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Banks involved in trade and supply chain finance are gearing up for a technology overhaul, with 71% of respondents to a Demica survey saying they expect to move to new platforms within the next five years. 

The survey, which collected views from nearly 150 professionals in supply chain finance (SCF) from across 37 countries, finds that around a third of industry participants are using platforms implemented more than five years ago. The finding is consistent across all regions. 

But even among those with newer platforms, many “are already looking at replacing that technology in the next one to two years”, says London-headquartered SCF provider Demica. 

“Whilst it is no surprise that banks with ageing infrastructure are looking to make a change it is notable that some respondents that have changed platform in the last two years are already looking at replacing that technology,” the report adds. 

“This reflects what we are seeing in the market: banks are looking to evolve to remain competitive and expect platforms to evolve with them, or they will replace technologies faster than ever before in order to meet their customers’ expectations.” 

Those findings are backed by banks’ intentions to maintain or increase spending on technology. 

The survey finds the majority of banks increased their technology budget over the past year, and that nearly 90% will either maintain or increase that over the next 12 months. 

Those finds suggest the trade finance industry is in “the early stages of a technology procurement super-cycle”, Demica concludes. 

One driver for change is limitations associated with existing product offerings.  

In some cases, support is no longer available for older technologies, the report says. In others, the same software is used across different platforms and geographies, resulting in maintenance and development challenges as well as increased operating costs. 

At the same time, securitisation transactions generate large volumes of data that is not easily harnessed through legacy systems, compared to platforms that use artificial intelligence or robotic processing.  

“All of this combined can leave them struggling to remain competitive as others invest to improve their position,” Demica says. 

Neil Archibald, head of industry strategy at Microsoft, says in the report he expects banks to turn to cloud-based solutions rather than developing in-house offerings. 

“This approach can minimise the risk of the implementation programme, remove the need for costly periodic updates, introduce continuous improvement and innovation, and offer a better business case for platform modernisation,” he says. 

Another of the report’s findings is that nearly three-quarters of respondents expect to grow their SCF or trade finance offering, either through expansion into other markets, the introduction of additional product lines, or by financing new industries. 

Sean Edwards, chair of the International Trade and Forfaiting Association, says those findings mark a welcome change in tone after efforts by some lenders to scale back trade finance offerings since 2020. 

“We saw some retrenchment from global markets by a few of the big commodity banks because of losses from frauds, but this left a vacuum which was filled by others,” he says. “The natural ecology of trade finance mean that these customers were not left unserved for long.” 

Respondents report strong demand for short-term, revolving receivables and payables finance, with market entry from both banks and non-bank investors. 

Meanwhile, nearly half of respondents say that improving access to finance for smaller and medium-sized companies is a focus area for 2022. 

And more than 90% say they are prioritising environmental, social and corporate governance (ESG) in their business practices for the coming year – though only 15% have already used ESG rating services in live transactions.