From new technologies come practical financial applications, which are transforming supply chains—and putting pressure on banks.
At first, there were only pilot programs and opaque new fintech firms. The practical promise that some new technologies such as blockchain, also called distributed ledger technology, held out for supply chain efficiencies, remained tantalizing but elusive. The digital future seemed more hype than reality.
Now, a number of those pilots led by major global trade banks are at last coming to fruition. At the same time, various fintech partnership efforts are beginning to deliver on the technology’s promise, transforming supply chain financing in tandem with digitally-delivered advances in supply chain operations overall.
For an example of the kinds of advances being made on the finance side, one example that debuted in 2018 is a platform for commodity trades, coming out of DBS and Agrocorp, that connects Australian farmers to supermarkets and restaurants. Or, consider the Marco Polo Network, launched the year before. It uses open application programming interfaces and the blockchain to connect a range of counterparties in the supply chain—banks, corporate customers, credit insurers, logistics companies, and payment providers—so they can exchange trade data and assets and seek financing more easily.
These types of platforms streamline what is often, even today, still a highly manual paper-intensive process, and can help narrow the $1.5 trillion trade finance gap worldwide that has been identified by the Asian Development Bank.
Digital platforms give supply chain finance providers—who have historically restricted themselves to working with a handful of large buyers and a few select suppliers—new capacity to reach the more numerous smaller suppliers, vendors and distributors that are so critical to most multinationals’ global supply chains, but find it difficult to access affordable financing.
Blockchain makes it easier for finance providers to obtain the quality data they need to better assess and address small suppliers’ financing needs and understand their capacity for repayment. With most trade conducted on an open-account basis, distributed ledger technology can reduce risk for counterparties and enable banks to better understand who is transacting with one another, their trading relationships and their suitability for credit.
With suppliers typically located across a multitude of countries, the decentralizing power of new technology makes it difficult to see how proprietary SCF platforms funded by a single bank can sustain themselves in future unless they use open application programming interfaces to connect to third-party platforms, which are bank-agnostic and give companies a wider choice of funding options (banks, institutional investors, buyer-financed).
According to management consultancy Oliver Wyman, supply chain finance now surpasses trade finance in terms of market revenues, a trend which the consultancy expects to accelerate. In a 2017 report entitled Supply Chain Finance: Riding The Waves, Oliver Wyman talks about a “third wave of growth” in SCF. While the first and second waves were buyer and supplier led, the third wave, says Oliver Wyman will see a new harmony of buyer/supplier solutions, driven by more sophisticated data analytics solutions and the provision of finance at earlier stages in the supply chain (pre-invoice approval).
“We see increasing convergence between financial and non-financial solutions,” write the report’s authors, Martin Sommer, a principal in Oliver Wyman’s London office, and Ronan O’Kelly, a London partner. “The digital supply chain is at the heart of this, as various players along the value chain, from sourcing through to fulfilment, seek to extend their reach and capture new revenue streams.”
As fintechs, e-commerce and “procure-to-pay” providers seek to gain market share by using data to their advantage to capitalize on growth opportunities, Oliver Wyman says this presents both a threat and an opportunity for banks.
Thanks to these technological advances, supply chain finance just got a whole lot more ambitious and our selection of winners in this year’s awards categories reflects not only the complexity of companies’ supply chains, but the wide array of providers—both old and new—that are leveraging new technology in exciting ways to help companies better manage their working capital.
It’s not technology just for the sake of technology. Its purpose is to help suppliers, on the one hand, fulfil orders and get paid earlier, and enable buyers, on the other hand, to better utilise capital that would otherwise be tied up in their accounts payable. That’s the kind of application that could help address that $1.5 trillion global trade finance gap, boosting productivity and creating value. And it’s happening right now.
WORLD’S BEST SUPPLY CHAIN
|Best Supply Chain Finance Provider – Bank||Standard Chartered|
|Best Supply Chain Finance Provider – Non-bank||Demica|
|Best Customer Implementation||DBS, Agrocorp and Distributed Ledger Technoligies - Blockchain Platform for Commodity Trades|
|Best Platform Connecting Buyers/Sellers/Financial Institutions||Orbain|
|Best E-Procurement||SAP Ariba|
|Best Dynamic Discounting System||TReDS|
|Best Pre-Shipment Financing Solution||BNP Paribas|
|Best New Application of SCF Technology||TradeIX and R3's Marco Polo Network|
|Centeal & Eastern Europe||UniCredit|
|Middle East||Emirates NBD|
|Africa||Rand Merchant Bank|
Global Finance editors select the winners for both the Trade Finance Awards and Supply Chain Finance Awards with input from industry analysts, corporate executives and technology experts. The editors also use entries submitted by financial services providers, as well as independent research, to evaluate a series of objective and subjective factors. This year’s ratings, which covered 96 countries and nine regions, were based on performance during the period from the fourth quarter of 2017 through the third quarter of 2018.
It is not necessary to enter in order to win, but experience shows that the additional information supplied in an entry can increase the chance of success. In many cases, entrants are able to present details and insights that may not be readily available to the editors of Global Finance.
