How working capital lenders can get on to a more digital path

40 minutes

Our Working Capital Predictions 2023 report is out. And it's clear that the industry can expect a lot of change this year.

In an attempt to create a more detailed picture of what that change might look like Saf Sargent, Product Manager, sat down with Alan Beattie, President of APAC, to discuss what actions lenders should take after reading the Working Capital Predictions 2023 report.

Alan draws on his recent conversations with commercial lenders and his decades of experience as a banker for some of the world's largest commercial lenders, to shed some light on the pain points facing business lenders today. Saf, in contrast, looks at the report through the lens of a Product Specialist who collaborates with banks on creating solutions that enable not just automation but transformation of their business lending models.

Watch their conversation on-demand to find out how lenders can still grow their loan books while navigating the risks brought on by a year of economic uncertainty.

If you would like to continue the conversation on working capital transformation with Alan or Saf, get in touch with us.


Saf Sargent: Hey all, welcome to our Trade Ledger Predictions 2023 discussion series. I'm Saf, Product Manager at Trade Ledger developing the next-gen working capital solution with a team of amazing engineers and designers. 

Speaking with us today, we've got Alan Beattie. 

Alan Beattie: Hi, Saf. Alan Beattie. I'm the President of Asia Pacific at Trade Ledger. I've been here for the last 18 months. Looking forward to this discussion on Predictions 2023. 

Saf Sargent: Today I'll be asking Alan a series of questions to uncover insights and comments on the Working Capital Predictions 2023 report. So, let's kick off. Given that you've read the report, Alan. What's one thing that really stood out to you?

Alan Beattie: It's not just one thing there, perhaps, two or three. And these are in no particular order, but, the thing that came through many many times, that resonated most with me, perhaps, was that the timing is now, the timing is right.

We've had some 20 contributors from financial firms, lenders, tech companies, consultants from around the globe. And a theme that was coming through, perhaps not explicitly, from some of them, but a theme that was coming through was that, things are starting to happen. They can see that either their own institution, or the market, or the customers that they serve are looking for change in the way that they're being served. So, that for me was the most impactful and it just seemed to be a thread that would come through. And I'm sure as you read the report, you'll see a lot of that in some of the comments.

Now, I guess I asked the question to myself - Well, why is that?

Why do many people believe in the industry that the timing is now. And it's a confluence of factors. Going back, a lot of us have an understanding that SMEs particularly have a challenge in terms of getting funding, some quoted in the trillions of dollars in terms of how much they need to effectively manage and grow their business versus how much they get. And the pandemic, and lockdowns, and what have you, in the changes of business models and the tight cash flow that many of the companies had, has sort of brought that to the forefront.

So there's a real demand side at play here. And on the supply side, in terms of changing business models, a lot of investment has gone into consumer and retail banking and we can do a lot of what we need to do with our banks and financial institutions on the phone.

That's not the case for businesses. And particularly the larger the business is getting more complicated it becomes, so, financial institutions, tech firms, and consultancies, as well, see that there's an opportunity and there is a need, to invest in these areas.

The third thing that, perhaps, you can see in the report that's come about, and we, at Trade Ledger, see a lot of this, is around data. We pride ourselves, at Trade Ledger, for being a business that supports the ability for data to be ingested, interpreted, understood, analysed and so that informed decisions could be made around the data that is being ingested. There's a recognition that not only is that analytics capability is now there, but that, perhaps more so in the Western Hemisphere than in the Asia Pacific region, where I operate, there's a recognition that there is a value exchange: the more data you provide, in secure ways, ff course, the more data that you provide to your financial institution, the better the service you should be receiving from that from that financial institution. 

The fourth thing that underpins the timing is now is around regulatory changes in terms of Open Banking, some clear understanding as to the permissions around the giving of data. GDPR in Europe really drove that agenda. And Open Banking. So, Open Banking, data, APIs, there's a lot of things that are sort of coming together that will allow tech companies and financial institutions to rethink their business model. 

