Written by Mr. Tim Nicolle, Founder, and CEO, PrimaDollar
Importing and exporting goods is a complicated process with many parties needing to interact and cooperate so that the exporter in one location can reliably move his goods to his distant customer in another location. Wrapped around this process is the challenge of moving the money – and trade has always involved a classic standoff between the two parties. The importer would much prefer to pay later, ideally after goods are received and turned into cash. The exporter, on the other hand, would like his cash upfront. This reduces his risk and means he can recycle his capital into new trades and new business.
And this interaction between the physical and the financial has left us with a multi-dimensional headache. Given all the steps in the physical export process, the traditional approach has been to create a financial process that matches it. The importer and exporter both work through their own banks. The goods move between the principals and the cash moves between their respective banks. This is a “four-cornered” system – and has been used almost since trade began.
But modern technology is making the world a smaller place. These days we can talk for free and with video – and all around the world. And so there is no longer any need for the four-cornered system with all of its complexities. Just as logistics companies are simplifying the physical steps involved in moving the goods from one place to another, a new breed of trade finance companies can simplify the process of moving the money – and enable the exporter to get paid upfront whilst the importer can pay later. This “triangular” system or three-cornered system is much simpler. The trade finance company pays the exporter at shipment and the buyer can pay later. The buyer’s credit risk is transferred.
And this is where APIs become important.
At a technical level, APIs allow systems to talk to each other without human intervention. If implemented properly, connections are secure and fast – and invisible to the customer. This happens by one system “calling” the other system using the API as the interface. Calling an API is a way to exchange data between the two systems.
APIs allow banks and logistics companies to add brand new products to their existing legacy platforms and to integrate new products into their online customer journeys.
These are organisations that already have large numbers of customers – in fact, all exporters and importers are customers of banks and logistics companies. But bringing a new product to market, especially a financial product, would take many months and many millions of dollars. Upgrading a legacy environment to manage customers, payments, accounting, processing, operational risks, and data is a hugely expensive and transformational task.
But APIs mean that all these new processes can be handled externally. New products can simply be integrated directly into the digital customer journey – into the user interface but by-passing core banking systems and core logistics systems. These do not need to be touched.
This means that new products can be brought to customers quickly. The interface between the customer and the new product is managed in the online interface – and the expensive backend systems are untouched.
And for the new breed of trade finance providers, this is also very important. It means that new products can be delivered rapidly into existing client bases and through existing and trusted relationships. The expensive task of recruiting new customers individually is avoided and a path to hyper-scale emerges.
Everyone wins from this process. Customers get access to new products but via a relationship and interface that they already know. The customer-owner, whether a bank or logistics company, gets new products and services to offer the customers and can innovate themselves – for example, building brand new products that integrate freight and finance into one single service. And the trade finance specialist that provides the new service gets to deliver its product directly and rapidly into the market without the cost and time involved in building a new client base itself.
There are many examples of APIs that we don’t see. One good example is how APIs have allowed taxi companies to integrate live traffic data into their apps. Google has good information on traffic conditions because they have so many users. Taxi companies have fewer users and so much less data. But taxi companies need to know about traffic conditions in detail so that they can forecast how long a driver might take to arrive or how long a journey might take so that it can be priced correctly. Here is where the API comes in. The taxi app on your mobile connects through a central server to google maps with your location, as does the driver. Google maps sends back data on the traffic conditions, and the taxi app can tell you the answers. Everyone wins: you get the best picture possible on your journey, the taxi company can price its services properly, and google gets to resell traffic data without having to interact directly with a new customer.
Trade finance can be the same. New specialists have the skills and technology platforms built to manage the “three-cornered” trade finance model, where one company manages both importer and exporter at the same time. This is cheaper, quicker and simpler than the legacy “four-cornered” model. Using APIs, this capability can then be added into the digital customer journeys of banks and logistics companies directly and invisibly. Everyone wins.
And where are we going with all this? Well, a good example is how technology has revolutionised the process of buying a car. Many years ago, probably long enough that we can’t remember, you bought a car from a garage and walked up the road to the bank to get the money. But today that’s not what happens. Today, the garage selling you the car also packages in the finance – in fact, you cannot see the join between the two products: car sales and car finance. And APIs can deliver the same result into the trade finance industry. The physical process of moving the goods can be integrated completely in the financial process of moving the money.
A revolution is coming.