HSBC is building a matching service for small- and medium-sized companies involved in global trade, by leveraging HSBC’s trade banking client network globally.
The project, formerly known as Jasmine 22 but now branded Serai, has been cloaked in secrecy for months. From interviews with people aware or involved with the project, DigFin has put together a view of how this might work.
Since the 2008 global financial crisis, new capital rules have made it expensive for banks to lend to small businesses. Technology companies are filling the gap, from big e-commerce players like Alibaba and Amazon, to invoice financing specialists, to peer-to-peer marketplace operators.
Jasmine22 was incorporated last December. In February, Vivek Ramachandran, global head of growth and innovation at HSBC’s commercial bank in Hong Kong, was appointed CEO of the project.
On May 7, it was granted a moneylender license in Hong Kong. In general, the regulation for money lenders to issue loans is looser than that for banks.
Jasmine 22 was then renamed as Serai limited on June 20.
It probably means that the architecture for Jasmine 22 has been completed and the service is launching in the near future.
The challenge to build such a data-matching business is to pull all information of a seller or a buyer together from various legacy systems, in a manner that is compliant across jurisdictions.
“You need to access and retrieve data from different corporate banking systems,” one source said.
More than that, most trade data is stored in unstructured paper documents, Ajay Sharma, HSBC’s regional head of global trade and receivables finance, told DigFin in a previous interview.
For the past two years, the bank has experimented with artificial-intelligence tools to read and understand paper documents. This is both to improve efficiency as well as to give the bank insight into client behavior – and thus create new business opportunities.
This work paved the way for Serai.
HSBC told DigFin that Serai currently has over 50 staff members. There are rumours that Accenture — a digital service partner of Serai — has been paid HK$40-50 million dollars (US$5-6.4 million) for this single project.
One person familiar with Serai says ultimately the revenue driver is still in financing.
At the same time, Serai might charge subscriptions to its data.
“In order to provide financing, the bank can create a portal for SMEs to identify potential new customers or collaborators, and establish a business relationship,” he said.
For example, a merchant selling canned sardines in olive oil might want to upgrade the quality of the oil. Serai could search its database of existing customers to identify olive-oil producers. If the sardines merchant subscribe to Serai, it can then access key information online, such as price, quality, or who else buys the company’s products, based on the oil producers' consent.
From handshakes to financing
Data could not only match buyers and sellers, but also create financing opportunity for HSBC. When Serai has enough data about both parties, assuming they have provided consent, it would be able to offer a very competitive financing term.
One source put it this way: A company has three suppliers, one of which is on Serai. Through that platform, HSBC offers them a lower interest rate on financing invoices. “Then I might do more business with this supplier, or I might encourage other suppliers to be on board,” he said.
Besides that, Serai can proactively approach SMEs to offer special promotions based on their needs and credit portfolio, in a same way that retail banking customers receive personal loan promotion with a much lower interest rate.
As Sharma described, there were opportunities that clients might not raise directly with their bankers, but the data could speak for itself.
Banks VS. Big Tech
Large banks have a potential edge over e-commerce companies because of the information that already exists in their systems accumulated over long period – but this data has been chopped up and siloed off.
Amazon is currently also hiring aggressively for an expansion into lending business. It has been secretive about its business plan. But it is obviously looking to do more proactively with its supply chain, and that HSBC saw a narrow window of opportunity to beat Jeff Bezos to the punch.
But beyond timing there is the nature of data on tap: e-commerce companies rely on data from sellers’ inventories and cash flow, whereas banks have credit history data which is critical in offering loans.
Growing the network
To make Serai a success will require expanding the service beyond HSBC’s clientele.
One barrier is China: sources say Serai is unlikely to serve mainland-based companies, due to regulatory restrictions. Moreover, HSBC lacks enough presence among mainland companies to compete against the likes of Alibaba or JD.com. So the focus will be elsewhere in Asia and in Europe.
Sources say another avenue to growth is for HSBC to serve as a back-end engine, allowing Serai to onboard other banks. Serai’s goal is to grow international trade among SMEs, so its management will want to have many banks involved. While HSBC’s biggest global competitors may be wary, there are plenty of regional and local banks that would benefit from participating as lenders to platform subscribers. Serai might even try to sell its technology to other banks.