Why “Buy v Build” is an outdated concept in working capital finance

Why “Buy v Build” is an outdated concept in working capital finance

Published 13th August 2021 by Maurice Benisty in Blogs

Demica’s Chief Commercial Officer Maurice Benisty was invited to speak at an exclusive roundtable discussion by SFNet, to discuss the current state of the Supply Chain Finance market and the challenges and opportunities faced by banks operating (and intending to operate) in the sector.

The discussion heavily focused on how banks and financial institutions could adapt their trade finance products to be more customer friendly, and how the changing demands of customers meant that in-house solutions were increasingly not cost-effective or suitable for the needs of the market.

How the question “buy vs build” is already out of date

There are significant new opportunities in the mid-market space as businesses around the world are looking to implement payables financing and this has massive implications for banks – with a quadrupling of market size driven by technology making it viable to address this mid-market at scale. Supply chain finance solutions have become well penetrated in the US Corporate space which remains one of the most established markets for this type of finance, but demand is growing rapidly elsewhere as well. Banks and financial institutions are needing to adapt quickly to meet that demand.

It is increasingly important for banks to use efficient, state of the art technology to manage their supply chain finance products, and it’s cheaper in the long run to invest properly in the best technology solution available. The need for proper supply chain management has been reinforced during the coronavirus COVID-19 pandemic, and banks can spend significant time and money developing their own platform that could find itself out of date by the time it’s ready to launch.

At the SF Net roundtable discussion, the speakers were all strongly in agreement that banks do not tend to have the agility and experience in their tech departments to create truly world-leading trade finance systems that compete with the capability of fintechs, so, the question of “buy” vs “build” has been largely answered through the extensive partnerships that banks are making with technology providers. The question now is: “Who is going to win that model?”

The hope, as a banker, are the fintechs. Because working with the fintechs is a great deal easier than trying to do all the stuff internally inside a bank where it’s much harder to be nimble.

John McQuiston

What to expect when partnering with a fintech business

Partnering with a fintech can seem like a daunting prospect if your financial institution has previously handled everything in house, but once you’re online it will make your trade finance function much more efficient. Fintechs in the working capital finance space can help to reduce the risk of fraud and provide a user-friendly interface for suppliers, buyers, and funders at all stages of the supply chain. It’s possible to use a fintech on a transactional basis or by adopting the platform completely and whitelabeling it for a seamless customer experience. Demica has extensive experience being customised and whitelabelled for the needs of banks such as BBVA and Lloyds Banking Group with great success.

The aim of partnering with a fintech is not to replace what the bank does itself or take anything away from the existing teams within the structure, but to provide several secure integrations to allow flexible use of the system and full processing capability. Banks that partner with fintechs like Demica are often looking to mitigate the risk of using legacy systems, reduce operating costs or to enter new markets, and to ensure the process runs smoothly. The tech resource available to most banks and financial institutions is not as agile or experienced as those in fintechs that are totally focused on maintaining one excellent product, and overall, it’s quicker and more cost effective to partner with the right fintech than spend significant budget on a platform that may feel dated soon after launch.

Partnering with a fintech can take significant time, however, and this is partly due to the complexity of most trade finance products and partly due to lengthy approval and signoff processes. It’s beneficial to ensure that the bank has a clear business case on which to build the partnership, and that there is sufficient buy-in from the relevant departments. If this is in place, it’s possible to get your working capital finance solution up and running much quicker than you might expect; for example, the time from implementation to live for Lloyd’s was six months, delivered on time and on budget by Demica.

Arrange a call with our experts

Maurice Benisty

Maurice joined Demica in October 2017 from Wells Fargo where he was CEO, Commercial Distribution Finance, responsible for a $3.0bn of receivables assets and over 400 people. Maurice joined Wells from GE Capital where he held a number of senior positions including Chief Commercial Officer of GE Capital International. Prior to GE, Maurice worked as a senior investment banker at Lehman Brothers, Bankers Trust and Paribas.