So, I suppose, three or four themes but with that overarching umbrella that time the time is now.

What about you, Saf? Was there anything that really resonated with you and some of the conversations you've been having with our clients?

Saf Sargent: It's really interesting to hear how you have such a comprehensive read and insight into all the different factors. One of the things was quite aligned with your observation of time is now. But I didn't quite pick out that as the overarching keyword, was based on my previous experience as a consultant. Prior to joining Trade Ledger, I was a tech consultant at a big four firm.

One of the things that I've seen across a lot of big clients and larger organisations is they are starting to spend a lot of money on large scale, saying like five to 10 year, projects to revamp or rebuild their core infrastructure and their whole tech stack.

One of the reasons is, in the past a lot of teams had the independence to really build in-house solutions, to prioritise time-to-market and needs of customers at the time, without really considering the compatibility with their different systems across the whole organisation. And whether the data could actually talk to each other. 

So, with time, those sort of in-house builds became more and more complex and now is the time where they sort of realised it's time to really de-complex everything makes things simple. We need a centralised solution, where we could analyse the data as a whole and give more intelligent solutions to our customers, provide better experience, as well. And that feeds into what you mentioned about time is now. There's probably higher and greater awareness into the cost and the complexity of letting solutions grow in-house into that.

Given the environment and atmosphere now where we have this abundance of startups and smaller solutions where we're really prioritising plug and play. And picking different components and putting them into larger organizations and having that microservices layer and architecture where you could really enrich your different offerings to your users and customers through that simpler way.

Alan Beattie: Having sat in a global lender, global financial institution, for over 25 years, running businesses, managing regional global businesses, it was very frustrating for the customers, for myself and for for the teams that I worked with, to want to make a change, in terms of the way that we serve the customers or are changing the product, but technology, because it was dated from 30-40 years ago, you would say well, yes, we can roll that out in the next 12 months into one market and then to replicate that into 20 markets, it is going to take another two or three years anything. Well, I can't wait that long because the market will have changed by that.

So, that route you mentioned, the five to ten years, multi-year, multi-faceted tech re-stack that many institutions are going through. And it's not just the tier-one globals.

Talking to a company here in Australia, that's doing the five-year tech re-stack and it's a domestic business. It's because they need to get rid of legacy. They need to get rid of the old core. They need to move on to cloud computing. The business bank, the commercial corporate banks of today and the non-banks have not invested as much as they could or should have done into these sort of more modern, more flexible capabilities.

Saf Sargent: Have you heard these types of comments or insights from APAC leaders themselves as well, knowing that you obviously interact and talk to them on a daily basis? Were they also mentioning that the cost of tech ownership is growing, they want to prioritise op efficiency or growing their loan book? Does any of those comments keep coming up as well in conversations? 

Alan Beattie: Absolutely. There are several threads to that. One, yes, they recognise and when I talk Asia Pacific, I'm talking more of the Singapore-driven discussions. And, of course, here, in Australia. Without question, they are looking for ways in which to use technology to drive their business to change their business.

Every bank, every financial institution that I speak to, they understand what they need to do. And what do they need to do? They need to improve the customer experience. They need to get closer to the customer. They need to respond more quickly to the customer. They need to compete. They need to drive down their operational costs. They need to be ensuring that there are capital efficient. Not only in terms of who they're lending to, the type of products they're lending into the market, but also making sure that they aren't suffering operation losses through human error. Through missed information, incorrect information on which they're making their decisions. So, they know what they need to do.

They don't know how to do it. That's the challenge. They are they struggle with the conversation about how to get themselves from robust, for good and for bad, legacy technologies and on to much more flexible, much more adaptable, much more modern and customer-centric models. A tech solution.

There are 1 or 2 nuances to that though. You know in Singapore, in ASEAN, generally, I'm talking to leaders of businesses and banks that are multi-domestic. So, they have operations in five or six markets, or more.