The winners are those banks and providers that best serve the specialized needs of corporations as they engage in cross-border trade. The winners are not always the biggest institutions, but rather the best—those with qualities that companies should look for when choosing a provider.
Global Finance uses a proprietary algorithm with criteria—such as knowledge of local conditions and customer needs, financial strength and safety, strategic relationships and governance, competitive pricing, capital investment and innovation in products and services—weighted for relative importance. Each entity is rated on each separate criterion. The algorithm incorporates those ratings into a single numerical score, with 100 equivalent to perfection. In cases where more than one institution earns the same score, we favor local providers over global institutions, and privately owned banks over government-owned ones.GLOBAL WINNERS
BEST SUPPLY CHAIN FINANCE PROVIDER — BANK
Supply chain finance is about more than providing banking services to large buyers that typically want to delay payment—but from the way a great many banks still operate, you wouldn’t know it. That’s why Standard Chartered’s slogan, “Banking the ecosystem,” has become somewhat of a catchphrase in the industry: It points to the goal of integrating the physical and financial supply chains for buyers and suppliers and their customers.
Many banks would like to say they bank the buyer, the supplier, and their underlying counterparties, but that is rarely true, since their risk appetite precludes them from working with smaller suppliers.
But that’s often the part of the suppy chain where the financing need is the greatest. Combining the expertise of its commercial, corporate, and institutional and business banks, as well as technology leveraged from fintechs, Standard Chartered is able to offer a comprehensive range of financing solutions. The bank provides assistance at all different stages in the supply chain, including pre-invoice approval and pre-shipment, and it and connects to third-party platforms such as GT Nexus and Trade IX to extend its services and reach to more customers.
BEST SUPPLY CHAIN FINANCE PROVIDER — NON-BANK
Active in the SCF market and the working capital space since 2002, Demica provides a range of financing solutions encompassing trade receivables, invoice finance, and trade receivables securitization to customers in Asia, Europe, and North America. It supports programs across multiple jurisdictions and currencies and can source financing from a wide pool, including banks and institutional investors. Its platform is designed to interface easily with companies’ ERP and accounting systems to capture invoice data.
In 2018, Demica announced a partnership with the International Finance Corporation that aims to unlock $9.8 billion in annual financing for suppliers and distributors, mostly small to medium-sized enterprises, in emerging markets, where the trade finance gap is estimated at $4.5 trillion. It also announced plans to move into inventory finance.
BEST CUSTOMER IMPLEMENTATION
DBS, Agrocorp, and Distributed Ledger Technologies’ Blockchain Platform for Commodity Trades
As one of the few multi-bank platforms in the supply chain finance market, Orbian gives buyers and sellers access to a variety of funding sources including international and local banks and a pool of investors, and different funding sources can be easily added when needed. Founded by SAP and Citi but now operating independently, Orbian is embedded in SAP’s technology and can be easily integrated with other enterprise resource planning software, enabling users to leverage SCF with little or no technical integration.
BEST PLATFORM CONNECTING BUYERS/SELLERS/FINANCIAL INSTITUTIONS
Has blockchain finally left the laboratory typo make its mark on real-world business processes? If the new blockchain platform for commodity trades, developed in collaboration by Singapore’s DBS Bank, Agrocorp, and Distributed Ledger Technologies, is anything to go by, the answer must surely be a resounding Yes. The electronic platform, launched late last year, connects more than 4,500 farmers in Australia to their end customers, mainly supermarkets and restaurants, the idea being to track food orders more easily and get farmers paid more quickly.
The blockchain solution leverages blockchain technology to reduce the wait time for physical documents to be exchanged between parties, which now can take anywhere from five to 10 days. Implementing electronic transferral of documents means goods can be shipped and payments received more quickly. The platform also provides greater transparency for the end customer as to where the end product is sourced.
BEST DYNAMIC DISCOUNTING SYSTEM
The Trade Receivables Discounting System (TReDS) was set up in 2017 with approval from the Reserve Bank of India to help micro, small, and medium-sized enterprises (MSMEs) in India to more easily convert their trade receivables into funding. TReDs enables MSMEs to discount invoices as well as bills of exchange in return for early payment. Users can access multiple sources of funds via an open-auction bidding process on a single digital platform. Invoices are uploaded to the platform and once approved by the buyer, are then auctioned.
BEST PRE-SHIPMENT FINANCING SOLUTION
The French bank’s Dublin trading subsidiary, Utexam, finances inventory for companies from a wide range of sectors, including retail, automotive, agriculture, and health care. Utexam buys the inventory and stores it, which provides financing at one of the most critical points in the supply chain: before goods are shipped. Items Utexam handles range from raw materials to finished and semi-finished goods. BNP Paribas continues to innovate in the SCF space via its partnership with non-bank third parties and fintechs and is looking closely at leveraging distributed ledger technologies (DLT) to enhance visibility of trade flows.
BEST NEW APPLICATION OF SCF TECHNOLOGY
Trade IX and R3’s Marco Polo Network
Trade IX, a trade finance platform that is already delivering supply chain efficiencies to transport companies using distributed ledger technology, has formed a partnership to help multiple parties in the supply chain more easily transact with one another and deliver greater transparency.
