Supply chain finance is dominated by large global banks, yet developing regions are nurturing some challengers, and growing complexity is bringing nonbank investors into the picture.
Supply chain finance (SCF) is attracting investment and interest from financial technology companies that are leveraging cloud-based technologies and the Internet to provide buyers and suppliers with greater choice when it comes to selling their payables and receivables in order to receive early payment in return for discounts. With second- and third-tier suppliers still missing out on some of the benefits of SCF, as buyer-initiated programs tend to engage more with top-tier suppliers, a lot more work could be done by both finance and technology providers to spread the benefits of SCF to these lower tiers.
Having said that, SCF still remains the preserve of only a handful of large global trade banks, with some challenger banks emerging in developing regions of the world. These challenger banks boast relationships with small and medium-size companies in these markets and therefore may have a better chance of identifying opportunities to serve these customers with enhanced working capital finance, either before or after the invoice approval process. A number of banks are still offering SCF post-invoice approval, but the opportunity to really transform corporate supply chains may come even before a purchase takes place or is approved by the buyer. For example, suppliers may need to buy inventory earlier in order to meet seasonal spikes in demand, or may want to defer buying inventory until later. There are still few finance providers that have the expertise to handle inventory financing.
One good thing that has come out of the last few years is the recognition that few banks are able to finance complex, cross-border SCF programs on their own. A number of nonbank, third–party investors (asset managers, private equity, hedge funds) are now seen as essential investors to have on board in order to finance programs as they grow in size and complexity. This year’s SCF winners recognize those companies that are paving the way for innovation in the SCF space, or that continue to scale and grow their SCF programs, despite increasing competition from nontraditional players in this space.