Name: BNY Mellon at Sibos 2023 – The growth of embedded finance
Uploaded: 2023-10-03T15:05:14.766Z
Duration: 1078
Description: At the Sibos 2023 conference in Toronto, FinTech Futures sat down with Joon Kim, Global Head of Trade Finance, Working Capital and Portfolio Management at BNY Mellon, to discuss the key areas of development in embedded finance and its growing importance in trade finance.

04-Joon Kim1.mp4

04-Joon Kim1.vtt

ENGLISH

{{00:00:06}}
This is FinTech Futures at Sybos, and
I'm joined by Joon Kim of BNY Mellon.

{{00:00:10}}
Joon, thank you so much for taking
the time out to speak to us.

{{00:00:12}}
Thanks for having me.

{{00:00:13}}
Excellent.

{{00:00:13}}
And just to get started, if you'd
like to give us a quick introduction

{{00:00:15}}
to yourself and your role at BNY.

{{00:00:17}}
June Kim.

{{00:00:17}}
We've been, I've been with BNY
Mellon for the last eight years.

{{00:00:21}}
I manage the global trade
finance and global trade

{{00:00:25}}
finance products and portfolio
management for treasury services.

{{00:00:28}}
Excellent.

{{00:00:29}}


{{00:00:29}}
And you're here this week, you're
going to be speaking on a panel about

{{00:00:31}}
corporate bank APIs for guarantees.

{{00:00:34}}
For those unable to attend, can you give
us a quick rundown of that and some of

{{00:00:36}}
the key takeaways from that discussion?

{{00:00:38}}
Great.

{{00:00:39}}
So if you think about guarantees and
the standbys when it comes to trade

{{00:00:44}}
finance, typically what happens is
there is not a lot of standard, so

{{00:00:49}}
people tend to use Swift messages, but
essentially it becomes a free format.

{{00:00:55}}
So what that end up happening is that
people have to review, and there is no

{{00:01:02}}
consistency in terms of a format, so you
do waste a lot of time in terms of...

{{00:01:08}}
time to review, time to execution,
time to process, which results in

{{00:01:14}}
a very negative client experience.

{{00:01:17}}
And every bank has a different
rules and set of standards when

{{00:01:22}}
they're handling each transaction.

{{00:01:25}}
So what Swift API is trying to
accomplish is creating a standardization.

{{00:01:32}}
where the banks can come in and
pull out through the API to create

{{00:01:37}}
a standardized messaging type.

{{00:01:40}}
So when banks are talking to one another
sorry, when the banks are talking to

{{00:01:47}}
one another, that they have a clear
understanding of what that format is.

{{00:01:52}}
So what that does is essentially
in summary significant progress

{{00:01:57}}
in terms of standardization.

{{00:02:00}}
increase in efficiency, increase in
time to process, and so therefore

{{00:02:05}}
the clients can do much more of a
transactions rather than trying to

{{00:02:09}}
struggle fixing the issues versus
increasing the values of transactions

{{00:02:16}}
that we can facilitate for the clients.

{{00:02:18}}
Excellent, excellent.

{{00:02:19}}
And that will cover embedded
finance as well while you're here.

{{00:02:22}}
Oracle estimates the value of the
embedded finance market is going to

{{00:02:25}}
exceed 7 trillion in the next 10 years.

{{00:02:28}}
What would you say are some of
the key areas of development now?

{{00:02:31}}
Yeah, so I think embedded finance
can be defined many ways, so you've

{{00:02:35}}
heard terminologies such as Banking
as a Service, Capability as a Service,

{{00:02:40}}
Embedded Finance, so people have some
degree of a different definitions, right?

{{00:02:45}}
So how we look at it from the NYPD.

{{00:02:50}}
All of at it as an embedded finance
is something that we want to provide

{{00:02:53}}
to the clients where they don't
necessarily need to build and have the

{{00:02:58}}
capability in terms of the resources.

{{00:03:01}}
So that they can do more of the
sales and focus on the revenues

{{00:03:05}}
and the profitability rather than
trying to build a shop and incur a.

{{00:03:10}}
Fixed Cost, Negative
IRR, Returns, and Etc.

{{00:03:15}}
Some of the things you can
think about it from the example

{{00:03:19}}
perspective is trade outsourcing.

{{00:03:21}}
If you think about trade
outsourcing, what is that?

{{00:03:24}}
You need to service your clients
internationally, but in order to

{{00:03:28}}
do I have to have various sort of
Big Capabilities, RMAs with the

{{00:03:34}}
corresponding banks around the globe.

