FinTech has revolutionized the way traditional banks can implement and roll out new products and services to their customers, with banks’ complex infrastructures positioning “out-of-the-box” solutions as a competitive proposition for FinTech firms to offer their bank clients.
Yet, not all financial services can — or should — be a one-size-fits-all tool. Such is the case with supply chain finance, which involves coordination between many parties in a supply chain, and within countless unique circumstances impacting the flow of money between buyers and suppliers (and financiers).
As such, Jamie Clemons, CPA and co-founder of supply chain financing (SCF) solutions provider Artis Trade Systems, told PYMNTS that SCF must be approached not necessarily as a single solution, but as a program that financial institutions (FIs) need to continually evaluate and adjust based on their own customers’ — and customers’ customers’ — needs. In today’s environment of rapidly evolving technologies, demands and trade climates, adaptation is an essential characteristic of any supply chain finance program.
Clemons elaborated on how SCF has transformed in recent years to keep with the pace of innovation, as well as open trade finance doors for smaller banks and businesses that previously found this solution inaccessible. At the foundation of these changes, he said, is the cloud.
Uber-izing SCF
Uber is often seen as a benchmark for technological innovation, particularly when it comes to trends like the gig economy and on-demand services. Yet, according to Clemons, Uber has laid the groundwork for a sort of data ridesharing ecosystem.
“Big assets don’t have to be owned and managed to benefit from them,” he explained. “For example, instead of owning a car and leaving it sitting in the garage most of the time, now a person can Uber to wherever they want to go, and pay only for their shared use of the asset. The same trend has taken place in IT assets.”
Proprietary data centers are no longer a requirement for banks to take advantage of data. FIs have transitioned from managing their own data centers to sharing them, and to now embracing the cloud, which allows firms to “timeshare on the facilities, and not become bogged down by ownership,” Clemons said.
The result is lowered costs and barriers to accessing supply chain financing programs that, at one time, were reserved for the largest banks and corporates, which could afford massive data centers and technology to facilitate complex transactions. Cloud-based SFC has not only allowed for the kind of flexibility necessary to address customer needs, but the introduction of trade finance to companies that once couldn’t access it at all.
A Multifaceted Solution
With smaller institutions now able to offer supply chain financing to their own customers, SCF FinTech firms have similarly had to focus on flexibility of their technologies to account for a broader customer base. While supply chain finance involves the vendor selling its outstanding invoices to a financier, Clemons explained that both buyer and supplier can initiate the process, with each approach having pros and cons.
A buyer-centric SCF model sees the buyer uploading invoices to payment, limiting disruption of vendors’ current accounts receivable processes and accelerating adoption, but does not support automation of accounts payable workflows, he said. A supplier-centric approach, on the other hand, means vendors submit invoices for buyer approval to initiate SCF. In that case, invoice submission and approval becomes more efficient, yet buyers must adjust their accounts payable processes.
Supply chain finance solution providers should be able to support both models, which Clemons noted are complementary to each other and promote the kind of flexibility that banks need to meet client needs.
“In both scenarios,” he said, “bank clients have more working capital, reduced payment costs, simplified payment processing, and their suppliers assume control of their own invoices.”
Disruption = Innovation
With the trade finance gap looming in the global market, banks’ adoption of supply chain finance is on the rise. PwC analysis found SCF adoption to have accelerated more quickly among companies with annual revenues below £5 billion (about $6.5 billion USD), while the International Chamber of Commerce found trade and supply chain finance to be the top priority among banks’ strategic focuses in the year ahead.
Flexibility and adaptation will continue to be important focuses for both FIs and corporates to promote adoption of SCF. Clemons pointed to the internationalization of trade and supply chains as one of the biggest trends in the market today, forcing service providers to focus on the usability and security of their solutions, as well as offer their tools in different languages and currencies.
As technology continues to evolve, he added that progress in supply chain finance offerings is less a reflection of industry “disruption,” and more of industry innovation that accelerates the movement of capital and information throughout the market. As businesses large and small expand their supply chains across borders, banks will continue to face the pressure of evolving their SCF programs to meet changing needs, promoting further disruption and innovation among the FinTech firms that create these tools.
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