A platform to boost the Shanghai Free Trade Zone

MasterCard last month announced that it has developed a new cross-border financing platform to provide a new solution for smaller companies in Asia. Via a strategic partnership in the Shanghai Free Trade Zone (FTZ), the financial services multinational will act as the global network and payment technology provider for a commodities trading platform.

The Cross-Border Commodities Financial Services Platform has been developed by MasterCard in partnership with COMMIN and internet service ValuePay, and supported by Mastercard’s key banking partners including Singapore’s DBS Bank, Malaysia’s CIMB Bank and Bank of Shanghai, which are keen to participate in the platform’s pilot test.

GTNews spoke with Yvette Oh, executive vice president for market development at MasterCard, and Winnie Wong, vice president for commercial payment solutions, to discover more about how the platform will work. When the initiative was unveiled last month, Oh stated that the Shanghai FTZ had become “a critical trade hub” both for China and across the region, due to the huge increase of inter-regional trade.

“With the new platform, whether it is governments, banks, merchants or businesses, they will not only experience enhanced connectivity and efficiency but are able to save tremendously on time and costs compared to the old administrative, paper intensive process,” she announced.  Wang Lei, COMMIN’s general manager added: “The availability of an electronic and digital warehouse receipt system is one of the most important foundations for commodity trade financing,”

However, some reports have suggested that the FTZ’s three-year history has so far been one of reality falling somewhat short of expectations. Thousands of companies registered with the FTZ around the time of its September 2013 launch, when hopes were high that it would reflect the swift deregulation of China’s interest rates, currency and cross-border fund flows. Similar zones soon followed in Guangdong, Fujian and Tianjin. If momentum has been more sluggish than many were hoping for, the new platform could now add such traction to the FTZ.

Targeting companies in China, Malaysia and Singapore

Oh says that the solution is targeted initially at business-to-business (B2B) marketplaces in the Shanghai FTZ, although it is likely to expand more broadly in the future. The goal is to provide connectivity that enables the China-Singapore and China-Malaysia trade corridors to become more seamless, leveraging the collaboration between MasterCard, its two partners and the three collaborating banks. The solution for the China-Malaysia corridor is expected to launch before the end of this year 2016, while the solution for the China-Singapore corridor will launch in the first quarter of 2017.

The reason the solution is needed is that B2B marketplaces are simply online directory listings where sellers advertise and buyers find what they want to buy. B2B buyers and sellers then need to use paper-based processes for everything from order documentation and invoicing to payments.

Among the benefits of the platform is that it allows transparency into trade transactions in the Shanghai FTZ and improves visibility for foreign banks, which can make financing easier. The process is very different from business-to-consumer (B2C) online marketplaces, which provide digital solutions for everything from online shopping platforms on the front end to ordering and payments solutions on the back end.

Reducing costs with virtual card accounts

B2B marketplace participants wanted to make processes easier, says Wong, so MasterCard embarked on a 15-month journey with its partners to develop an appropriate solution.

The Cross-Border Commodities Financial Services Platform that they developed is designed to provide a comprehensive solution that tracks the merchandise and opens up financing by banks. The platform provides a solution for commodities companies using bonded warehouses in the Shanghai FTZ to track and manage goods in the warehouse. The foreign banks providing financing can also have confidence that the goods are kept safely and that they can check on their status at any time.

Buyers would use virtual card account numbers from MasterCard to pay for the commodities, which enables traders to make and receive payment outside the SWIFT network and to receive significant amounts of information about invoices or other aspects of the trade in the data that accompanies the transaction. Sellers would similarly accept those payments with the virtual card.

Wong adds that the solution targets transactions with an average value of about US$3m. While there is a significant amount of trade in the US$2m-US$3m range, the returns often don’t justify the effort required by banks for these smaller amounts and there is a tremendous need by buyers and sellers for financing.

MasterCard is giving traders a different and more cost-effective financing solution, Wong claims, that provides visibility around the transaction.

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