{{00:03:37}}
You also need to have a credit component
as well as you need to have a network of

{{00:03:43}}
offices to facilitate these transactions,
as well as building an operational shop.

{{00:03:48}}
So if you think about all this, it
creates a huge burden for those banks

{{00:03:54}}
who is trying to build a infrastructure
and not being able to forecast

{{00:03:59}}
what that trade value looks like.

{{00:04:01}}
becomes a very challenging task.

{{00:04:04}}
So how we come into play is we provide,
as an example, a portal that has

{{00:04:09}}
a look and feel of that particular
customer and providing the portal

{{00:04:15}}
so they don't have to build it.

{{00:04:17}}
And then once the transactions comes
through, Our department will represent

{{00:04:22}}
on behalf of that particular bank and
process those transactions for them.

{{00:04:27}}
So what that does is that they don't
necessarily have to worry about the

{{00:04:32}}
processing component, and they can
focus on the front line, as well as

{{00:04:37}}
in the meantime, what we are doing
is providing the infrastructure

{{00:04:41}}
of the services with that.

{{00:04:45}}
without those guys being
able to incur the fixed cost.

{{00:04:48}}
So I would think of that, I would
think it in the following fashion.

{{00:04:52}}
So you can buy a system,
you can build a system.

{{00:04:57}}
Embedded finance or trade options
could be something in between

{{00:05:01}}
where it could be renting.

{{00:05:03}}
You're renting a service so that
you can facilitate the transaction.

{{00:05:07}}
And then there are other types of
embedded finance such as If they do

{{00:05:12}}
not have a credit facility to cover a
particular trade transaction, instead

{{00:05:19}}
of Creating a facility where that
bank may not be able to do they use a

{{00:05:24}}
correspondent bank such as ourselves
to see whether that bank is able to

{{00:05:29}}
provide that risk mitigation service
that could be a part of embedded finance.

{{00:05:35}}
The other component may be something to
the effect of, I have to have a many,

{{00:05:40}}
swift authentication key messagings
with various banks around the globe.

{{00:05:45}}
is that the most efficient way to do
so versus can a correspondent bank

{{00:05:50}}
help assisting conveying, relaying
those messages or transacting,

{{00:05:56}}
facilitating those transactions,
leveraging the correspondent banking

{{00:06:00}}
relationships we have around the globe.

{{00:06:03}}
I think there are different aspects
of embedded finance and the other one

{{00:06:07}}
is optimization of the capital today.

{{00:06:10}}
If you think about what does that
mean from the optimization of the

{{00:06:15}}
capital, people have constraints on
the credit facility, doesn't mean

{{00:06:20}}
you reject once it hits the ceiling.

{{00:06:24}}
The collaborative effort of Embedded
Finance could be, I want to find

{{00:06:28}}
a partner who can buy my assets.

{{00:06:31}}
So you can use a correspondent banking
relationship to sell those assets that

{{00:06:36}}
they cannot cover to another party,
and you can do that in a vice versa.

{{00:06:40}}
So that what that does is an
increase collaboration allows

{{00:06:45}}
us to do more transaction.

{{00:06:47}}
And what does that yield at the, end
of the day, at a high level is we are

{{00:06:52}}
able to facilitate more transactions
for the clients, which is good for

{{00:06:56}}
trade, which is good for G D P and good
for the overall economy of the year.

{{00:07:02}}
State of the economy.

{{00:07:04}}
Excellent, And looking at trade finance
then in particular what are some of

{{00:07:07}}
the key challenges there at the moment?

{{00:07:09}}
And how can embedded trade finance
really help some of those challenges?

{{00:07:12}}
Yeah, so the biggest problem
is this is a very old industry,

{{00:07:19}}
where if you think about a
settlement of a trade transactions.

{{00:07:25}}
Whether you're on the import side or
the export side, you don't necessarily,

{{00:07:30}}
if you're on the import side, you don't
necessarily want to, you don't want to

{{00:07:34}}
pay me if I gave you a, some sort of
a PDF copy and say this is original.

{{00:07:41}}
So it sounds wonderful.

{{00:07:42}}
Why don't we digitize?

{{00:07:44}}
But would you pay me if I gave
you some sort of a PDF file?

{{00:07:48}}
Probably not.

{{00:07:49}}
So this is part of the reason as to why
paper has played a very instrumental

{{00:07:58}}
instrument in terms of when you
want to settle those transactions.

{{00:08:01}}
So we are not I think what the
journey we're taking from the industry

{{00:08:06}}
perspective is how do we digitize those
things so we can move those instruments

{{00:08:13}}
quicker and faster and both parties
understand those instrument that is

{{00:08:19}}
going transmitted, being transmitted
in a digital fashion is authentic.