Marco Polo, the ambitious name given the new initiative by its participants—which include Trade IX, R3, an assortment of leading banks and their corporate customers, plus an array of enterprise resource planning and logistics companies—aims to provide as many participants as possible with data insights around trade flows, relationships, and processes. For supply chain finance, this opens up an opportunity to create a wider range of innovative financing solutions to address companies’ working capital needs at different stages in the trade cycle. This in turn may go some ways towards closing the trade finance gap that is impacting small and mid-sized companies in developing countries unable to tap into affordable funding because their bank data is incomplete or, in some cases, unavailable.
Citi has an expansive footprint in supply chain finance across North America, where it services hundreds of buyers and tens of thousands of suppliers. Success for any supply chain finance program is about the ease with which the buyer’s network of suppliers can be onboarded to the financing scheme. To make the transition easier for suppliers, Citi has supplier acquisition teams dispersed across multiple locations throughout the U.S. and Canada.
The bank provides a wide range of financing solutions for different stages in the supply chain and is using emerging technologies such as optical character recognition to drive further efficiencies.
In Latin America, Santander supports a range of SCF platforms, including its own proprietary platform and solutions provided by the public sector and third parties such as PrimeRevenue. The bank’s Latin American customers benefit from tight integration with the global bank’s SCF system based in Spain. Santander is also investing in its Confirming Platform, which provides reverse factoring solutions and enables it to offer new product features earlier in the working capital cycle.
The bank’s supply chain finance effort includes engagement in initiatives such as the Trade Information Network, which connects banks and procure-to-pay networks globally so that companies only have to interact with one platform to submit and verify purchase orders and invoices.
Spain is considered one of the most developed markets for SCF or reverse factoring. BBVA has offered financing solutions in this space for more than 20 years and works with active buyer clients across a range of European countries. Besides financing, its comprehensive solution encompasses specialized design advice, integration with buyers’ ERP systems, syndication capabilities for larger financing programs, and simulation tools for modelling the impact of discounts on outstanding invoices. Ongoing investment in its proprietary platform for buyers includes a cash forecasting, liquidity management, and payment tracking tool.
CENTRAL & EASTERN EUROPE
UniCredit is a leading commercial bank in Central and Eastern Europe (CEE) with a direct presence in Bosnia and Herzegovina, Bulgaria, Croatia, the Czech Republic, Hungary, Romania, Russia, Slovakia, Slovenia, Serbia, and Turkey. This expansive network, combined with a strong foothold in Western Europe and on-the-ground knowledge of market conditions and regulations, makes it an ideal base for CEE companies looking to implement supply chain finance programs that traverse the continent.
UniCredit offers an extensive portfolio of solutions covering all stages of the supply chain, from pre-shipment to post-shipment financing. Customers also benefit from its collaboration with fintechs on buyer solutions that leverage capital tied up in their accounts payable, enabling them to offer early payment to suppliers in return for discounts.
The Asian juggernaut is on a digital transformation journey that includes investing in a series of digital supply chain initiatives that aim to minimize inefficiencies and costs for clients.
The bank’s supply chain finance programs encompass several key Asian markets and it continues to evolve its product line, introducing financing solutions that help small- to mid-sized companies get paid before goods are shipped. Recognizing that the future of supply chain financing is not just in proprietary solutions, DBS is also working with innovative fintechs, for example on new, bank-agnostic marketplaces in the area of asset-based financing.
As one of the largest banks in the region by asset size, Emirates NBD has embraced digitization of banking services as a means to deliver greater savings and efficiencies to its end customers. In addition to more traditional trade finance offerings such as letters of credit, import and export finance, and structured trade credit, the bank provides accounts-receivable financing and solutions that enable buyers to extend their payment terms while ensuring suppliers are paid more quickly.
Rand Merchant Bank
As it scaled its supply chain finance business in the African market, Rand Merchant Bank decided early on that instead of building a proprietary platform, it would work with best-of-breed technology providers. These include the South African financial services provider Propell, which enjoys a strategic partnership with PrimeRevenue, one of the leading non-bank platforms in the supply chain finance space. Rand Merchant Bank argues that Propell’s offering gives the bank’s customers greater flexibility in structuring their supply chain finance programs as well as access to some of the best technology available in the industry today.
Nordea has deep roots and a strong presence in the four main Nordic markets and is a technology leader in the region, having embraced open banking by opening its back-end systems to third-party developers via its API.
With operations in 20 countries including other European states, the U.S., and parts of Asia, Nordea is well placed to support Scandinavian companies looking to implement more complex supply chain financing solutions across multiple markets. Nordea is also a founding member of the we.trade initiative, which uses blockchain to help small- to mid-sized companies connect with counterparties, track trade transactions, and access finance to speed payment to suppliers.
The Canadian multinational bank boasts operations in 25 countries across the Caribbean and Central America and has been in the Jamaican market since 1889. ScotiaBank provides accounts-receivable financing and is working with technology companies including CGI Group to bring digital transformation and intelligent process automation to trade finance by digitizing trade document flows. The bank is also “reimagining” its customer solutions by establishing “Digital Factories” that act as incubators for new ideas.