They have large domestic businesses, but also they support the working capital cross border, the trade finance needs of their customer base. So they are looking for solutions that

One - can be readily deployed into multiple markets.

Now, of course, a solution like Trade Ledger that’s cloud-based, the fact that we were now in 15 markets, demonstrates that we can operate in multiple markets. They need to be able to make sure that if they do deploy into many markets, that again being a SaaS business, if we enhance a capability, we can roll that enhanced capability to five or six markets very quickly.

Now, as I said five to ten minutes ago, you have to wait two or three years for the rollout because it's built on legacy core systems. So, very similar discussions around tech redesign.

They understand what it is they need to do and why they need to do, they're struggling with the how.

As I mentioned, nuances across maybe some a bit more multi domestic than we see with our UK or UK European businesses that we support. And, one other issue that I touched on earlier was this understanding that data, the passing of data into a financial institution is more readily accepted in the UK, Europe, and North America than it is here, in Asia Pacific. There may be historic reasons for that. There may be even cultural reasons for that. It's incumbent on us as tech providers and on financial institutions to demonstrate that there is a value exchange and that, obviously, the information and the data remain secure.

I do see a lot of what is in this report applies to Asia Pacific, and, of course, Australia, as well. So, yeah, it's a report that covers global themes, I would suggest.

Saf Sargent: Really insightful. Especially with lending and capital finance, we all know, even though the need to get working capital funding is probably a common demand across the globe, but there are always different requirements. Ranging from regulatory requirements and the institution, what they look at, are very different. That is also why we probably have different credit agencies rising. Because the needs vary across different countries as well. And speaking as a Product Manager, small task, even email templates, have to vary across different countries and regions just because the fishing email types of requirements are different. Just a really small example, but, yeah, I've definitely seen that impacting different decisions as well. So, that's really interesting.

Despite the uncertainty of what 2023 will bring, we see rising interest rates, even as a consumer, seeing everyone talking about their mortgage being impacted. So, obviously, the capital market is quite volatile. The industry is still very positive about loan book growth. Do

you find the same when you're talking to lenders in the APAC, as well? 

Alan Beattie: Yes, I mean, absolutely. Financial institutions, and particularly those that are listed on public markets, as most of them are, certainly the largest ones, they have a challenge to obviously demonstrate that they are providing returns commensurate with the risk that they're undertaking, that they are deploying the capital in an efficient way, and that the returns on equity and all the metrics, that analysts look for when analysing stocks, they need to demonstrate that there is a story there, and there is growth.

We are, probably, and I think the 440 business leaders were just interviewed pre the Davos meeting. Business leaders, CEOs were interviewed and questions and, I think, 40% of them expected recession and that their business would be materially different in 10 years time. There's a bit of pessimism around the place. That said, there will still be loan book growth. As we said before, there is a funding gap. There is a need to finance businesses, particularly at smaller, small and medium-sized businesses. And that will not go away.

The pandemic has demonstrated that businesses can put it that life goes on. It's not withstanding shocks to the market. Okay, a pandemic is different from a recession, but there will still be a need for balance sheet owners, lenders, to be lending into their customer base now.

From experience as a lender for many years, what you have to be able to do is ensure that the decisions that you're making around lending, particularly when times are more challenging, those decisions need to be the right decision. So you need to be offering the right product. The right amount of money. To the right customer. For the valid reasons and that all comes back to, as we were saying earlier about the importance of data. Importance of timely data. The importance of that data that can be managed, and interpreted, and analysed. And we can't, in 2023, be relying on financial statements that are produced and sent in by an accountant from 15 months ago to make business lending decisions.

And that's what happens today. With technology, APIs, cloud-driven SAS businesses, you are able to ingest that date on a daily, weekly, monthly, or hourly basis, if you want to, so that financial institutions can make informed decisions that are timely. So, the banks will be looking for safe loan growth.

