Next-gen working capital: How to unleash your growth potential by reducing your technology cost of ownership

Traditionally, managing technology costs would entail ‘sweating the assets’. However, if you take into account the high costs associated with ongoing maintenance and bolt-on technology needed to keep legacy systems running, as well as the costs associated with productivity loss and missed opportunities, it’s clear that this is no longer an option.

So, how do you manage costs while replacing an entire business lending ecosystem?

The good news is that the lendtech marketplace has really matured over the last few years. In an ecosystem transformed by cloud technology, APIs and software-as-a-service (SaaS) providers, lenders have more options than ever before.

Future-state business lending ecosystems are interoperable, intuitive and sustainable

Business lending operations of the future will be ecosystems that connect via APIs, which allow for seamless data sharing and straight-through processing. By digitisng the entire ecosystem, lenders can deliver highly automated self-service workflows with intelligent processing and analytics.

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Connected ecosystems that use best-in-class solution providers allow lenders to bolster the parts of the loan journey that are their key differentiators, with specialist expertise from other providers.

Composable banking: building blocks for next-generation working capital

Lenders looking to embrace a future-state lending ecosystem need to move towards a composable model.

A composable lending ecosystem is made up of manageable individual parts that are integrated together via APIs to deliver processes or features. Each part can be improved or upgraded independently, and – crucially – can be rearranged to create new functionality.

It’s becoming accepted that no single provider is able to offer the best for all the components of a loan journey - whether it’s inhouse or using external technology. This approach allows lenders to mix and match best-in-class providers to build their market leading products and experiences.

Composable banking and lending are all about flexibility, so lenders can respond quickly to shifting markets, new opportunities, and new banking technology.

Incorporating composability into digital business enables the enterprise to change and grow despite persistent uncertainty.

- Gartner

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Three considerations for reducing your technology cost of ownership

As lenders work with their engineering teams to develop a transformation strategy they will face a number of key considerations:

1. Build vs buy? It depends on your differentiator

The question of build vs buy is older than software itself, and has always been an emotive one for engineering teams. After all, it's what they do - build. There needs to be a culture shift in engineering. 

An engineer's ability to choose what software to buy, and when, is as important as their ability to build.

In almost all cases, when you build software you own it, you may keep it in house, you may open source it - but to some extent whatever you build will always be with you. It’s very difficult to predict the cost of ownership, which is frequently underestimated, and continues to rise due to factors such as security threats, dependency management, regulatory change and so on.

Therefore, the decision to build vs. buy needs to be value driven:

• Is your use case unique? – The saying “there is nothing new under the sun” is almost always true, and we need reasonable proof for whether our use case is unique and absolutely necessary. If it isn’t, then sharing the cost by buying or partnering is likely the right call. But if the use case is unique, we are in essence adding value by inventing.
• Can you add value? We must be inventing, improving or reducing the cost of a service. The bar is high, but if we are sure that we really can invent, improve or reduce, we go ahead and build.
• Is this core to your mission? What do you want our company to be known for? – Check whether this is a good use of our energy and that it will advance our core mission rather than distract from it.

If lenders get it right they can integrate faster, manage their costs more effectively and focus more intensely on adding value to their core mission.

2. Choose partners based on their ability to evolve with you

It takes time and effort to integrate vendor software and it’s previously been difficult to estimate whether it will make the desired impact.

However, just as cloud providers have done for infrastructure, SaaS providers have transformed the cost of ownership considerations for software.

With open API standards and industry-standard messaging protocols, SaaS providers recognise that ease of integration is paramount. Many vendors have opened up their API documentation to expose their platform workflows and data models, as well as offer sandbox functionality for engineering teams to test and play before deployment.

What about the cost of ownership? Say goodbye to hidden or unpredictable costs. SaaS vendors figure out patches and upgrades, and they’re almost always included in the cost and applied automatically. You can now get a fully baked-in cost of ownership and get on with your core business.

Tap into innovation through co-creation

If lenders can start to see fintech and tech vendors as enablers and strategic partners, they can really tap into the fact that the product offering has been evolved based on extensive user feedback and input from multiple different areas. This can expand what historically might have been quite siloed at project specification stage, or just creating a custom development solution.

At Trade Ledger we’re seeing more and more that prospects and clients see us as a strategic vendor, mapping out what the future state could look like in terms of next-generation working capital. For us specifically that’s where the future is – innovation and co-creation.

3. Tackle transformation in bite-size chunks

Conrad Ford of Allica Bank says that digital transformation is easier than some believe. “When traditional financial institutions try to do digital, they see it as a binary. The reality is that you can move forward digitally in days or weeks. It’s the small steps that have the biggest impact.”

At Trade Ledger we’ve increasingly avoided big bang transformations, making sure that we’re delivering incremental value. That may be starting with a proof of value or initial pilot phase where lenders can drive confidence and prove adoption with the technology – that’s something we’ve had real success with. Or it could form part of your business as usual. The process can be new to banks, but they quickly see the benefits.

We want to be adding incremental value through new features and functionality, on a continuous basis, and that is quite contradictory to the more traditional release management, testing, governance and signoff processes, but banks can see that they get more value than just the product – they get access to new innovation.

- Emily Lloyd-Penny, VP of Solutions Consulting, Trade Ledger

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A final note -  Remove ‘like for like’ from the entire process 

Whether you’re replacing legacy systems, launching new products or making your processes more digital, think transformation, not just automation. The technology that will meet the needs of an on-demand economy has existed for a while. But lenders have been slow to act, until now. The pace of transformation has accelerated in the last three years and will continue to do so. Lenders who are only focused on automating existing processes will be left behind.  

The same applies for your decision making process. Composable ecosystems give lenders the freedom to make quick decisions and meet customer demand as it changes.  The ease at which systems can be swapped in and out, means lenders no longer need to buy something hoping it'll last for the next 10/20 years.

Next steps:

1. Reducing your technology cost of ownership is just one aspect of how lenders can add real value to their customers and organisation. In our Next-generation working capital – the $ multi-trillion opportunity report, we provide a framework for delivering real value across loan book growth, risk mitigation and compliance, and operational efficiency. 
2. Get in touch and chat to us about the work we’ve delivered for a number of global multinational banks and specialised alternative lenders to transform their working capital offerings. 

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