ePayments Shaping Today’s Global Supply Chain

Technology is no doubt changing the way the global supply chain functions in today’s market. In its “Global Supply Chains: New Directions” report, Standard Chartered found an array of emerging trends getting picked up by suppliers and buyers doing business across their home borders. These new trends include the rising use of robotics and 3-D printing, along with the ongoing adoption of Internet of Things technology and data.

The patterns can be attributed to a range of factors, from political ties between nations to the declining cost of more sophisticated IT and technology tools for the world’s manufacturers.

But along with these emerging trends comes these of more sophisticated finance and payments strategies put to use by buyers and suppliers. According to researchers at Standard Chartered, today, up to 90 percent of all trade flows are facilitated through a trade finance agreement. About one-third of those trade financing tools stem from a bank.

While bank-facilitated trade financing ran into a bit of a shortage during the 2008 financial crisis, researchers found that it’s largely picked up thanks to economic recovery, especially in Southeast Asia. Still, small- and medium-sized enterprises have had an especially difficult time accessing the financing they need to facilitate cross-border trade.

“A lack of finance for SMEs could be a key constraint for their integration into GSCs [global supply chains],” the report found. Stricter bank lending guidelines and other regulatory requirements were found to be a key reason why small businesses struggle to access this type of financing.

Still, Standard Chartered found that both banks and business players in the global supply chain are getting on board with emerging trends in how companies finance and pay for their cross-border trade.

Banks are not only becoming increasingly involved in their corporate customers’ supply chain financing needs, but the way banks meet those needs is increasing in innovation and diversity. “Innovative solutions are being increasingly facilitated by the growing role of export credit agencies and other multilateral institutions such as the ADB, World Bank and the International Finance Corporation,” the report concluded.

This means that while many SMEs still struggle to gain the working capital necessary to strengthen their international trade with overseas buyers and suppliers, the SMEs that do gain these tools are encouraging innovation in the way buyers pay for, and suppliers get paid for, this cross-border commerce.

Among the most prominent trends, Standard Chartered said, are e-invoicing. mobile payments and bank payment obligations, found to be slowly gaining prominence in cross-border trade, researchers found.

“Trade finance is moving towards a more electronics-based/automated system,” researchers found. “Increasing innovation helped by falling communications and IT costs are allowing clients as well as finance providers more cost-effective, error-free and speedy ways of accessing and disbursing finance.”

Mobile payments are making it easier for suppliers to work with both their large suppliers and with traditional banks, allowing those banks to offer financing to small suppliers, the researchers found. According to Standard Chartered, this is especially prominent in Southeast Asia and Africa.

When it comes to e-invoicing, the research found that companies that operate as part of a wide, global supply chain are largely flocking to third-party e-billing and e-invoicing service providers. This trend can be attributed to the fact that banks across the world all have different billing and trade finance platforms; third parties, the researchers found, make it easier for suppliers to have someone else adapt to varying bank systems.

“This makes the process less cumbersome for clients, potentially accelerating settlement capabilities,” Standard Chartered concluded, adding that use of a third-party e-invoicing firm lets banks adapt to suppliers’ needs, not the other way around. “It is particularly important for large supply chains. The anchor company can place all its supply relationships on the platform and banks can bid for participation.”

Last, researchers found a rise in the use of bank payment obligations (BPOs), an emerging technology that digitally connects two banks – usually a buyer’s bank to the supplier’s bank – to settle a payment on an agreed-upon date.

This third trend, however, is slow to gain traction in the global supply chain. “Take-up of BPOs has been disappointing so far,” researchers wrote, “though it is at an early stage of development. Widespread adoption will require more infrastructure and investment from banks to become more important for trade finance.”

Overall, researchers agree that global supply chain financing services are not only growing, but evolving. The ongoing technological innovation of the supply chain, coupled with the declining cost of more sophisticated IT and communications tools, support buyers’ and suppliers’ demands for easy and affordable ways to streamline their business with cross-border clients and partners.

Standard Chartered researchers also attributed businesses’ demands for increased automation and the rise in south-to-south trade (especially in Asia) as facilitating the use of mobile payments and digital billing technologies between buyers and suppliers.