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Advantages of a SaaS model in managing global trade finance

Banks need technology to remain competitive in the highly volatile global trade finance market. Introducing new offerings, meeting ever-evolving customer needs, delivering exceptional service and complying with new regulations depend on innovative and cost-effective technology solutions. Fragmented legacy systems and the cost and slow speed of traditional technology upgrades, however, can limit a bank’s ability to keep pace with rapid market transformation.

Traditionally, banks have taken a "build or buy" technology approach in their trade finance business, designing their own solutions or purchasing off the shelf. Facing the legacy upgrade dilemma, however, as well as an increasing total cost of ownership for IT, many leading banks are taking a different approach—the cloud-based software as a service (SaaS) model.

With the SaaS model, a bank can move all of the software, hardware and services needed to run its global trade business to a private, highly secured cloud environment operated by a trusted partner. This type of model provides significant business advantages over the traditional "build or buy" approach, enabling banks to achieve their business goals more effectively and for less cost.

Some key advantages of the SaaS model in comparison to traditional solutions include the following:

  • License fees: For mid- to large-size banks, software license fees can exceed several hundred thousand to millions of dollars. With the SaaS model, there are no license fees.
  • Software maintenance: With a traditional solution, these costs must be paid in addition to license fees and typically amount to 20 percent or more of the license fee each year. With the SaaS model, these costs are significantly lower and are built into the annual fee. 
  • Hardware and related maintenance: Costs required for setting up application and disaster recovery infrastructures and ongoing third-party licensing and upgrades can be excessive. There are no infrastructure costs with a SaaS model; instead, these costs are built into the volume-based fee.
  • Technology upgrades: Traditional licensed software providers typically release new functional every 18 months or so. Then the bank has to justify the expense of upgrading in competition with other bank priorities. Even if approved, it could take many months or years to complete the upgrade project at a cost of hundreds of thousands of dollars. With an SaaS model, new releases are delivered directly into production many times a year at no extra cost.
  • Technical support: Usually as much as 20 percent of a licensing fee, the cost of technology support (e.g., help desk, application services, data center operations, etc.) can quickly add up. These costs are built into the volume-based fee of an SaaS model.
  • Evolving with the market: Staying ahead of the technology curve and market changes can require a huge investment in terms of time and cost. Because the SaaS model delivers many releases a year into production, the bank has the tools it needs to grow in a competitive marketplace. 

The SaaS model's volume-based service fee covers all of the major items that would typically require an upfront and significant cash outlay. It typically includes use of the platform, 24x7 transaction processing, 24x7 support, new releases, hardware/software, third-party upgrades, and business continuity/disaster recovery services.

As a result, the model reduces a bank's overall total cost of ownership for IT while enabling it to do more for less. Overall business benefits include increased revenue, operational efficiency, global transparency, service excellence, time-to-market and risk mitigation, to name a few.

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Comments: (6)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 22 September, 2014, 14:28Be the first to give this comment the thumbs up 0 likes

While I agree on many points qualitatively, a few findings have emerged when numbers have been tacked on in some other product categories (e.g. CRM):  

  1. When frequent updates enter a pre-existing system landscape, there can be significant costs by way of retraining, retesting, rewiring interfaces to other systems, etc. The monies are not paid out to the SaaS vendor but updates are not really free for the customer.
  2. Cumulative SaaS fees tend to exceed onpremise license fees after 24-36 months. One concrete example: US$ 75 / month / user for SaaS versus US$ 2000 / user for onpremise perpetual license. Considering that the life of most software is far greater than 3 years, the TCO advantage of SaaS is not so self-evident, even after loading the onpremise option with 20% AMC and other recurring costs. 

Keen on knowing if things are different in trade finance SaaS.

A Finextra member
A Finextra member 25 September, 2014, 21:32Be the first to give this comment the thumbs up 0 likes

Thanks for your comments Ketharaman, you bring up some interesting points. There is no magic in SaaS and it is important to evaluate the overall service offered not just the application itself.

To your first point:

Without a well thought out and highly collaborative approach, together with a robust integration architecture, the problems you mentioned could surface. This has not been our experience. For instance, our UAT release testing is collaborative across all clients forming a small army of testers. Each has their own test cases. This is an expense to the client, but a much, much smaller one than would be spent on a typical upgrade project for licensed software.