{{00:08:24}}
is through the digital journey.

{{00:08:26}}
So what SWIFT, what banks are
working on is how do we authenticate.

{{00:08:32}}
Can we make sure that the digital
standard that between the banks are

{{00:08:36}}
going to be treated where That the
origi, the digital copy that has been

{{00:08:42}}
transmitted, is transmitted, is being
can be treated at as an original.

{{00:08:47}}
So if you look at M L E T R, the
recent development in the UK and

{{00:08:53}}
the u a e region is basically,
essentially saying you can now.

{{00:08:57}}
with the right level of standardization
and process in an agreement that you can

{{00:09:03}}
treat the digital copy as the original.

{{00:09:05}}
So this is a main, really
a very positive progress.

{{00:09:11}}
So once all the counterparties around
the globe who are involved in the trade

{{00:09:17}}
can adopt to these things, so that
can result in faster transmission.

{{00:09:23}}
I think it was a long winded answer,
but what that means is the digital

{{00:09:28}}
component converting to the manual,
to paper is a critical journey.

{{00:09:34}}
And the second component is
that you talked about how this

{{00:09:37}}
embedded finance can help.

{{00:09:39}}
Some of the things I talked about can
certainly create a services that's

{{00:09:43}}
going to create value for the clients.

{{00:09:46}}
But I think the other important component
is Maybe three, four years back, I would

{{00:09:51}}
say the FinTech was perceived as a more
of a competitor to the banking industry.

{{00:10:00}}
But I think what's being realized
now by many financial institutions,

{{00:10:05}}
including ourselves, who is involved
in the trade finance side see the

{{00:10:09}}
need for the collaborative effort
we need to have with the FinTech, i.

{{00:10:15}}
e., They have technology and the
SMEs that we don't necessarily have.

{{00:10:20}}
So how do we leverage that technology
with the business aspect from the

{{00:10:26}}
banking perspective and combine those
solutions so that we can create a

{{00:10:32}}
better experience for the clients.

{{00:10:33}}
Excellent.

{{00:10:34}}


{{00:10:34}}
And you mentioned a few things there,
but is there any more technologies,

{{00:10:37}}
initiatives out there that exist in
the moment in the trade finance space

{{00:10:40}}
that you're particularly excited by?

{{00:10:42}}
I think in the long run, so some
of the things that we talked about

{{00:10:48}}
is related to the traditional
trade, letters of credit, and etc.

{{00:10:54}}
When you look at the corporate space
the statistics vary here and there, but

{{00:11:03}}
about 85 percent of the total trade is
being settled under the open account.

{{00:11:08}}
So let's say about 15 percent
of the transactions are being

{{00:11:12}}
settled in the letter of credit.

{{00:11:14}}
On the open account space, what can we do?

{{00:11:18}}
So there is a significant
amount of progress that came out

{{00:11:22}}
blockchain to platform driven.

{{00:11:26}}
Digitization.

{{00:11:28}}
You don't need to have a
paper to process these things.

{{00:11:32}}
So I think it is an exciting field, yet
at the same time, some of the things we

{{00:11:38}}
need to think about is what is the problem
that we are trying to solve, right?

{{00:11:47}}
I think one of the things
we need to review is let's

{{00:11:52}}
use a blockchain technology.

{{00:11:56}}
Okay, so I'll give you an example of how
blockchain may work in terms of corporate

{{00:12:03}}
supply chain financing and receivables.

{{00:12:06}}
So if you gave me goods and invoices and
then I created the financing for you,

{{00:12:14}}
that particular shipment of the goods and
services that you have given it to me.

{{00:12:18}}
belongs to me.

{{00:12:20}}
So in case you fail to pay, I perhaps may
have a possession of that goods, right?

{{00:12:25}}
Sounds wonderful.

{{00:12:28}}
The part of the problem is if you're a
bad actor, you can potentially take that

{{00:12:33}}
invoice to multiple banks and create...

{{00:12:36}}
Double, quadruple,
different types of pricing.

{{00:12:40}}
So that's why you sometimes
see scandals in the warehouse.

{{00:12:44}}
Warehouse financing, the value of the
warehouse was 100, but that particular

{{00:12:50}}
counterparty was able to borrow tens
of thousands of dollars as a result

{{00:12:56}}
of creating the double financing.

{{00:12:57}}
So these are the areas where
the blockchain can create

{{00:13:00}}
a very helpful solution, i.

{{00:13:03}}
e.

{{00:13:04}}
Once you finance, there is a clear track
record that this financing belongs to A.

