When banks are looking to implement a supply chain finance solution for their corporate clients – or, indeed, to replace an existing solution – it’s important to choose the right approach.
Often banks are still using legacy systems built in old and unreliable technologies such as Visual Basic 6, Apache Struts, Java 1.2 and Excel Macros, among others. An upgrade is therefore not a realistic option which means that the choice is new build vs a purchased solution from a technology vendor.
Increasingly options exist to buy services on a transactional basis with different clients leading the decision with their own choice of third party platform on which to run their transaction with the funders of choice. Each of these approaches come with its own considerations – so what should banks think about when weighing up the available options? And what should they bear in mind if they decide to purchase a vendor-provided solution?
Some banks would prefer to build a dedicated solution which they can then offer to clients. It’s an approach that means they can keep full control over the system in-house and create a product exactly tailored to their needs, as long as they have access to the right knowledge and expertise.
That said, it’s important to bear in mind the time required to develop the solution – getting from A to B is not always straightforward, and it’s not uncommon for homegrown solutions to exceed the expected budget and timing. The increasing demands on IT resources from many large organisations will also mean that the requirements of the working capital finance team are competing with the needs from other products which are prioritised when measuring return on investment criteria.
In contrast, buying a solution from an established technology vendor is likely to be a much faster and cheaper option than building a solution in-house. Vendors that specialise in supply chain finance may have robust platforms that leverage newer technology and process millions of invoices per day.
Their solutions will be ready to use, meaning that a product can be fully up and running in as little as 3-6 months with periodical new releases to update the technology according to market demands. In addition, a vendor will be able to support the bank with expertise from their in-house technology and product specialists. Choosing whether to build or buy a solution is just the first step.
If a bank decides to take advantage of a vendor-provided solution, it will also have to assess which model best suits its needs. Depending on specific vendors capabilities, different options may be available, including:
- Using a platform on a deal-by-deal basis. In some cases, vendors will manage the onboarding of corporate customers on behalf of banks, as well as uploading banks’ risk criteria in relation to offering suppliers early payment. Other vendors may enable banks to log into the platform and set up transactions with their clients themselves.
- White labelling. Alternatively, banks may choose to incorporate a platform into their own systems on a white label basis, using their own branding on customer interfaces and even through single sign-on to the platform from their own online banking systems. This means banks can give their customers a more personalised user experience. Banks opting for this approach should still benefit from relevant product and technology support for any customer-facing activity.
“When it is about deciding to build a proprietary platform or contracting with a vendor, the bank should consider three items. First, the internal cost of building it; second, time to market; and third, maintenance and upgrading costs. Those three elements are crucial to build the right business case”
Enrique Jimenez -Demica’s Head of Supply Chain Finance
Best in class
Supply chain finance is an area in which a technology vendor’s solution may be an attractive option. Best-in-class solutions should offer excellent supplier onboarding tools, enabling high volumes of suppliers to be added to a solution quickly and easily. And they will also come with tried-and-tested customer interfaces, making it easy for customers to monitor their programme’s performance.
Of course, different banks will have different needs. Some will want to retain full control over the customer experience by internalising functions such as origination, supplier analysis and buyer/supplier onboarding. In such cases, the vendor can provide the bank with technical support, ongoing development and new product releases, while remaining invisible to the end customer.
Key to any white labelled receivables finance solution will be features like real-time analytics, notifications and alerts, and compliance with the necessary reporting requirements. A best-in-class solution should also offer banking-grade resilience and security, as well as integration with all relevant systems, from third party KYC databases to payment gateways and FX systems.
Recognising that different models work for different banks, Demica provides platform services for open account trade products on a transactional basis, as well as via white labelled solutions.
Where the former approach is concerned, banks can upload their own financing programmes onto Demica’s platform on a deal-by-deal basis. Both internal bank users and corporate clients can use streamlined dashboards to view transaction and portfolio data down to the invoice level.
Alternatively, banks can white label Demica’s platform, integrating it into their own systems and adding their own branding. Several of the world’s leading trade finance banks have opted for this approach, with our white label customers now accounting for a portfolio of over $5bn.
“Banks like ours are inclined to buy rather than build, and it’s not just because it’s cost-effective to do so. We need to stay in the forefront of client experience in all the jurisdictions where we operate and working with a partner gives us the benefit of their experience and exposure to a wide variety of customers and other providers”
Peter Grills – Managing Director & Head, Global Trade at BMO Capital Markets