Challenger banks join start-ups and outside providers in supplier finance to get funding where it’s needed most.
Supplier finance is no longer just the preserve of the large, global trade banks. Although these banks continue to invest in supplier finance platforms and capabilities, a considerable amount of innovation in this space is coming from start-up companies and nonbank providers, which are leveraging Cloud-based technologies to provide solutions that match suppliers directly with nonbank investors willing to provide funding for approved receivables. Although these companies may not have the track record of the banks, or of other institutions that have been in the supplier finance game for the past several decades, they are driving innovation that is likely to further diversify the funding mix in supply chain finance programs and deliver solutions that offer more flexibility for both buyers and suppliers.
Purchase-to-pay providers like Basware and e-commerce platforms like GT Nexus, which have invested in digital networks for automating purchase orders and invoices and transacting digitally, are rounding off their offerings with an array of financing options that leverage data captured by buyers and suppliers transacting on their networks to help suppliers get paid earlier. Private investors that see trade receivables as an attractive asset class are joining banks in the funding mix. Diversifying funding in supply chain finance is essential if more programs are to be supported and financing is to flow where it’s most needed—to smaller suppliers in emerging markets, who find it difficult to access affordable financing. The International Finance Corporation has identified a $2.1 trillion to $2.6 trillion global credit financing gap for SMEs in emerging markets as a result of unmet demand for financing from banks, which are increasingly shying away from riskier markets and companies owing to the more stringent regulatory climate introduced under Basel III and to anti-money-laundering regulations.
Challenger banks like DBS are leveraging digital innovations, and their presence in key markets to challenge larger foreign-owned global transaction banks—particularly in markets like Asia, where a spike in intraregional trade is spurring growth in banks’ trade and supply-chain finance businesses. Banks recognize the need to tailored solutions to the needs of buyers, suppliers and distributors, rather than the one-size-fits-all approach of the past that supported only a handful of buyer-initiated supplier finance programs. But relatively few banks are still able to support financing needs earlier in the supply chain at the pre-shipment phase. Some, like French bank BNP Paribas, have set up separate subsidiaries specifically to do this.