They will no doubt be looking for that growth to not only continue to compete in the market and continue to serve their customer base, but they will be recognising, I'm sure, that there will be some delinquencies that will come through the books in 2023 from their existing book, the back book, as it were.

And that's those losses that will arise because of some challenges that some of the customers have had you need to be continuing to fund your business and grow your income, your revenues, to not only grow to compete, as I said, but also to absorb some of the losses that may be coming through. So it's gonna be about safe growth, and that's safe growth needs to be by using clever technologies, being close to your customer, being more timely with the information, and making sure that you're making informed decisions.

There's a lot of talk, at the moment, and I saw some Forrester research that said that cost control and operational efficiency are going to be very important in 2023. It always is, but when you're going into hard times with inflation, that focus on cost control and better cost management is going to be key.

Now, when you employ human beings to process documents credit applications, unfortunately, the cost of human beings is driven by inflation, wage increases, etc. Technology is not the same. Technology, you can actually absorb some of the inflationary pressures if you have a modern tech stack. So, those financial institutions that have been investing already in technology, enhanced technology, will benefit greatly in the next couple of years with inflation at some, let's call it, between three and seven, ten percent, depending on the country. 

So, the focus on investing in technology will continue, not only for the revenue side, but also for the cost management and cost containment side and operational efficiency. Having said that, that investment in technology, it needs to be aligned not only with, it needs to have very laser sharp focus on where it is the financial institution wants to go and what it is it's trying to do, in terms of serving its customers. So we won't see a scattergun approach to investment and innovation, where they'll say let's try ten things and see if three of them come out, that won't happen. 

What will happen is they may take longer to make the decisions, in terms of what technology to invest in, where, and how, and how much, and how quickly, but inflation, threat of recession, etc will mean that they need to be much more, as I said, focused in that innovation.

And that challenge that leaders in financial institutions, banks have of resolving the tech debt that they have, in terms of their legacy businesses and driving innovation is going to continue, that will continue, but those financial institutions that understand that working with somebody like Trade Ledger where it doesn't have to be a sort of let's stop everything else and invest in Trade Ledger because it's such a huge project and such a huge program. As long as we can demonstrate or as long as we can make sure that they understand that we can give them a low cost, low impact starts at their changes in the way that they're managing their business by introducing of what we can do at Trade Ledger, without really disrupting their existing business. Those that recognise that should be able to take advantage of 2023 and continue to invest in a clever way.

I read that 73% of financial institutions have cost cutting is one of the top two or three, cost control, let's call it, effective cost management. Let's call it that. As one of the two or three key drivers for 2023, which doesn't surprise me. I think the last thing is, I will say, recession or not, the ability for financial institutions to be flexible, in terms of speed to market, new markets, dialing up a portfolio, in terms of lending more into a particular segment, sector, country, customer base, or less. That flexibility is going to be key. And the winners over the next three or four years, those are going to have the technology in technology, data management skill to allow them to do that so they can have much more effective portfolio management. Because one thing that's certain uncertainty and change will never go away.

Saf Sargent: I think one part where you mentioned focusing on data and lending to the right businesses, drawing from my experience as a retail investor, I've seen across the past two-three years where growth tech companies if their product sounds fancy and shiny their stock press just immediately goes up. 

Whereas now, investors are much more cautious in terms of which company they're investing in. They're really looking at their cash flow or their statements as you really should be all the time. But that really put me in the perspective of a lender, where, once again being able to draw insights and making sure the company is worth investing in and loading money to really is drawn on the foundation of having good data and being able to pull out insights through data, which is what Trade Ledger is currently really focusing on. And the product team, as well. We make sure we provide that value to our customers and that's also what I'm hearing a lot of our customers saying that we want to see data, we want to be able to you know, use your assessment to actually inform us on which companies are worth loaning to and how much of the percentage, and as you mentioned being able to provide low risk loans.

Alan Beattie: Have you seen any shift in any of the customers that you've been talking to, where in the last six months they have started to say - Well, actually we want to focus more on origination, or it's more in risk analytics. It's more in the data. In data ingestion. We want new sources of data. Is there anything that sort of coming through that you've seen in the last six months? 

