The cost of staying in business on the global stage is getting tougher to shoulder.
Especially for the small and medium-sized businesses (SMBs) that power the global economy.
The great digital shift has brough with it a paradox. Technology has leveled the playing field across all manner of verticals, allowing SMBs to sell their goods into all corners of the globe.
But the flow of funds between buyers and sellers — underpinned by letters of credit, bills of lading, receivables factoring — is anything but smooth.
The pain points are varied, numerous and concurrent. Paper based and manual processes still dominate. Each country has its own set of rules and regulations regarding documentation.
Payments cross borders between banks, take days, weeks or months to arrive and get settled, and FX rates can be a volatile wild card. Add supply chain disruptions into the mix, and for the SMBs, simply getting the capital in hand to get goods out the door is more art than science.
And the impact is enormous: Just before the pandemic, PYMNTS research showed that that U.S. firms alone are owed as much as $3.1 trillion is the net amount in accounts receivable on any given day.
The SMBs, in the U.S. and elsewhere, may be at a disadvantage when it comes to trade finance. The credit markets are dominated by a handful of players. The International Chamber of Commerce has estimated that 90% of trade finance is provided by 13 banks. Over half of trade finance requests are rejected by SMBs, far outpacing the 7% rejection rate for multinational corporates, as estimated by the World Trade Organization.
The “gap” can be plugged, at least in part, by data, by FinTechs harnessing that data to help smooth the way forward for SMBs to get the credit and the cash they need in hand to facilitate trade.
This is the first of a continuing series that explores how FinTechs are forging new ways of leveraging information and tech to extend credit to businesses and consumers in order to support their growth and financial health.
In the case of trade finance, the urgency is there. Supply chains are still evolving, and COVID-19 is still roiling production lines, most notably this past week in China amid new lockdowns. The cost of capital is also higher than it’s been in decades amid soaring interest rates, which are a global phenomenon.
Last year, in a panel discussion with Karen Webster, TreviPay CEO Brandon Spear; CredAble Executive Vice President and Head of Credit Ranjit Singh, whose firm offers supply chain financing; B2B platform Joor CEO Kristin Savilia and payment platform Plastiq Chief Product Officer and Chief Technology Officer Stoyan Kenderov noted that capital channels were pressured.
Data-Driven Ways to Close the Gap
But we’re seeing a continued emergence of online platforms to match buyers and sellers, automate invoices and tap supply chain financing through digital means.
In just a few examples noted in this space in recent months and weeks — indicating how global the trade finance “overhaul” has become — Nigerian startup Breeze has partnered with U.K.-based supply chain finance company Finverity to improve SMB access to financing options. In terms of the mechanics, Finverity will provide Breeze with resources such as its supply chain finance platform, introductions to debt capital providers, legal infrastructure templates and best practices.
Elsewhere, U.K.-based FinTech Stenn focuses on invoice financing, and helps finance trades of as much as $10 million. The startup has said that its online loan application approval timeframe is 48 hours. Stenn uses a data-centric approach to assess credit, fraud and compliance risks.
Platform models, with buyer/seller financial interactions embedded within them, also are making strides in transforming global smokestack industries.
Shep Hickey, CEO of online platform Bryzos, focused on the steel industry, told Karen Webster, “There are certain sectors that have a decent amount of stock available and the pricing may not be all that volatile. Then there are other sectors that are in the midst of a supply shock, and it’s hard to find what you need.”
Bryzos operates as an online steel marketplace that facilitates trade between buyers and sellers. And in a nod to the financial aspect, the platform features a buy now, pay later (BNPL) component, where liquidity is improved as credit and terms are settled digitally. Payments are advanced by Bryzos’ financial partners to the sellers — and collected later from the buyers.
The FinTechs, then, seek to pick up where the banks have left off — chipping away at a trade finance gap in novel ways.