{{00:13:10}}
So when a B or a C is being entertained
for that same transaction, they have a

{{00:13:15}}
full visibility that this belongs to A.

{{00:13:18}}
I should not be doing the financing.

{{00:13:20}}
That's the beauty about
the blockchain, right?

{{00:13:22}}
So I think the methodology,
technology is there.

{{00:13:27}}
The one thing we need to however try to
solve is, how do we make sure that What

{{00:13:34}}
we are reviewing is the global Visibility.

{{00:13:39}}
So if we are operating in a certain
circle where we've, certain banks or

{{00:13:45}}
the counterparties can review, but if
they go outside of that network, they

{{00:13:50}}
can potentially create a similar scheme
where we can potentially have another

{{00:13:56}}
double financing involved because you
are operating in a different network.

{{00:14:01}}
So I think while the blockchain and
the technology is going to be Very,

{{00:14:07}}
important from the technical perspective.

{{00:14:11}}
What we really need to work on
is the interoperability of the

{{00:14:15}}
network, and number two is creating
a consistent standardization, if we

{{00:14:21}}
can, from the multiple jurisdictions.

{{00:14:23}}
So if each jurisdiction has a
different set of rules, it creates

{{00:14:28}}
quite a confusion and creates a
significant amount of spiderweb, right?

{{00:14:32}}
But if we can find a way where we
can have an interoperability, We'll

{{00:14:37}}
network along with the consistent
standards that will allow the blockchain

{{00:14:43}}
technologies to create a much greater
solutions where we people will have

{{00:14:47}}
a full visibility so that we can
potentially avoid the fraud, the money

{{00:14:52}}
laundering, different aspects of the AML.

{{00:14:56}}
component that all banks
are taking a look at.

{{00:14:59}}
Excellent.

{{00:14:59}}
And just to finish off you
mentioned interoperability there.

{{00:15:02}}
I was speaking on a panel last
year, so I was actually about

{{00:15:05}}
interoperability in trade finance,
whether it was possible across

{{00:15:07}}
different countries different verticals.

{{00:15:10}}
Very inconclusive at that time.

{{00:15:11}}
A year on how do you think we've been
progressing there, and do you think

{{00:15:15}}
it's still possible going forward?

{{00:15:16}}
Yeah, so I think although you don't see
it, I think the progress is being made.

{{00:15:23}}
So if you think about a SWIFT.

{{00:15:27}}
What is a SWIFT?

{{00:15:28}}
It's really a network
that everybody goes into.

{{00:15:33}}
So when we talk about trade
finance MT700 series and etc.

{{00:15:39}}
All banks go through an MT700
message type through the SWIFT.

{{00:15:43}}
So that's the only way
how we can communicate.

{{00:15:47}}
But when it comes to the open
account, there is no network

{{00:15:51}}
to go deliver those messages.

{{00:15:54}}
So what we end up is having
all these bilateral individual

{{00:15:57}}
networks that's being created.

{{00:16:00}}
So the idea of creating a network
For an open account is a critical

{{00:16:05}}
one, but you cannot one person
just wakes up in the morning And

{{00:16:10}}
let's create a one global network.

{{00:16:12}}
So everybody can go come in So there
has been series of attempts of different

{{00:16:18}}
types of network Marco Polo contour,
you know Do you name some of these?

{{00:16:23}}
Networks that were being transmitted.

{{00:16:26}}
But at the end of the day, at the
beginning, what has happened is

{{00:16:29}}
they all wanted to invite the banks
then to be a part of the consortium

{{00:16:33}}
into each of these networks.

{{00:16:36}}
And if you're a bank, it says, okay,
which one is the one that makes sense?

{{00:16:39}}
Which one doesn't?

{{00:16:41}}
How do you make a determination?

{{00:16:44}}
So therefore, it became a challenging
where, the banks had very difficult

{{00:16:50}}
time making those decisions.

{{00:16:52}}
I think fast forward a few years after
is that I think people are beginning

{{00:16:57}}
to realize the importance of what
you're talking about, interoperability.

{{00:17:01}}
It's my job is not to create a network.

{{00:17:05}}
That was the first initial,
but now the first objective

{{00:17:08}}
is I need to create a network.

{{00:17:10}}
that can actually interoperate
with the other network.

{{00:17:13}}
So when they're thinking about that
framework, when the four guys meet

{{00:17:18}}
individually, they all have the
same objectives, which is how we can

{{00:17:22}}
actually connect the dots onto four.

{{00:17:24}}
So we can create a multiplier effect.

{{00:17:26}}
One plus one is going to be the hardest.

