With letters of credit-once a linchpin of global trade-less and less in demand, Wachovia, which pioneered LOCs over the Internet a dozen years ago, faced a serious dilemma: how to stay relevant.
The bank's response has been to push financial supply chain technology a few rungs up the evolutionary ladder. "Anything that automates the supply chain is great," says Alenka Grealish, managing director of Celent's banking group, "and this is more than a baby step, it's several steps for 'financial-kind.'"
This fall Wachovia launched TradeXchange, a secure, Web-based messaging platform designed to provide greater visibility throughout the financial supply chain from purchase order delivery to invoice settlement. Functionality includes facilitating pre- and post-export financing, indemnities for buyer default, purchase order delivery, acknowledgement, document preparation and compliance. "Buyers, sellers and their banks must navigate an increasingly complex international trade environment, including new challenges created by the movement to open account transactions. TradeXchange will facilitate this process by providing critical supply chain tools in a fully collaborative and real-time environment," says Steven Nichols, managing director and head of global trade services in Wachovia's global financial institutions and trade services division.
John McFadden, managing director and head of Wachovia's global trade services' product management, explains that the product is the result of two fundamental insights at the bank. First, customers want to reach more deeply into the financial supply chain to better manage the process, increase transparency and squeeze out more efficiencies. And, second, the bank needed to find ways to stay relevant and add value in a global trade environment migrating away from the traditional letters of credit.
The solution lay in recognizing that the bank's strength was around capturing, analyzing, and intermediating document-based transactions and then layering on human intelligence to advise customers. By bringing these strengths together, McFadden says, the bank could give the customer more reach into their financial supply chain and manage it better. For example, an exporter might need the freight forwarder to see certain information, but not be allowed to change that information. With TradeXchange the exporter can go directly to the invoice document and tailor security access for that freight forwarder, perhaps to "read-only" access.
Ultimately, by managing the purchase order, managing the exchange of data, facilitating the visibility of data, submitting data and communicating fulfillment and settlement, Wachovia "can be a utility, if you will," says McFadden. "We reintermediate [the bank] and identify trigger points in a shipment that offer financing opportunities."
What's more, Wachovia is offering TradeXchange on a private label basis to international correspondent banking clients. "TradeXchange allows a seller's local bank to collaborate online and to provide pre- and post-export finance to its customers. Similarly, a buyer's bank can benefit by providing value-added purchase order delivery, credit indemnities and document compliance management. Our goal in providing TradeXchange on a private label basis is to reintermediate our partner banks into the financial supply chain," McFadden says.
In February, the bank intends to roll out supply chain financial messaging as part of TradeXchange. With this, the seller can create a request to its bank for financing using purchase order information the moment a buyer uploads a purchase order. This is critical since sellers often need financing to begin to fill an order, usually receiving 50 percent to 70 percent of that financing upfront. Once the item is shipped, TradeXchange will automatically send another message to the bank requesting the remainder.
The fact that Wachovia is generally not viewed as an international bank the way Citigroup and Deutsche Bank are gives the bank an advantage when offering its platform on a private-label basis, McFadden argues. "We're not perceived as a competitive threat in local markets. We're not going to pirate customers."
Grealish says that Wachovia's solution "stands out for being all encompassing, including a variety of products that can ride the rails, such as credit documents, P.O.s and compliance." She adds, however, that while TradeXchange represents progress for the financial supply chain, it's not "the end game." Both ends of the transaction still have to be attached to Wachovia's infrastructure and there's enormous competition among banks for these relationships.
