Despite significant technological advances in recent years, many banks are being held back by legacy technology. Estimates suggest banks spend up to 80% of their IT budgets on legacy technology maintenance. But it’s not just mainframe-based solutions that are causing headaches, many IT systems across lines of business such as trade finance, loan management and payments are also proving costly to update and maintain. The complexity involved represents not only a serious drain on resources and budget, but a wasted opportunity for firms to take advantage of the latest innovation that technology can offer.
The need to drive down costs and modernise is particularly acute in trade finance. This is an industry which has always been heavily paper-based – from letters of credit to bills of lading. But the world is changing. Modern technologies, like blockchain, AI and the cloud are re-setting expectations for both consumers and businesses, and the world of trade finance must adapt and evolve.
“Implementing a single global trade finance IT system that replaces disjointed legacy and hardcoded bespoke system is a fundamental step in helping banks prepare and adapt to future challenges”
Most banks that operate in the trade finance arena have implemented bespoke IT systems to administer routine processes. But the majority are using traditional hardcoded IT systems that lack flexibility – preventing them from rolling out updates quickly and efficiently, and making it very difficult to adapt to change.
In addition, selecting IT systems that require customisation of the source code, often on a country by country basis, has proved counterproductive. It is very difficult to subsequently apply routine updates from the IT system provider, and many banks are running versions that are 8-10 years old. Having their own version of the source code makes the roll out of upgrades costly, difficult and time consuming. And, should a bank decide they wish to implement the same trade finance IT system used in their head office to a subsidiary in another country, the process may take 12 months or more, involving armies of consultants, huge costs and a risky project.
Rightly, you must be asking why is this all so difficult? Surely there is a best practise approach that banks can take?
I’d like to share some insight about the steps banks can take that will allow them to adopt a more globalised approach to trade finance. This approach will allow them to reap the rewards of increased efficiency, faster ROI on their IT solutions, and – most importantly – to deliver improved services to customers.
Best practice recommendations
Three key questions to ask yourself before implementing a new trade finance solution include:
- Can your IT system supplier offer a packaged solution with an option to run your banking operations in a single global environment with a multi-country set up?
- Do they maintain one single source code per release that’s rolled out consistently across all customers and countries?
- Is the system rules-based, allowing products, pricing, payments and other requirements to be configured to meet both global and local requirements – with rules defined by the bank’s business experts (rather than specialist programmers)?
If the answer is ‘yes’ to all three questions – it should allow you to create a global trade finance system environment in one central location, roll the solution out rapidly to other countries (in a matter of days, not months or years) and be able to quickly localise the solution for each market. The localisation is achieved using business rules which experts within the bank can easily configure themselves – without any changes to the source code. Because the solution is centrally managed, the net effect is that you no longer need a team of local experts in each country to support the IT system – delivering significant cost savings.
The use of one single, global source code ensures that all new developments and testing can be managed by the central team in close partnership with the IT system supplier. This in turn reduces the need for costly project resources and development risk, while ensuring high quality standards are maintained across the globe, and that no country falls behind.
“By managing its entire global trade finance business, across 10 countries, in a single global environment situated in the Netherlands, ABN AMRO estimates that it has reduced the IT costs associated with running its trade finance operations by at least 50%”
By managing its entire global trade finance business, across 10 countries, in a single global environment situated in the Netherlands, ABN AMRO estimates that it has reduced the IT costs associated with running its trade finance operations by at least 50%. Frans Westdorp, business developer Trade Finance at ABN AMRO believes having good, efficient IT systems in place in a shrinking trade finance market is essential in helping reduce the bank’s cost base to compete more effectively.
Embracing the future – from blockchain to digital transformation
There’s no doubt that the future of trade finance will be driven by technology. The way we interact with technology in our daily lives as consumers is already filtering through to the corporate world. It’s raising expectations and driving change.
The digital exchange of documentation is key to improving customer service and driving down costs industry-wide. To deliver on its promise, digitalisation must be applied to all stages of the trade finance process end to end – enabling paperless trade, and supporting the electronic creation, checking, approval and signing of trade finance documents. Everyone from exporters and importers, to banks, shipping companies, inspection firms, ports, customs agencies and insurance companies will all stand to benefit from better services.
Banks’ appetite to change the way the trade finance industry operates is demonstrated by the number of blockchain initiatives underway. But to deliver on the benefits, it’s essential that banks have trade finance IT systems that can keep up and that can handle all the associated back office administrative tasks in real time. A global IT system that maintains one central data repository will be crucial to success.
To sum up, implementing a single global trade finance IT system that replaces disjointed legacy and hardcoded bespoke system is a fundamental step in helping banks prepare and adapt to future challenges. Advantages, to name a few, include: the ease with which updates can be rolled out; consistency and standardisation across a bank’s global operations; a central repository for all information; and significantly reduced cost of ownership over the long term.
If you can’t answer ‘yes’ to the questions posed earlier – think again. It’s time for a new approach.