Saf Sargent: Yeah, I think one of the common themes is definitely adding more metrics to the risk assessment. So, we currently already have quite rich data and insights that we pull out from different accounting data and credit agencies, but we're seeing more needs in terms of that and being able to break it down even further. 

Another key theme that we see is, once again, I've mentioned earlier, that's centralised view. So, digesting data from both, the company but also drawing connections between the different companies and maybe their debtors and sellers and common directors across different companies to make better de-risk decisions. For example, if that director has been doing misconduct in this company and we see that he's actually also a director in this other company that they're drawing for a loan. That's the type of insights they want to see.

One of that common themes is being more cautious in terms of the money they're lending out is definitely one of the things, and they want to make smarter decisions with data.

And the other thing that they are really looking at is credit agency type of data. So, being able to integrate with more and more companies like Experian and Equifax and being able to draw those sort of types of data as well is one of their key demands, as well.

Alan Beattie: Actually just reminded me. There's a great quote in the paper, in the predictions report that says we shouldn't run after the latest shiny new tech. We should all be investing in those areas. Whether it's the data that are going to give us, as you say, the nuances around the decisions that we're making or a particular customer base in a better way. We need to make sure that, as I did mention before, it's more focused investment Innovation. You can't just say - oh, look, there's a new bit of technology, let's embed that into our tech stack. That's not what this is about. 

And there's another quote that resonated a lot with me. I think its Oxbury that said - there's no space for egos in 2023. Solving problems needs to be a collective, collaborative approach in terms of working together. And we, at Trade Ledger, that's very much the way that we operate. Through Partnerships, whether it's on your KYC, KYB data that you're analysing married with the financial information to allow you to make those safe decisions. It has to be a collaborative effort.

Saf Sargent: The other thing that I should have mentioned, as well, was regulatory pressure. So, that reporting aspect that you also raised, needing to make sure that they can prove themselves that they are taking into consideration all the different risks. And they are actually lending safely as well, so that they're being regulated is also another piece that they're really growing their concerns on as well.

I guess the other question, pulling it back to yourself a bit is, you've mentioned earlier that you've spent 20 plus years at a large lender, bank, what's the difference being at a technology company is, especially we are a startup size.

What's the biggest difference or takeaway? What excites you?

Alan Beattie: That last part I'll answer first. What excites me is the agility. Just being at the leading edge of change and being able to really drive that change. And supporting the financial institutions, our customers, in terms of their ability to to think outside the box.

So, 20 plus years at HSBC, 27 I think it was. 27 years at HSBC. It is a phenomenal organisation, but it does take time. It's like a tanker in the ocean. It takes time to move, right? And it's not just them. It's pretty much every large bank in the world. Well, not pretty much. It is every large bank in the world. They move at their own pace. So what excites me is, as I say, driving that change. Driving that agenda. Making people think outside thebox and think differently. And thinking well, actually we can do this in a different way.

The other thing, I would suggest, is that, and I mentioned it two or three minutes ago, that more collaborative approach to solving bank's problems or helping them realize an opportunity. Where it is, it's not just Trade Ledger. We are very open and we need to work with other providers of services, whether it's technology services or those underlying financial services that are underpinned by technology.

It has to be a collaborative approach. And, I think, the lenders, the owners of the capital, at the end of the day we're talking to banks who own the capital, who should be deploying that capital effectively to make sure that the economies grow. So those owners of capital have, for the last 30-40 years, being used to that - Well, we'll build it ourselves. We'll grow on our own. We will make our decisions without an external input. That's changed. That's changed in the last 10-15 years, but I think, from a technology point of view that buy vs build agenda, that debate still goes on, of course. But there I can see much more acceptance, from the bankers and the tech, their IT colleagues within a bank, to be open to the likes of Trade Ledger helping them be fit for the future, as it were.