{{00:17:29}}
But 2 plus 2 becomes easier, 4 plus 4
becomes easier, so then we can create

{{00:17:34}}
a, an operable network, where everybody
can participate not, needing to worry

{{00:17:41}}
about which network do I have to join.

{{00:17:45}}
Exciting times ahead.

{{00:17:45}}
Thank you so much, Jun, again,
for taking the time out to speak

{{00:17:48}}
with us, it's been a pleasure.

{{00:17:49}}
Thank you very much.

{{00:17:50}}
Thanks for having me.

{{00:17:53}}
Thanks.

This is FinTech Futures at Sybos, and
I'm joined by Joon Kim of BNY Mellon.

Joon, thank you so much for taking
the time out to speak to us.

And just to get started, if you'd
like to give us a quick introduction

We've been, I've been with BNY
Mellon for the last eight years.

I manage the global trade
finance and global trade

finance products and portfolio
management for treasury services.

And you're here this week, you're
going to be speaking on a panel about

For those unable to attend, can you give
us a quick rundown of that and some of

So if you think about guarantees and
the standbys when it comes to trade

finance, typically what happens is
there is not a lot of standard, so

people tend to use Swift messages, but
essentially it becomes a free format.

So what that end up happening is that
people have to review, and there is no

consistency in terms of a format, so you
do waste a lot of time in terms of...

time to review, time to execution,
time to process, which results in

And every bank has a different
rules and set of standards when

So what Swift API is trying to
accomplish is creating a standardization.

where the banks can come in and
pull out through the API to create

So when banks are talking to one another
sorry, when the banks are talking to

one another, that they have a clear
understanding of what that format is.

So what that does is essentially
in summary significant progress

increase in efficiency, increase in
time to process, and so therefore

the clients can do much more of a
transactions rather than trying to

struggle fixing the issues versus
increasing the values of transactions

And that will cover embedded
finance as well while you're here.

Oracle estimates the value of the
embedded finance market is going to

What would you say are some of
the key areas of development now?

Yeah, so I think embedded finance
can be defined many ways, so you've

heard terminologies such as Banking
as a Service, Capability as a Service,

Embedded Finance, so people have some
degree of a different definitions, right?

All of at it as an embedded finance
is something that we want to provide

to the clients where they don't
necessarily need to build and have the

So that they can do more of the
sales and focus on the revenues

and the profitability rather than
trying to build a shop and incur a.

Fixed Cost, Negative
IRR, Returns, and Etc.

Some of the things you can
think about it from the example

If you think about trade
outsourcing, what is that?

You need to service your clients
internationally, but in order to

do I have to have various sort of
Big Capabilities, RMAs with the

You also need to have a credit component
as well as you need to have a network of

offices to facilitate these transactions,
as well as building an operational shop.

So if you think about all this, it
creates a huge burden for those banks

who is trying to build a infrastructure
and not being able to forecast

So how we come into play is we provide,
as an example, a portal that has

a look and feel of that particular
customer and providing the portal

And then once the transactions comes
through, Our department will represent

on behalf of that particular bank and
process those transactions for them.

So what that does is that they don't
necessarily have to worry about the

processing component, and they can
focus on the front line, as well as

in the meantime, what we are doing
is providing the infrastructure

without those guys being
able to incur the fixed cost.

So I would think of that, I would
think it in the following fashion.

So you can buy a system,
you can build a system.

Embedded finance or trade options
could be something in between

You're renting a service so that
you can facilitate the transaction.

And then there are other types of
embedded finance such as If they do

not have a credit facility to cover a
particular trade transaction, instead

of Creating a facility where that
bank may not be able to do they use a

correspondent bank such as ourselves
to see whether that bank is able to

provide that risk mitigation service
that could be a part of embedded finance.

The other component may be something to
the effect of, I have to have a many,

swift authentication key messagings
with various banks around the globe.

is that the most efficient way to do
so versus can a correspondent bank

help assisting conveying, relaying
those messages or transacting,

facilitating those transactions,
leveraging the correspondent banking

I think there are different aspects
of embedded finance and the other one

If you think about what does that
mean from the optimization of the

capital, people have constraints on
the credit facility, doesn't mean

The collaborative effort of Embedded
Finance could be, I want to find

So you can use a correspondent banking
relationship to sell those assets that

they cannot cover to another party,
and you can do that in a vice versa.

So that what that does is an
increase collaboration allows

FinTech Futures

Expert Insight

At the Sibos 2023 conference in Toronto, FinTech Futures sat down with Joon Kim, Global Head of Trade Finance, Working Capital and Portfolio Management at BNY Mellon, to discuss the key areas of development in embedded finance and its growing importance in trade finance.

