GS1, a global non-profit standards organization for trade, is partnering with DBS in Hong Kong to provide analytics-driven credit to small businesses.
Launched under the auspices of the United Nations, GS1 is best known for its barcodes – the ones that are printed on everyday consumer items. Its Hong Kong chapter operates a platform called EasyTrade, an electronic data interchange that is meant to encourage retailers and their suppliers to ditch paperwork and operate electronically.
“Our data platform is now moving into trade finance, using alternative data provided by our members,” said Anna Lin, CEO of GS1 Hong Kong (pictured, center).
Now small businesses supporting big retailers may consent to share their data with banks via EasyTrade to obtain credit. “We’re leveraging this data to provide predictive analytics that gives us a view into an SME’s operations and business health,” said Sandy Tan, executive director and head of ecosystems at DBS’s institutional bank (pictured, left).
Trade financing made possible
Boris Chan, managing director and head of global transaction services for Hong Kong at DBS (pictured, right), says the insight from EasyTrade data will enable the bank to finance SMEs on better terms.
The sheer burden of paperwork makes it hard for small businesses to even apply for a bank loan. They are usually too small to be eligible for trade finance.
The best they can get is unsecured lending – typically for sums up to $2 million on 3-year terms, regardless of how much the SME needs to borrow against their invoices.
Banks are wary of lending to small businesses because they can’t produce the paperwork, the amounts are too small, or they’re just unknown entities. Even when companies do have the paperwork to support their application, it’s all historical, backward-looking data.
As a result, says Chan, a small business might find itself taking out a $2 million loan when it only needs $20,000. And it will be on the hook for paying the interest on the full amount borrowed.
By working with EasyTrade users that consent to share their data, however, DBS doesn’t have to lend on such difficult terms. Integrating its systems with EasyTrade, the bank can now use machine learning algorithms to assess real-time transactional and operational data from SMEs, not just historical information.
Borrow what you need
Adding daily operational data gives DBS a window into the health of the SME, and over time it can learn whether invoice volumes are above or below average – which can inform its credit assessment.
This creates two benefits for SME borrowers. First, they can get better pricing if their data profile is good. Second, DBS doesn’t have to burden them with unsecured loans: it can provide trade financing, which can be liquidated when the amount drawn down is paid back.
That amount is agreed based on the invoices, so if a company only needs to borrow $20,000, it can prove that it’s paid back what it draws from the facility – and it doesn’t need to keep paying interest on the rest of the principle.
GS1’s Hong Kong branch has run EasyTrade for over 20 years, providing a paperless exchange of documents such as invoices and shipping orders for importers and retailers. It is used by retail groups in industries such as fast-moving consumer goods, food, healthcare, pharmaceuticals, and cosmetics.
Anticipating HKMA
The Hong Kong Monetary Authority has announced it will launch its own Commercial Data Interchange (CDI), a digital platform meant to enhance trade finance for SMEs.
Lin says CDI provides multiple layers of authentication, and therefore trust for SMEs, corporates and banks to do business, including cross-border. She expects at some point EasyTrade will integrate with CDI, which because it’s operated by the HKMA will provide additional security and credibility.
But CDI has yet to exit its pilot stage, so GS1 is pushing ahead with adding trade finance to its EasyTrade platform.
Lin declined to provide volumes traded over EasyTrade but she says it processed around 24 million messages in the past 12 months.
The platform is built just for Hong Kong companies under GS1 auspices, and it is domestic, including some participants in neighboring Guangdong province. GS1 Hong Kong has over 8,000 members, of which about 90 percent are small- and medium-sized businesses.
