Banks & NBFIs are partnering with fintechs to capture the advantages of digitalisation and build a truly future-proof organisation. But not all partners are equal…

Key takeaways:

• Banks and NBFIs are using fintech platforms to digitise and scale SCF.

• The best platforms enable banks to manage complex transactions, automate repetitive tasks, and significantly reduce operational costs (by up to 70%).

• The size of the opportunity depends on the fintech partner – for better or worse.

Any functioning market needs a healthy balance between supply and demand. Sadly, we don’t see this as often as we should. Take supply chain finance (SCF), where demand has long outstripped supply, created a $2.5trn financing gap, and resulted in a serious bottleneck problem.

The question is, why? And more to the point, how can banks & NBFIs tap into this demand?

The bottleneck problem

From the year 2000, demand for SCF grew in tandem with the explosion of global trade. That demand, while impressive, has not been met by the primary suppliers of SCF. 

In 2024, most rely on outdated, fragmented systems and manual processes to service complex SCF programmes. At last count, the global trade finance gap stood at $2.5trn. The majority of those affected are those with the greatest need: mid-market corporates in emerging markets.

So why did this gap balloon? 

After all, SCF’s attractive risk-adjusted returns, resilience to adverse economic conditions and its ability to act as a gateway to cross-sell other products makes it a profitable and attractive business for larger banks to service. 

Rather than lack of interest, a big factor is a lack of suitable technology to service those mid-market corporates – and a tail of smaller suppliers in large SCF programmes – at scale. 

It’s a classic bottleneck problem. Thankfully, from origination to funding and ongoing transaction servicing, digitalisation has led to a dramatic reduction in SCF operational costs, opening the door for more banks and more corporates to meet the demand.

As banks race to capture the benefits of digitalisation, many have opted for the platform route (read: why should I use an SCF platform?). But despite the clear and obvious advantages, banks have been slow to adapt.

According to the ICC global survey, just a third (35%) of banks have an SCF platform. That number rises to 83% for local banks and 58% for regional banks. 

Those who do have a platform find that they can manage more and more operationally complex transactions at scale with ease, while using real-time monitoring to make data-driven decisions. 

The potential upsides are huge. Boston Consulting Group (BCG) estimates that banks can increase revenues by as much as 10% within five years.

Taking our own platform, FinverityOS, as an example, banks can:

• Manage all products & all clients from a single, digital system. 

• Enhance & expand their product offering for new & existing clients. 

• Streamline their operation by digitising processes & automating repetitive tasks.

• Build custom products, workflows, & processes tailored to their business & their clients.

• Introduce digital checks & balances to view, verify & validate every transaction.

Users can quickly onboard clients, offer self-service digital portals and reporting, receive funding requests, process them through customisable internal workflows, disburse the relevant funding, and collect and reconcile repayment at maturity. And more. 

Offering fast, digital channels for customers to request funding against invoices leads to increased utilisation of existing facilities and boosts revenue from existing customers by as much as 27%. It also reduces turnaround time, which means happier customers!

Take the Dutch-based bank Credit Europe Bank (CEB). Prior to implementing Finverity’s SCF platform, CEB’s reverse factoring set-up prevented them from processing large numbers of invoices. Within 30 days of adopting the platform, the bank was delivering an automated, scalable reverse factoring programme to new and existing clients (read more here). 

But it’s not just what you gain, it’s what you save. According to a report by McKinsey, banks reduce costs by up to 70% in operations like onboarding, account maintenance, and customer service by leveraging the types of innovation we see in these platforms.

The question is, do banks build a platform for themselves or partner with a fintech like Finverity? 

To build or not to build? That is the question

Software development is a very specific skill set. It combines many people, from CTOs, coders and Dev Ops to testing specialists, to name just a few. Accessing these individuals is a challenge in itself. Even if you are lucky enough to have those skills at your disposal, they’re unlikely to have the knowledge in this particular area, or the uninterrupted time it requires.

The complex and expensive undertaking represents a large and sunk upfront cost. Once in place, it also requires additional ongoing maintenance and development costs. To give you an idea of the sums involved, we spent $6m over the last 2 years alone, on development!

Oh, and when you finish building your specs, chances are, the system is outdated compared to what’s available in the market; because companies like us will keep on innovating and spending in order to have the best product on the market.

Then there’s the partnership route.

This approach minimises disruption during the transition process and enables the bank to offer improved quality of service to its customer base. The best partners offer a platform that seamlessly integrates alongside your existing operations and systems. Processes should be digitalised, designed and implemented to match or build on existing practices at a fraction of the cost and time. 

But each platform is different, so choosing carefully is essential. As with any digital transformation project, getting it right is tough. 

BCG research shows that only 30% of transformations met or exceeded their target value and resulted in sustainable change. Another 44% created some value, but did not meet their targets and resulted in only limited long-term change. A final 26% created limited value (less than 50% of the target) and produced no sustainable change. 

Choosing the right partner

How then are banks to up their odds of success? It starts with the right partner. 

This may sound obvious, but it’s rarely given sufficient attention. It’s time well spent, and avoiding a careful selection process will likely lead to problems further down the line.

We have seen time and time again how vendors who build custom solutions fail to cover unspecified functionalities over time, have very low lead times, and even become a part of the problem themselves.

Banks and NBFIs should evaluate fintech platforms and tech solutions based on relevance to their target market, geographical reach and integration suitability into their operating systems, among other factors. 

Given the scale of innovation and number of fintechs, we advise clients to choose a partner that has experience dealing with corporate clients directly, not only banks. That way, your solution has been built with the right end audience in mind.

Clients come in all shapes and sizes, each with its own specific needs. The proactive banks and fintechs that spend time finding and building the right partnership will come out winning. 

What do the experts say?

We asked SCF experts and customers “what do you look for in a partner?” Here’s what they said (in order of importance):

• Speed to market

• Ease of use

• Product suite coverage

• Customisation 

• Interoperability

• Local expertise

You’ll be pleased to hear that we’ve built a system that offers all of the above (and more). 

Take a closer look at FinverityOS here or book a demo to find out more.