Philipp Rossberg of Euler Hermes reflects on the soft and hard challenges of digitalisation and what this means for export credit agency support
To me, digitalisation essentially consists of two intertwined elements. The first element is what I call the ‘soft factors’ or ‘mindset’, which ultimately boils down to a fundamental change in which we structure our economy away from a product-led and towards a consumer-led model. The former was probably most famously epitomised by Henry Ford’s quote, “People can have the Model T in any colour – so long as it’s black.” This approach was fundamentally based on the idea of producers educating consumers on what their needs were.
By contrast, today, influenced by the myriad of digital products and thus choices offered to any smartphone user, consumers have firmly taken the reins, expecting producers to come up with inventions that not only entail technical excellence, but also a strong client experience and usability. Customer-centricity now rules supreme and is leaving an increasingly visible mark on export credit agencies (ECAs).
"We are fully exploiting the toolbox of the consumer-led economy"
Now, the hard factors of digitalisation are an altogether more challenging matter. In this category, I see four different trends that are currently re-defining the possible:
- The interconnectedness/interconnectivity of an exploding number of smart devices which continuously produce a vast stream of data;
- The rapid increase in computational power, coupled with a corresponding decrease in computational cost;
- The rise of artificial intelligence (AI) which essentially is a result of the combination of the first two aspects; and
- The increase of automation and, more specifically, digital to physical conversion, for example in the form
of 3D printing.
In the trade finance space, the availability of data and computational capacity across both the physical and financial supply chain is starting to reshape the competitive landscape.
Whilst existing market players are trying to optimise their access to, and smart analysis of, data in order to improve lending conditions (for example, more information on existing collateral in commodity finance is directly translating into a competitive edge), new entrants such as fintechs or major logistics companies are entering the fray based on innovative credit assessment techniques and/or superior insights into physical supply chain data.
Data and our ability to crunch and use it for decision-making purposes can certainly be as useful to us as to any financial institution. It should, though, be noted that our focus on more challenging and, in terms of available information, less liquid markets will probably put some tighter limits on how far we can capitalise on these trends.
On top of all this, the rise of AI, as well as alternative production patterns (such as local 3D printing in clients’ countries, as opposed to traditional shipments from Germany) has the potential to directly and substantially impact the core rationale on which ECAs as governmental policy institutions are based, which is to support national employment.
Will the ECA community be able to follow its clients to some degree, shifting its support from physical trade to the exchange of digital goods and services? Will we need to adapt our eligibility models to a more granular approach that possibly differentiates between handmade versus automated national content in export transactions? Or will we, paraphrasing Henry Ford, stick to “People can have ECA-support in (almost) any colour – as long as there is national employment”?
The answers to these questions will need to be co-developed by the exporters and banks we serve, our ministerial counterparties and us. We are looking forward to your input.
Philipp Rossberg is Chief Operating Officer of Euler Hermes Aktiengesellschaft, Federal Export Credit Guarantees, and sits on the World Trade Board, an international thought leadership body addressing digitalisation in trade and export finance, and SME finance, as well as the broader topic of financial inclusion
Chief Operating Officer, Euler Hermes Aktiengesellschaft, Federal Export Credit Guarantees
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