• Delays in trade flows, particularly imports into Europe from China and Asia, had a deep impact on open-oriented Nordic countries  
• The stability of supply chains across Europe made the industry more resilient to economic contraction brought about by the COVID-19 pandemic
• The cost and time spent on handling trade finance documents is cumbersome
• The pandemic gave rise to new structures of supply chain financing where customers are more interested in using their own working capital rather than borrow money from FIs 

While global trade has been severely impacted in 2020, Paula Da Silva, head of transaction services at SEB, notes that it was stability of most local supply chains in Europe which shielded the economy and industry from a broad and deep-based slowdown. She also observes that the pandemic has created a ‘strange economy’ where it hit different kinds of customer segments with different intensities. For example, where transport lagged, food production and sales have shot through the roof. 

The disruption to demand has precipitated the need to support small businesses and their owners with funding and all kinds of incentives as quickly as possible to keep the liquidity going. The bank has been in the process of implementing a new trade finance system aimed at taking down the cost of handling trade finance documents to help players finance their trade seamlessly. She also highlights the interaction of consumer behaviour and engagement behind the dynamics of changing business models that eventually drives the change with a financial institution. 

The following is the edited and abridged transcript of the interview:

Siddharth Chandani (SC): The first half of 2020 has seen some marked slowdowns in transaction banking revenues. And this drop has actually come after three consecutive years of growth that transaction banking saw. What sort of impact are you seeing on your cash and trade business? Also, on that perspective, could you give an insight on how Nordics are impacted?

Paula Da Silva (PDS): Of course, if we just start on the Nordic level, and what we see just in general, in terms of COVID, the markets have handled this in very different ways. Sweden has been more or less open during the whole time and has had a different strategy. And the other countries have closed and opened a little bit more selectively, depending on areas and so forth. And at some point, the borders have actually been closed between the Nordic countries as well. But of course, all have seen a slowdown in trade that's quite natural. And we have seen a lot of slowdown in exports, which we are highly dependent on, unfortunately, also at the same time. So on the import side, things have been delayed, for being produced which depends on which country they were coming from, firstly, I guess Asia and China and then Europe has been suffering as well. So in trade, we've seen quite a slowdown, even though, it looks like the slowdown here in Sweden is a little bit lower than in other markets due to them being closed. 

On cash, it has been a different story, there customers were in the beginning extremely afraid of lacking liquidity. And therefore they did disperse on most of their lines. And having nothing to do with those money at that particular time, they saw no other way of doing it and putting the money on transaction accounts. And because we have still quite or near zero interest rates and so forth, we still had quite good income in terms of net interest for a while. And we are seeing that going down just a little bit. But of course, if you’ve dispersed your loans, and you have nowhere to spend them, we still have an over liquidity, I would say more than the normal, which is predicted to go down over time. But so in general, we've been doing quite well, and most local supply chains have been more or less up and running. Banks in general have been doing quite well up here in the region, and in some months even record results, actually. So it's a strange economy very selectively hitting different kind of customer segments.

SC: What is the impact you've seen on deposits when it comes to corporate deposits? Are more corporates willing to park funds at this time?

PDS: Flight to quality is really obvious and we are fortunate to be quite well rated up here. So that has been all good. Maybe that has a bit more accentuated but the big thing has been hunt for liquidity to make sure that you don't lack liquidity during this time. I don't think it has been particular so that they (corporates) are trying to maximise their income as we have so low interest rates here in the region, so it's a couple of basis points only. So it's much more about making sure that any liquidity you potentially need during these times as if income goes down, that you can still pay your bills, basically, that's what we've seen.

SC: Despite deeper negative rates in Europe, why do you see European banking sector and transaction banking industry seeing less decline in revenues despite having more open borders to each other?

PDS: In the beginning of the year, a lot of buyers were basically not willing to take a risk. You didn't buy a car in the middle of this and you just waited to see what would happen. And if you look at the big car producers in Sweden, they were closed down for several weeks during the beginning of the year. And then people have been on leave for two days a week or whatever it has been. That's a decline in general in the economy and between the countries, the trade has been quite normal. But everybody was standing still. So I guess food, for instance, and food production, food sales has been just through the roof, and also to have a lot of transportation to your home. And so your patterns of buying have been quite different. But just in general, a lot of production that has just declined, but not as much as in Asia, because of much more stable supply chains in Europe. And of course, we don't have a cross continent trade as much and therefore it has been much more stable and resilient in that case. 

SC: How have you been leveraging data and digital tech to your clients’ advantage especially when it comes to the sectors that have been left behind in terms of being digital?

