Globally, the supply chain finance (SCF) market is expanding and maturing. A new report from BCR Publishing, a news provider that specializes in the receivables finance industry, estimates a growth of 30 percent per year. BCR’s research shows the market could be worth €43 billion ($46.5 billion) in terms of the funds currently in use.
The experts interviewed for the “World Supply Chain Finance Report” reveal several trends expected to shape supply chain finance over the next 12 months. As SCF attempts to mature, deciding on a common definition is essential. Throughout the report, those interviewed point to the varying description of the practice. For some, supply chain finance has become synonymous with supplier finance. Others take a more holistic view, opening up the meaning to include reverse factoring, buyer-centric supply chain finance, approved payables finance and pre-shipment finance. The work toward common standards has begun. In 2014, six of the most influential bankers’ associations came together to form the Global SCF Forum. Part of the group’s mandate is developing globally accepted market terms to be used industry wide. The hope is a common knowledge base combined with standard definition make joint or multiple partner deals across national borders less trouble.
Supply chain finance, once the sole purview of highly specialized big banks, is seeing smaller, regional and domestic banks offer SCF services. Increased completion as more and more players entering the field, places downward pressure on prices. Anil Walia, the global head of supply chain finance at the Royal Bank of Scotland, told BCR researchers he expects the trend to continue as new entrants seek market share. “Whether they’re able to deliver at the level of more established banks is really going to be the test,” Walia adds. “If they’re unable to deliver, then there’s going to be shake up in two years.”
Technology is another major trend changing supply chain finance for banks and suppliers. Increasing adoption of both cloud and e-invoicing technologies gives lenders deeper visibility into potential. E-invoicing gives providers greater visibility into the purchase patterns and payables of businesses seeking finance. Add in the real-time capabilities of cloud-based systems and financers have immediate access to transactional data. Openness and transparency provides financers an actual risk profile and removes a lot of uncertainty from the supply chain financing process. Electronic tools also open new opportunities for lines of business, like pre-shipment financing. Growing integration of electronic tools across the supply chain, like purchase-to-pay systems, give banks a clear look into confirmed payables.
Overall growth in supply chain finance is expected to be strong. Regionally, markets anticipate varying levels of growth and distinctive challenges.
Asia, the youngest SCF market, is expected to see the largest growth with some experts anticipating growth of up to 50 percent. Sectors leading growth include retail, electronics, textiles and consumer goods. Shivkumar Seerapu, Asia Pacific Trade Finance, Global Transaction Banking at Deutsche Bank, points to the interest of both the banking and corporate sectors in exploring supply chain finance. In particular, multinational corporations with factories in the region are driving demand.
Seerapu also focuses on the need for education. While large multinational corporations are aware of the uses of supply chain finance, there is lack of awareness of how the financing can help local businesses. In markets such as South Korea, China, Malaysia and Thailand, the concept is still relatively unknown. Though the Asia Pacific region will have the strongest growth rate, it is also the smallest market in terms of funds in use. The report estimates the size of the market falling between €6 to €10 billion ($6.5 to $11 billion) in 2015.
The region benefits from serving as the home of three very mature supply chain finance markets: the United States, Canada and Mexico. The Americas has the largest amount of supply chain funds in use as up to €22 billon ($24 billion). In terms of awareness, education and maturity, the region leads most. Due to its advanced market, the Americas will experience slower growth this year. BCR estimates 15 to 25 percent, the lowest of all regions surveyed.
Managing Editor of the 2015 report, Eugenio Cavenaghi, believes the next level of growth in the Americas will require banks in the supply chain finance space to work harder. Domestic markets in the region are among the most saturated. The biggest growth opportunities will be found internationally—outside of many providers’ comfort zones.
Europe, the Middle East and Africa
Encompassing the very mature markets of the United Kingdom and European Union and emerging African markets, this zone faces both advanced strategies and growing pains. The divide is seen in the differing approaches of the banks. Across Europe, banks have focused on the top end of the market, becoming increasingly selective in working with suppliers. In North Africa and the Middle East, banks are more interested in penetrating local SMEs. Overall the region will experience growth of 15 to 30 percent, with the potential to grow to a €17 billion ($18 billion) market.
Interest in and demand for supply chain financing is clearly growing. At the same time, there is still work to be done in terms of maximizing growth and market awareness. Businesses need working capital, especially in light of depressed lending, and receivables continue to be an underutilized asset.