Accelerating Digital Transformation In Trade Finance

The intense need for digital trade finance is not hidden from anyone.

The present volatile market highlights a variety of challenges for trade finance banks and their corporate clients, including supply chain disruptions, increasing costs, prevailing compliance demands, risks of fraud, and emerging ESG examination.

But the initiative of eliminating paper-based trade finance procedures comes with many complexities, and financiers have to figure out whether they should purchase their solutions through a third party, or create their capabilities in-house. 

Recently, Enno-Burghard Weitzel, SVP of Strategy, Digitization & Business Development at Surecomp spoke about digitization in trade finance  in a webinar named “Taking trade finance digital – buy vs build.”

Incorporating Digital Solutions

Weitzel talked about discoveries, examining alternatives for banks to handle these complexities by determining whether to develop digital trade finance solutions in-house or outsource teams.

Trade finance has a long-term dependency on traditional techniques and relationships. But as the global economy becomes more digital, institutions need to transform their trade finance operations. 

Digitization facilitates an opportunity to streamline processes, boost efficiency, and improve customer satisfaction. Other benefits include cost reduction, faster transactions, and improved risk management.

However, the pathway toward adopting digitization is quite daunting. Institutions must determine whether they want to invest in existing platforms from third-party providers or create custom digital solutions in-house. This “Buy or Build” dilemma has vital significance for long-term success and competitiveness in a quickly developing trade scene.

Surecomp’s Survey Discoveries - Discontent and Need For Improvement

The results uncovered a critical degree of dissatisfaction among banks and corporates with their existing trade finance processes.

A notable 41% of banks highlighted their discontent with the overall duration of issuing financing approval to their clients, with 35% of them being completely depressed.

Similarly, 45% of corporates reported being unsatisfied with the time it takes to get approvals from their financiers.

Undoubtedly, both banks and corporates have a dire need for improvements in their trade finance processes. The top reactions in this regard were “more digital” (53% for banks, 52% for corporates), “more time-effective” (53% for banks, 52% for corporates), and “more optimized & easy” (41% for banks, 45% for corporates).

Surprisingly, despite this powerful urge for improvements, the survey results uncovered a noticeable gap concerning adoption.

While 71% of banks and 73% of corporates admitted that process automation is an intense requirement for internal stakeholders, a critical extent still can't seem to carry out digital trade finance solutions to automate their processes.

A striking 59% of banks and 70% of corporates reported not utilizing a digital trade finance solution for automating the process. 

Besides, 93% of banks keep on depending on email as the primary mode of negotiating with their trade finance customers, featuring the continuous utilization of time-consuming and error-prone manual processes.

“This gap highlights a significant chance for development and transformation, and by overcoming it, banks and corporates can leverage the full potential of digitization, organize their processes, and gain improved efficiency,” stated Weitzel. “The challenge, however, lies in determining the most appropriate sources of doing so.”

To Buy or To Build, That Is The Question 

However, the landscape is described by fragmentations, with several fintech solutions, and blockchain platforms in several phases of development.

Numerous arrangements have yet to enter into the stage of a live production from the mere proof-of-concept, and the events of recent months, where a few enormous initiatives have shut down subsequent failure to reach commercial viability, have yet to inspire confidence.

Weitzel stated, “Banks have invested huge amounts of money into digital transformations, but they are attracting development gradually.”

“Whether it is creating API connectivity for corporate clients into the backend, or investing money on integrations into platforms that don’t get scale, things aren’t moving as quick as they may have expected.”

Meanwhile, the expansion of new technologies in trade creates new complexities.

The stakeholders not only witness the risk of investing in technologies that may ultimately fail, but the requirement for standardization across various solutions develops huge integration obstacles, with banks and corporates finding themselves having to put up resources in multiple platforms to consider different aspects of their operations.

Looking at this scenario, creating a custom, in-house solution may sound satisfactory in terms of flexibility and control.

Building its digital solutions will help banks develop innovative features and capabilities that will distinguish them from their competitors, creating a tailored facility that fulfills the specific requirements of their clients.

This competitive distinction can be a valuable asset in an undeniably swarmed and competitive trade finance scenario, empowering institutions to stand out and cover a larger share of the market.

However, only a few financial institutions are capable of carrying out their digital service, while larger banks may have access to expert groups capable of designing & incorporating digital trade finance systems, smaller institutions might require more resources and skills.

Furthermore, the risks and limitations built-in to this approach often outweigh the potential benefits.

“Developing a custom trade finance solution demands dedicated amounts of time and human resources, “ stated Weitzel. “By choosing to purchase, banks will be capable of allocating their resources more effectively, focusing on things that bring competitive benefits and differentiation. We’ve seen this in the way that the relationship between banks and fintechs has improved from one of competition to one of strategic collaboration, where banks can use fintechs’ specialized knowledge and technological experience.”

Reactions received by Surecomp from the market highlighted a combined picture as to which side of the buy or create debate the industry is settling on.

Banks and corporates said they were already utilizing a digital trade finance solution, roughly half explained this was a third-party platform, while the remainder said they either used host-to-host integration between their enterprise resource planning (ERP) software and their banks’ servers, or a proprietary solution developed by the bank.

Bridging The Gap Between Buying And Building

As stakeholders within the trade finance ecosystem strive to navigate the challenges of the buy or build dilemma, figuring out a hybrid approach that can empower them to make tangible processes now and expand their skills over time is a compelling alternative.

Surecomp’s RIVO platform, a digital hub that offers open API access to importers, exporters, banks, insurers, shipping companies, and solution providers, is one example of this concept in action.

With RIVO’s integration, organizations can easily connect their current in-house trade finance solutions with third-party platforms and services, empowering them to personalize their offerings and adjust emerging market needs without requiring huge in-house development or procurement efforts.

Embracing The Future Of Trade 

The advantages of incorporating digital transformation are clear, yet the complexities and decisions that institutions must navigate along this pathway are challenging and multifaceted. 

Eventually, it will not be a one-size-fits-all initiative. Each organization must thoroughly assess its unique requirements, resources, and goals to figure out the most suitable path forward.