The battle between the banks and the fintech disrupters for a bigger share of the global supply chain finance business is heating up. Both have invested heavily in their platforms over recent years. But who’s got the solutions treasurers are really after?
Treasurers are coming out as winners as banks and technology companies battle it out for the supply chain finance (SCF) market.
According to a 2015 report by McKinsey, an estimated 10-15% of the SCF market is now with ‘fintech’, and the growth of these vendors “is likely to accelerate” in the years ahead. Specialist technology providers are bringing SCF to a bigger pool of companies, and this is driving banks to invest in optimising their own offerings.
“It is a big threat, because these smaller players have the ability to do anything and everything,” Parvaiz Dalal, Citi’s EMEA supply chain finance head tells Treasury Today. “But it encourages us to keep up the pace, and we are constantly re-engineering our business to ensure we are offering very efficient processes.”
The long tail
One of the reasons for the success of fintech is banks are encumbered by the various Know-Your-Customer (KYC) requirements they face during supplier onboarding. Third-party competitors do not have this problem, and can therefore bring the advantages of SCF to the ‘long tail’ of the supplier base, where volumes are much smaller.
As Eric Riddle, EVP & Global Head of SCF at cloud-TMS provider Kyriba explains: “In relation to the emergence of Kyriba and other technology providers, we are more willing to embrace innovative solutions and as a result can really have an impact on that long-tail. In summary, there is a significant move to technology providers that are not banks and therefore not burdened by KYC.”
But the banks have not made significant investments in their own proprietary solutions for no reason. They are still seeing a lot of untapped potential in a market which, according to a recent BCR Publishing report, is now worth €46bn.
“We continue to see more interest from companies [considering SCF],” says Jeremy Shaw, Head of Trade Finance, EMEA at JP Morgan. “There are companies who may not have had a programme in place previously in industries which, historically, were very cash rich, such as energy commodities, for instance which are now looking at supply chain finance. And there are also companies that have a programme, but now wish to look to expand it in size or geographically.”
The battle between banks and technology providers for the SCF market is therefore looking very finely balanced. But with a range of new opportunities emerging for treasurers to optimise both their working capital and that of their suppliers, it is clear who the real winners of this battle are.
For treasurers shopping for new solutions, the choice may ultimately come down to what they are looking to achieve through SCF and, in particular, the parts of the supply chain they are most concerned about supporting.