Rapaport Magazine


By Marc Goldstein
The Banking Dilemma

Antwerp offers a global picture of the banking issues faced by the diamond industry. All the information confirms that banks are pulling back from the industry. “Banks like ICICI, an Indian bank, don’t want to stay in the business anymore, Standard Chartered, headquartered in London, is gone, Antwerp Diamond Bank (ADB) is gone, ABN AMRO will be gone. Most of them are in the process of divesting from diamonds all over the world. It’s crazy,” said one diamantaire speaking anonymously. Kris Cuyvers, an independent banking specialist, confirmed, “It’s true that the appetite of banks toward risk is shrinking. And to them, the diamond industry as it is now appears too risky. But banks are also opportunistic and if adequate profit margins return, they will eventually come back.”
   “What matters is that we need to reach a critical mass of users of FinTech — financial technology — within our industry for such a system to be practical. Since ADB winded down, and before that the Bank J. Van Breda & Cº NV left, banking costs exploded for those who had to look for new solutions just to be able to make payments,” said Serge Landau, independent diamond dealer. “We’re more than interested in alternatives, but it should be efficient and with a cost structure significantly lower than what we have now,” added Emmanuel Frisch of Frisch Diamond Corporation.

Payment Processes
   On May 10 and 11, the Antwerp World Diamond Centre (AWDC) sponsored two new workshops as part of the AWDC Cafés, aimed at finding competitive and compliant alternative banking services. One was with the French-headquartered FX4BIZ and the second, with California-based UpHold. These events gave diamantaires the opportunity to explain their specific needs and talk about their concerns.
   Patrick Mollard, CFO of FX4BIZ, elaborated, “We’re essentially an international payment facilitator. In this instance, our offer is similar to that of the traditional banks, except that our product is faster and cheaper. However, we can’t offer any credit solution. Our added value is that we give a way of diversifying operational risk. Let me explain why. The fourth European Union Anti-Money Laundering Directive will be implemented as of January 1, 2017. It’s a risk-based approach. Activity sectors, political exposure, tax evasion, reputational risk, etc. are all features that will have a greater influence on banks’ willingness to do business with you. And in that context, the diamond industry is regarded as highly sensitive. Therefore, diamantaires should keep in mind that banks could decide at any moment to stop working with them and in that case, having a FinTech account could enable them to keep doing business.”

U.S. Clearing Banks
   Bill Dennings, executive vice president of Uphold, explained, “On top of being a paying facilitator, we’re allowed to hold our customers’ funds in our accounts, due to the fact that our clearing banks are U.S.-based. Since our revenue comes from other channels, we’re not looking for pressing this industry. We just aim at making a product that’s adapted to the trade needs. We want to have a balanced mix of large, medium and smaller companies, which is why we’re trying to automate as much as possible the compliance and due diligence processes, so as to keep reducing operational costs, and therefore our transactional fees.”
   At least two of the three major needs of the industry could be fulfilled by FinTech: account and payments and deposit accounts. However, every coin has a flip side. “The underlying clearing bank of those FinTech companies are not diamond banks. They don’t know our business and working with FinTech means they’re going to step in while all experienced bankers are attempting to get out due to the risk/reward ratios. We need to know whether they’re here to stay and if they’re even able to commit to staying. And in particular, since Uphold’s clearing bank is a U.S. bank, it could prove to be even more delicate,” said Immanuel Van Poppel, managing partner of Diamdax Brink’s.
   The third need — the credit issue — has not yet been addressed. Many solutions are being studied at this stage, including outsourcing credit to major investment funds. But ultimately, the risk/profitability ratios will keep bouncing back again and again. In an industry where the production and the retail ends of the pipeline are ensuring comfortable operational margins for themselves, the survival of diamantaires, especially in these times of shrinking credit, will depend on their ability to impose on the pipeline their right to a fair share of the profits. Cuyvers concluded, “When this happens, I wouldn’t be surprised to see banks coming back to the trade.”

Article from the Rapaport Magazine - June 2016. To subscribe click here.

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