The world of trade finance has long been a bastion of traditional processes and systems, with many institutions relying on time-tested approaches and a web of interconnected relationships. However, as the global economy becomes increasingly digital and interconnected, the need for banks and corporates to adapt and transform their trade finance operations has never been more critical.
Digitalisation presents an unparalleled opportunity for institutions to streamline their trade finance processes, improve efficiency, and enhance customer satisfaction. The benefits of embracing digital transformation are manifold, including reduced operational costs, accelerated transaction processing, and improved risk management.
However, the journey towards digital transformation is fraught with challenges and decisions that institutions must navigate carefully. One such decision is whether to invest in an existing, ready-to-use platform offered by external providers – a choice that holds significant benefits for the long-term success and competitiveness of both banks and corporates alike amid a rapidly evolving trade landscape – or build a custom digital solution in-house.
“The ‘buy or build’ dilemma has evolved over time, and recent shifts in the industry have altered the dynamics of this crucial decision,” says Enno-Burghard Weitzel at Surecomp.
Surecomp’s survey findings: Discontent and desire for improvement
To gain a better understanding of the current state of play, Surecomp conducted a survey of banks and corporates to assess their adoption of digital solutions and identify the challenges and opportunities they face.
The results unveiled a significant level of dissatisfaction among banks and corporates with their current trade finance processes. A notable 41% of banks expressed discontent with the time taken to issue finance approval to their customers, with 35% of them being not happy “at all.” Similarly, 45% of corporates reported being unsatisfied with the time it takes to receive approvals from their financiers.
Unsurprisingly, both banks and corporates shared a desire for improvements in their trade finance processes. The top responses in this regard were “more digital” (53% for banks, 52% for corporates), “more time-efficient” (53% for banks, 52% for corporates), and “more streamlined and simple” (41% for banks, 45% for corporates).
Interestingly, despite this strong desire for improvement, the survey results revealed a noticeable gap when it comes to adoption. While 71% of banks and 73% of corporates acknowledged that process automation is a top priority for internal stakeholders, a significant proportion have yet to implement digital trade finance solutions to automate their processes.
A striking 59% of banks and 70% of corporates reported not using a digital trade finance solution for process automation. Furthermore, 93% of banks continue to rely on email as the primary mode of communication with their trade finance customers, highlighting the ongoing use of time-consuming and error-prone manual processes.
“This gap presents a substantial opportunity for growth and transformation, and by overcoming it, banks and corporates can unlock the full potential of digitalisation, streamline their processes, and achieve enhanced efficiency,” says Enno. “The challenge, however, lies in determining the most suitable means of doing so.”
To buy or to build, that is the question
The trade finance industry has experienced a surge in technological innovation in recent years, with a plethora of solutions emerging to address various pain points and inefficiencies in the sector. However, the landscape is characterised by fragmentation, with numerous fintech solutions and blockchain platforms in various stages of development. Many solutions have not yet moved beyond the proof-of-concept stage to live production, and the events of recent months, where several large-scale initiatives have closed down after failing to reach commercial viability, have done little to inspire confidence.
“Banks have invested enormous sums of money into digital transformation, but they’re making slow progress,” says Enno. “Whether it be building API connectivity for corporate clients into the backend, or spending money on integrations into platforms that don’t achieve scale, things aren’t moving as fast as they may have expected.”
Meanwhile, the proliferation of new technologies creates new challenges. Not only do stakeholders face the risk of investing in technologies that may eventually fail, but the lack of standardisation across various solutions creates significant integration hurdles, with banks and corporates finding themselves having to invest in multiple platforms to cater to different aspects of their operations.
Given this backdrop, building a custom, in-house solution may appear attractive in terms of flexibility and control. By building their own services, banks can create unique features and capabilities that distinguish them from their competitors, creating a tailored offering that caters to the specific needs of their clients. This competitive differentiation can be a valuable asset in an increasingly crowded and competitive trade finance landscape, enabling institutions to stand out and capture a larger share of the market.
However, not all financial institutions are able to roll out their own digital services: while larger banks may have access to specialised teams capable of designing and implementing digital trade finance systems, smaller institutions might lack the necessary resources and knowledge.
What’s more, the risks and limitations inherent in this approach often outweigh the potential benefits.
“Building a custom trade finance solution demands significant time and human resources,” says Enno. “By opting to buy, banks can allocate their resources more strategically, focusing on activities that drive competitive advantage and differentiation. We’ve seen this in the way that the relationship between banks and fintechs has transformed from one of competition to one of strategic collaboration, where banks can leverage fintechs’ specialised knowledge and technological experience.”
Responses received by Surecomp from the market revealed a mixed picture as to which side of the buy or build debate the industry is settling on.
Join our webinar on Thursday 27th April, 4pm UK to find out more.
