Supply chain finance is a massive industry with $2 trillion in financeable highly secure payables globally and a potential revenue pool of $20 billion, according to the estimations made in the report by McKinsey. Since 2010, the revenues are suggested to have grown at 20% per year and are expected to continue growing at ~15% for the next three to five years.
Efficient supply chain is an important part of any business establishment that can have a significant impact on operations and the very survival of the venture. Faced with increasing pressure to meet short-term liquidity needs, companies are looking for easy and convenient ways to manage their working capital and supply chain. As a result, the need for innovative financial supply chain management solutions has been increasing. And that is where financial technology companies have recently been triggering a transformation towards greater efficiency and seamless solutions.
We have been covering supply chain financing by looking at some interesting FinTech players that built successful solutions for businesses in the US and in Asia. The landscape is certainly expanding and having a positive impact on the business community internationally.
Emphasizing the importance of FinTech in supply chain transformation, a couple days ago, Dale Rogers, Rudolf Leuschner and Thomas Y. Choi authored an insightful piece published on HBR, outlying that multinational corporations such as Apple, Colgate, Dell, P&G, Kellogg’s, and Siemens are already using FinTech companies to tap previously inaccessible capital in their supply chains “to help finance growth in new and emerging markets, develop and support new products, strengthen their financial positions, and increase the capital available to the whole supplier ecosystem.”
Authors point out that cloud-based software platforms are able to streamline financial systems and make funding the supply chain more efficient. Indeed, over the last several years, tech and Web-based players (Orbian, Prime Revenue, C2FO, Taulia, Ariba) have entered the space to challenge traditionally dominating banks with new innovative business models, improved digital interfaces and tools, smooth implementation and onboarding, as McKinsey lists.
The company suggests that between 10% to 15% of the supply chain finance market is now controlled by FinTechs and in the nearest future their growth will accelerate. Accenting on the advantages of new players, one buyer noted in the report that, “They are focusing on improving operational capability through online tools to help suppliers onboard, and they provide digital modules for training on how to use systems.”
Explaining how simple FinTech made supply chain financing these days, HBR authors said that FinTech players “provide an integrated solution that supports a process that begins with a purchase requisition and terminates with payment to suppliers. These integrated systems enable buying firms to greatly reduce the burden of administering these functions because they close the loop between procurement and accounts payable and provide a structure that streamlines these processes. For suppliers, joining the platforms can be nearly as simple as adding an app to a smartphone.”
The FinTech was able to move out the complexity of procurement out from businesses into cloud-based platforms where suppliers can get paid at a time they choose and buyers are able to extend payments by up to 120 days to make the most out of its working capital. And if previously sellers would be in a struggle to survive while they get paid, FinTech platforms that were able to build extensive network connections with banks and other financial institutions now can eliminate the problem without hurting the buyer in the most efficient manner and at a razor-thin margin.
Not only is FinTech transforming supply chain financials from in-house departments to third-party platforms, but the very idea of supply chain financing and management has been changed.
“Traditionally, supply chain management has been about sourcing, making, and delivering. Now, it’s about “funding” — using the supply chain as a source of inexpensive capital. FinTech companies are helping to make this possible, and as they expand into new areas, their importance in supply-chain management is certain to grow,” as the author stated.