PDS: Before the pandemic we started the implementation of a new trade finance system in order to be able to deliver digital in a different way to customers and for our processes. We were in the midst of this when the pandemic happened and it made things a little bit difficult because people are now spread out and they are not in one office only. There are a lot of details that have been cumbersome to cope with. The digital platforms and the adherence to those immediately by many parties have helped us through this - being able not to have to relate with people in the office but spread across. So we've learned those tools. It would potentially take years to learn them in the past. But now it was only a couple of weeks and everyone was up and running. 

And the other areas that we have slowed down a little bit in favour of the implementation of the system is the machine learning and reading of documents that we are trying to explore. We have not been super quick on that. Unfortunately, first things first, such as meetings and daily business have been in focus during this time. But that on the experimentation with the Contour platform (co-created by SEB and seven other global trade finance banks in the Nordic) from R3, that we have been stepping up and trying to use together on our part as well. But everything has suffered from little bit of a slowdown here in trade. But those are the three things we are doing - the platform, the blockchain evaluation with Contour, and the AI or machine learning for reading documents. We need to take down the cost of handling trade finance documents. They are just too cumbersome, manual and imprecise. And for customers it is detrimental not to be able to finance their trade immediately. They are out to get cash on their documents immediately. So we need to speed this up and that's what we're trying to do.

SC: You argued that the pandemic was going to reinstate the importance of the traditional trade instruments like guarantees or letters of credit and what we note especially in Asia and among global transaction banks operating in Asia. Unique structures are being implemented on the supply chain finance side. What is your take on that?

PDS: We have seen that carried on the supply chain especially on the retailer's sector and see that has picked up and especially structures. I think the regulators are now looking at shortening the times for as long as you can have it outstanding from maybe 90 to 30 days. That's a huge effect on customers. But customers are interested in using their working capital rather than having to borrow money from the banks. But I see what you're getting at maybe its floating borders between the supply chain and trade and traditional trade finance. You can see open accounts being financed in a different way and people using collections in a different way rather than the supply chain. So that’s an area that needs to be combined in the best way for the customers. In the past it has been silos between these and I think that's what you're getting at that you see a structure that serves the customers need or rather than looking into it as an LC as a guarantee. It's funded and depending on what the need is we can navigate between these products to be able to adhere to customers’ needs for the financing side. We see a lot of demand floating between these areas. But supply chain for us is still an important area that we think we can have a lot of pick up on. 

SC: Are your customers today asking you to help them navigate the trade, technology and geopolitical frictions when it comes to dealing in trade and supply chains associated with China? What sort of impact have you seen from your exposure? 

PDS: In the beginning, when China was closed down, you can imagine that there was a worldwide impact. But then they recovered extremely quickly and it was impressive how the country dealt with their issues. But of course, if you are dependent on supplies of a little part in your production from another part of the world, that has slowed down. That has been the impact here regardless of where you are. If somebody in the value chain is not delivering then the value chain is broken, just in general. But now we are seeing things picking up again, fairly quickly. The summer has been there and slowdown was just in general. Sweden more or less closes down for summer and July and beginning of August. But now it's full steam ahead and customers are extremely interested in having talks with us and looking at their transformation. I think that's one of the most important topics. How can banks help customers transform in this standardisation and connectivity world so that things are not done manually in the future. That's a really big opportunity for us to stay relevant and to be part of being a house brand for customers going forward.

SC: What adjustments do you see in terms of products and business models in the pipeline even as banks are going to play a more important role in delivering non-financial parameters in a post COVID environment? 

PDS: Five or six years ago everybody talked about using big data. But I think it was very unclear what that actually meant. I think over the years when we start to work with the issue of data, you see that if you do that in a really good way you can both satisfy the requirements from regulators on transparency of payment streams for instance. You can also predict and use that for your customer offering and make that much better. So that we can inform customers this is how your account looks. Would you like to borrow? Or would you need to invest this money? We see you have a surplus and so forth. That kind of advice comes out of using data in a really good way. 

Now, how does business models actually change? Do you buy your equipment? Or do you rent it? And if you rent it, can you then transport by the hour rather than owning a truck? And of course, changing that business model may mean big changes for us. But we can also help with the financial streams. If this is true that their business changes in this way, what then can we help with that symbiosis between us and the customers is really interesting.

SC: So it's customer behaviour again here. And the new form of engagement that is going to drive the change within the financial institution and how it plans its product.

PDS: Yes, and we can't really rely on our old ways of working. Basically, we need new competencies and new ways of analysing our customers and so forth.

SC: What is your outlook for next year? What do you think is going to be the key takeaway from this year's SIBOS theme?

PDS: I would say digital transformation in all its fashions, as we've just discussed. We are used now to using the platforms so much. As we know, our habits are the most difficult things to change. So we just have to hang in there and use the next generation that can help us transform.

SC: Thank you so much.