Supply chain finance is a large and growing industry. In 2015, a McKinsey report suggested that SCF had a potential global revenue pool of $20bn, while in 2017 China’s supply chain finance sector was tipped to reach US$2.27trn by 2020. Additionally, a 2017 ICC survey of banks in 98 countries identified SCF as the most important area for development and strategic focus in the coming 12 months.
Clearly supply chain finance is an important topic for anyone involved in trade and trade finance to be familiar with. However, at a recent ICC Academy summit on SCF, several speakers suggested there are still trillions of dollars’ worth of unmet needs in this market.
According to Roberto Azevedo, director general for the World Trade Organization, “A lack of access to trade finance is a barrier preventing small business from making the most of the opportunities that trade provides, and it demands our urgent attention.”
So what are the latest challenges facing the SCF industry? And what questions must it address to drive future growth and fill the currently unmet financing needs of small to medium-sized enterprises (SMEs) around the world?
Earlier this year, at the 8th edition of the Supply Chain Finance Summit in Singapore, the ICC Academy heard the views of more than 300 senior supply chain finance professionals from more than 10 countries.
Here are three key takeaways from their discussions:
SCF can be a win-win for both SMEs and corporate banks. Asia’s domestic supply chains are very large. Estimates from industry bodies such as the International Financial Corporation and Asian Development Bank suggest significant opportunities in emerging markets for domestic supply chain finance business. They include US$6-8bn in Bangladesh, $19bn in Pakistan, and $20bn in Indonesia.
Qamar Saleem, the global technical lead for the International Finance Corporation at the World Bank Group said: “With the current market gap, there is huge opportunity. When done right, SCF can be a win-win for both SME and corporate banks.”
For SMEs, benefits include new segment opportunities, market distinction, faster scalability, increased sales effectiveness, and stronger relationships with their clients. Corporate banking benefits include competitive differentiation, key corporate access, increased revenue share, better risk management, cash-management mandates and increased retention.
The SCF ecosystem is large enough to sustain both banks and new financial technology (fintech) players. Fintechs have long been positioned as a challenger and potential threat to banks in many industries. The nature and extent of this existential threat for the supply chain finance industry was addressed during our session “Fintech vs. Banks.” All panelists were of the view that third-party entrants and non-bank players are here to stay.
Commenting on the rivalry of the two sectors, Olivier Paul, director of finance for development at the (ICC) Banking Commission said: “The financing gap is a reality today. Banks and fintechs are evolving, and the SCF ecosystem is large enough for all parties to not only survive, but collaborate within the financial services sector and thrive.”
Shirish Garg, head of supply chain finance sales and client delivery transaction banking office for Asia at MUFG Bank, believes that “the key challenge for both players is to focus on solutions that can deliver effective results. We are seeing too much of the same, hence differentiation has become an issue.”
The most important business improvement is not technology but an upgraded workforce. In a world of increasingly large and complex supply chains, technology, digitalization and automation often grab the headlines, and are presented as the solutions to the challenges that come with these huge networks. In such an environment, it can be easy to look past the importance of people in improving business efficiency and profitability. However, Lionel Taylor, managing director of Trade Advisory Network, believes that “the most important new development in any business is not technology — it is an upgraded version of your workforce.”
Taylor said that when he talks to banks and regulators around the world, cultures, practices and regulations are often different. This means that the latest app or technology might look good, but a lot of the time it’s not relevant to those markets at that point in time. What these businesses are always interested in, however, is training the workforce and building capacity. These businesses often face skills gaps, and don’t have the resources in house to solve them.
Regardless of which sector your business operates in — whether it be universities or banks — keeping up to date with current trends and practices is no longer a choice, but a necessity. Having a better-trained workforce is also a differentiator in a market where everyone is competing to have the latest and most impressive digital platform.
And speaking of pursuing those goals, you can read the ICC Academy’s Comprehensive Guide to Supply Chain Finance here. This guide is ideal for anyone looking to grasp the key techniques involved when it comes to supplier financing, and contains case studies from real businesses involved in the SCF industry.
Will Moody is communications manager for the International Chamber of Commerce Academy.