New functionality may at times require additional training, but we make changes so that each bank chooses when to “turn on” most new functionality, thus letting the banks decide when, if ever, to introduce specific new capabilities.

Given our integration architecture, it is rare to change an existing interface, and if we did, it is almost certain it would not require forced changes to a client’s downstream systems interfaces using them (unless the change was specifically for them.) Of course, a new interface to support new requirements, will require internal client work for those that choose to use it.

Overall, the benefits of continuous evolution in a well-managed SaaS creates business advantages that far outweighs these costs including; competitiveness, customer retention and revenue generation. Compared to the cost of being years behind the market with a licensed product that has infrequent releases and then requires an expensive internal upgrade project to be justified in light of other bank priorities.

Your second point:

This is a really excellent point and one that requires a broader perspective to make a apples to apples comparison of TCO. In addition to the licence and maintenance that you rightly identified, one also needs to add all the other costs required to run the licensed software internally. For instance, but by no means all inclusive, hardware and its upgrades, 3rd party software and its upgrades, data center operating staff and allocations, internal support desks, IT staff with the right expertise and much more. Once one accurately identifies all the costs of owning the licensed system a very different picture emerges of the comparative TCO. 

SaaS has the advantage in this calculation, because in the SaaS model these costs are shared across all the SaaS clients and the provider has the efficiencies of a dedicated and expert staff, whereas in the licensed model, the bank bears these costs and efforts alone and without the same level of expertise.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 26 September, 2014, 16:49Be the first to give this comment the thumbs up 0 likes


TY for your detailed reply. 

From what I know of a classical multi-tenanted SaaS model:

  1. An individual customer can only decide whether to subscribe to a particular feature or not. But, having subscribed to a particular feature by way of signing up for a certain plan, they CANNOT decide whether to switch on / off a change to that feature. Content and frequency of such updates are determined UNILATERALLY by the vendor and apply universally to all customers the very next time they log on to the software. 
  2. I haven't heard anything like "integration architecture", a term you've alluded to many times.
  3. My TCO cutoff of 24-36 months does consider the other recurring costs you've mentioned. 

Now if you're referring to a private cloud or a shared service or some other proprietary form of cloud-based offering from your company, I admit my above mentioned observations about industry-standard SaaS might no longer apply. 

A Finextra member
A Finextra member 26 September, 2014, 17:51Be the first to give this comment the thumbs up 0 likes

Ketharaman, a couple of further thoughts:

  1. Our Saas is a private community cloud, and may very well be different than other multi-tenant platforms that you know. Our approach is a collaborative one that gives the banks maximum flexibility in deciding what they will use on the platform and how they will use it. This is especially important for a global platform, like ours, where all the banks global locations are running on a single instance and where there can be significant system behavioral differences required from location to location. The platform must give each bank the flexibility to adapt to these requirements. It is not surprising that the SaaS platforms that you know do not do this, I know of no other in the trade finance market that does either.
  2. I use the term "Integration Architecture" in reference to the overall approach we provide to generate and send interface messages (real-time), how we standardize the structure of the interface messages (XML) and how we deliver/receive these message (MQ).
  3. Regarding the additional recurring costs for a licensed application you added 20%, which is less than most licensed trade vendors charge for their annual maintenance. To support a modern trade system requires much more than that due to the numerous types of technologies that are required, such as, imaging and workflow, robust reporting capabilities, portal technologies to name just a few. Perhaps this is due to the complexity of trade finance, but the internal recurring costs for a licensed system are much higher than you have estimated.
Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 26 September, 2014, 19:23Be the first to give this comment the thumbs up 0 likes

@KittredgeC: TY for your detailed clarifications. My observations were baselined on an industry-standard SaaS solution since it's not often that I read about company-specific offerings on Finextra. 

A Finextra member
A Finextra member 27 September, 2014, 17:22Be the first to give this comment the thumbs up 0 likes

Sorry if I referred to much to how we do things, but in answering your questions there was no other global SaaS trade finance platform to reference. But if there were, it too would need to effectively address the issues you have raised.

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