The pandemic changed the habits, needs, and demands of clients across sectors, adding renewed intensity to the shift towards digitalisation. As digital-first experiences have become the norm, customer tolerance for poor CX has dropped. In collaboration with banks, fintechs have been deploying new technology-led solutions which improve the experience banks can deliver to their customers, help drive new working capital solutions, improve cost optimisation, and support increased transparency in business transactions.
The growing need for Supply Chain finance products.
The emphasis on digitalisation in supply chain finance is also a reflection of the growth in demand for these solutions. Digitalisation is seen as a means for banks to get more liquidity into supply chains, through improved availability of these products. And supply chains have seen a turbulent year, as global supply of raw materials has struggled to meet demand. This is a result of a combination of local challenges, such as lockdown restrictions and labour shortages, and global, macro challenges, such as the war in Ukraine.
These wider challenges have led to increased demand for supply chain finance products, whether payables or receivables. When surveyed at the start of 2022 for Demica’s benchmark report, bankers overwhelmingly expected an increase in asset growth. Given the rising interest-rate environment we are now in, we would expect those predictions to continue to prove out.
For the corporate customers of these banks, procurement teams are attempting to shore up their supply chains, while treasury teams are increasingly opting for supply chain finance solutions to help them better manage their cashflow and financial risk.
The changing business dynamics are resulting in a difficult market for suppliers at the tail-end, particularly SMEs dragged into a widening trade finance gap. We expect this trend to continue as energy and the price of other raw materials increases.
Challenges facing payables and receivables teams
But for banks looking to respond to this huge demand, challenges remain. Where digital tools are not yet implemented, or programmes continue to use legacy technology, trade finance bankers offer the same complaints.
In Demica’s recent Benchmark report for Banks in Trade Finance, respondents highlighted difficulties in onboarding and educating suppliers (73%), and long customer acquisition cycles (69%) as major challenges facing their Payables Finance teams. At Demica, we see that suppliers respond best to flexible onboarding tools that provide a clear customer journey, where they are taken through the onboarding and KYC process step-by-step.
Given that many other areas of banking are increasingly digitised and user-friendly, the expectation is that trade finance will provide a similarly seamless experience. By meeting that expectation banks can massively improve adoption of Payables Finance programmes.
Receivables Finance teams are finding that one of their greatest challenges is maximising financing by accessing smaller sellers, jurisdictions, and currency pools (54%). It’s important for banks to have deeper coverage vertically along a supply chain as well as a broader suite of products. Funders are having to adapt their ways of working to support supply chains affected by recent geopolitical events.
The need for digitalisation
Across both payables and receivables transactions, there is demand for visibility of active transactions for all parties involved. They want to view their transactions, payment statuses, and cash position in real-time, across multiple currencies. A common pain point is the slow, paper-based processes in working capital finance transactions.
These manual processes struggle to meet modern customer experience expectations. Banks need flexible onboarding tools with clear KYC processes to improve adoption and minimise risk. In this area, banks struggle to compete with fintechs that have been able to invest in and focus on technology to create ready-for-market solutions with automation and intuitive user interfaces.
“It’s long been thought that digitisation will help to reduce the trade finance gap, either through automated, streamlined onboarding processes, or by allowing SMEs access to new sources of liquidity, at more favourable rates.”
Benjamin Okor - Analyst, Platform Solutions
The future of supply chain finance is through fintech and bank collaboration. By partnering with a fintech, banks will be able to use platforms that can be securely accessed anywhere in the world, with automated KYC processes adapted for different geographies and jurisdictions. By offering increased accessibility and automated processes, banks can execute transactions much more efficiently, and meet customer expectations for their user experience.
The future is collaboration
Over recent years, banks have widely begun to partner with fintechs to deliver world-class customer experience. 71% of bankers responding to our Benchmark Survey expected to replace their technology platforms within five years, and the partnerships between banks and fintechs are flourishing for two main reasons: the state of technology and the regulatory environment.
The legacy systems and processes used by most banks struggle to provide the seamless experiences that are expected of them but, by partnering with a fintech, banks can focus on delivering the best possible service while the fintechs provide the product offering at a competitive price.
The current regulatory environment doesn’t look favourably on risk or the cost of innovation. As a result, we do not expect to see fintechs moving to act independently or taking any market share from the banks, rather, we expect greater collaboration between banks and fintechs to create customer-centric products that get a greater number of transactions over the line.