had they necessarily invested in a particular platform, they did want to understand the way platforms are developing and how they could participate in the future. “That creates a rebalancing for banks looking at what the future holds and what the ecosystem play is,” DeVilbiss says.
Is the blockchain/DLT landscape still vulnerable for trade? Certainly, the market is still in transition. “Recent events have put a lot of pressure on existing players,” says DeVilbiss.
It’s not all negative, though. In early September there was good news for market development as blockchain provider Contour acquired the rulebook and other associated legal documents from the we.trade Innovation DAC. “At least that means all that learning is not lost to the industry,” says DeVilbiss.
Capital needs – but still positive for a broad ecosystem approach
Nonetheless, the surprise changes in the summer have created a degree of unease about blockchain platform providers. Capital is not cheap, and is getting more expensive and there may be further consolidation on the 12 to 24-month horizon. “If free money isn’t out there or flowing as well as it may have been before, there is cost pressure. Platforms may not be able to go back for additional rounds of funding as they have to demonstrate their long-term value proposition and achieving ROIs,” DeVilbiss notes.
The flip side of this is that capital concerns are not simply an issue for DLT-based companies and networks, while banks will continue to be cautious, they will want to partner and continue to develop wider ecosystems.
No more building ‘walled gardens’
“Recent events will not lead to a change in the broad ecosystem approach,” says DeVilbiss. “And at the core of this is how banks need to be thinking strategically about their engagement with corporate partners in a multichannel world.”
“Five or 10 years ago, banks were asking ‘how do I create my own little walled garden, my proprietary channel that stands up my own front office system, so that I can interact with my corporates?’” says DeVilbiss. That can no longer be the case. There is no room anymore for the mentality of ‘build it and they will come.’
That is because there is a much more complicated landscape as bank proprietary channels also need to provide corporate customers with a seamless user experience. Proprietary channels need to offer not only, potentially, trade, but also other transaction banking products to make it easy for corporate customers.
Where is the market headed? Think potential channel opportunities
Expectations will continue to climb from corporates in terms of how seamlessly interaction with banks can be pulled into their transactions (such as embedded finance, and ESG scoring).
Banks must also cater to customer needs by partnering through other channels as well. Customers want to be able to interact with multiple platforms from bank providers and fintechs, and may have particular platforms they like. And those platforms need to be able to change too.
“You should be thinking about how you can incorporate that customer request into a broader offering that you have and know the positives/negatives of any potential platform,” says DeVilbiss. “In addition, think about how you can get additional origination business. Certain platforms may offer things today that you cannot, or reach potential corporates that you do not yet interact with. A potential channel opportunity, such as an efficiency play or new product or some combination that eases processing or that makes things simpler could be better for you and your customer, or open you to a whole new product suite to offer.”
For instance, some of the new digital players that exist or other digital-first products could appeal to banks. “Fundamentally, you need to be thinking about where you want to be in five years’ time from a channel perspective and know that it’s critical to deliver to your customers on any number of those channels and that you need to be strategically partnering and investing from a technology standpoint, otherwise you’re eventually going to be left behind,” cautions DeVilbiss.
Efficiency and product growth will be the two critical factors in the adoption of connectivity approaches for banks and corporates.
APIs are still the main building blocks – as the new HTS shows
Banks are showing increased interest in Application Programming Interface (APIs) and using APIs and system connectivity to deliver value-added services will continue to foster the main areas of growth. The API space will be the core of how entities connect.
Indeed, on 6 October, HSBC announced the launch of HSBC Trade Solutions (HTS) to UK and Hong Kong customers. This is a new platform developed with CGI which lets clients in HSBC’s two biggest markets originate and manage all their trade finance products online. HTS uses an API-native, modular design and flexible tech-stack that will form the core of HSBC’s trade offering – and will ultimately be underpinning $800 billion of global trade annually. There will be a higher level of straight through processing for clients and risk management and monitoring will be strengthened through fully integrated Anti-Money Laundering (AML), sanctions, fraud, and credit risk controls.
“All the heavy lifting has been done for the clients across HSBC’s two largest markets and HSBC is now switching to the rollout phase for the next 40 to 50 countries,” explains Frank Tezzi, Vice President of Trade and Supply Chain at CGI. “We are very proud of the collective teams’ accomplishments on this complex, transformational project and to have CGI technology – CGI Trade360 supporting the HSBC global business.”
The project itself was crafted throughout the challenges of the pandemic using strict governance metrics, processes and methodologies across teams dispersed around the globe. “To be successful it was critical that our teams didn’t skip a beat delivering transparency, visibility and clear communication,” Tezzi says.
Interoperability was key for HSBC, he adds. “From an institution that typically built its own systems, why build when you can take CGI’s core which already has the architecture stack and technology they want?”
From disparate legacy solutions, HSBC and CGI went live with the initial products in nine months. “HSBC is very KPI driven. We say to all of our bank customers that this is a transformational platform that will drive benefits. And they should be measuring that to understand the project success and ROI. Customer satisfaction is a KPI that has already gone way up,” Tezzi says.
In other projects, CGI has been integrating ESG scores from suppliers and buyers as a KPI for a sustainable supply chain finance/ carbon zero solution using the API architecture. “There are a variety of use cases, particularly in trade, because trade is extremely important in the ESG space. There are many examples of carrots and sticks as incentives/disincentives to help achieve ESG goals. But it fundamentally may come down more to KYC issues when ESG is concerned,” says DeVilbiss. ESG standards will also be important going forward.
Development of common standards key to ease integration efforts
For the trade and transaction banking industry as a whole, transitioning from today to the future requires many things to be in place. The back-office capabilities and architecture that fits today’s interconnected world, a multi-channel approach that focuses strategy on partnerships with fintechs and channels that work for the market segment and customers and a focus on delivery of real value from technology providers. All of these are key. But one element that still remains lacking is the common standards to help with the integration of all these.
“The development of standards will be critical over the next few years for trade APIs,” says DeVilbiss. “We’ve seen some good initiatives out of this. The DCSA, for instance, has done a good job on electronic bills of lading and is really pushing API standards. The Digital Standards Initiative out of the ICC is pushing APIs and standardisation as well. SWIFT is also looking to launch a guarantee standard in the near future.
“We’re hoping to see this continue to evolve as it will promote deeper understanding and uptake within the market around those standards, because it will create a benchmark for trade technology partners.”
This will be important for interoperability going forward.
But get your house in order first
In the meantime, the message for banks today is to get their own houses in order from a technology standpoint before they start pursuing channel partners at the front end. Banks need to have a strong back-office solution at the core of their ecosystem with a hub approach, so that they can interact with a variety of different partners and digital channels. “It’s really important for banks to be thinking about the changes needed today so that they can pivot into the future,” says DeVilbiss.