Saf Sargent: Definitely seeing that change as well coming from consultancy where we're actually sourcing the likes of Trade Ledger, these tech solution providers and seeing what we used to assess. Whether it's of the data's compatible, whether we can integrate easily with their different systems. Do we provide the capability that the customer needs. And now, coming to the provider side of it. And now I'm trying to make sure we actually tick those boxes, we're keeping us lean. We're a componentised and easy to deploy. So it's quite interesting to be on the flip side. So, definitely see those.

The last question is a bit funkier. if you had a magic wand to change one thing about the industry, what would it be?

Alan Beattie: Okay. I guess it's about unshackling the institutions. And it's not just the banks, it's the regulators. It's the government. It's the board of directors of the institutions, to really take a close look at the way they're managing their business, and the way that they run their business, and the way that they serve their customer.

And to make sure that they really are putting the customer first. Particularly, and I think that's happened to an extent in retail and consumer banking. It hasn't happened in corporate institutionalSME banking, commercial banking, not yet. It is starting to change but if I had that magic wand I'd made that change overnight rather than the next three to five years. I think in three years' time. We're at an inflection point, in terms of the way in which corporate and commercial customers of banks are going to be served. Not only in terms of lending, which is where our focus is of course, but across payments and the cash management, and the other services that they need, the risk  management capabilities, foreign exchange and that whole set of services that whether you are the CFO of a Fortune 500 company or if you are a family business, you need that service.

And what I would also, as part of that, we need to, and technology will help us to get there, we need to get away from financial institutions, in particularly banks in this case, offering a product.A particular product. Oh, here's something that we've got. This is for you, right?

Every single need of every single customer, and every time you talk to that customer those needs have changed. So there's a continuum of need. Technology, data management should allow us to actually get away from product sets and it just becomes a continuum. It's something where, in three to five years time, in the background a set of services are packaged together and served up as a solution for that customer. 

Now, you could argue that happens today for a Fortune 500 company. A Unilever, a GM, or a McDonald's or a BHP, Sony. It doesn't happen at the SME end. But, with technology and, as I was saying, data that should happen in the fullness of time. So there's no product A or product B or product C, here's a wrapped solution for you that actually exactly meets your demands and you needs for today, Mr. Mrs. CEO or CFO, or Treasurer.

But not only today. We have been able to analyse and predict what it's going to look like in the future for the next six months, there's the solution for you. That's what I would like to see. 

What about you? What are you going to do with your magic wand? 

Saf Sargent: When I saw magic wand, I went full sci-fi futuristic. I was imagining this huge digital dashboard on the street that says who needs money and who's the best person to give money to that person and then everyone just stands there could go to that person and know that their money would be safe. Then they get a reasonable amount of money back for that and everyone's happy. So, basically the perfect world of Uber for money, but I guess the difference is you'll definitely get your money and you won't be waiting for the driver and them never showing up. 

Alan Beattie: So, I guess that's… Really interesting point, because when, as I was saying earlier, the permissioning around data and GDPR, and other regulations providing clarence about data ownership. Your magic wand vision is actually somewhere we should get to where somebody who owns the data should be serving up that data so that it's available.

And, in an open banking environment and with APIs, and you the owner of that data that you put up there onto a, let's call it, a brokerage platform. You can say - Well, that's my need, who's going to bid for my business?

Saf Sargent: Really practical! Okay. Yeah, that's really good to talk to you. I've learned definitely a lot and hopefully everyone listening to this has learned a lot about the industry, about working capital, and all the demands from leaders and lenders, as well. So, we can wrap up here. 

I just wanted to also point out this is one episode of three and if you're keen to learn more, there are also discussions between Emily and Roger, our Solutions team and our Sales team, and there's also another discussion from Matt Carpenter and Lauren, our CTO and Lauren - from our Marketing team. So, watch the space and keen to talk to you guys all again.

Alan Beattie: Well, thanks very much, Saf.

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