Transaction banks work to define standards for supply chain financing

A new terminology for transaction banks

A major change is occurring in trade and supply chain finance. Supply chain finance has now surpassed traditional trade finance in market revenues. We expect this trend to accelerate over the next three to five years, driven by three waves: deepening of established solutions targeted at suppliers, further integration and sophistication of products for buyers and, ultimately,  convergence between buyer and supplier-oriented solutions. For transaction banks, these waves each present opportunities, but they will need to develop new capabilities to capture the upside.

With the market for supply chain finance (SCF) schemes set for explosive further growth, Europe’s largest transaction banks are coming together to define common terminology as they look to expand their range of services and compete for cross-border business.

Research from Demica as early as 2013 cited SCF as the ‘must have’ accessory for transaction banks, revealing average annual SCF growth rates of between 30% and 40% at major international banks. This trend has continued, but traditional transaction banks are unable to be flexible in their offering, causing many large corporates to look for alternatives such as the supply chain finance solution from Woodsford TradeBridge.

The topic was high up the agenda a few years ago EBAday conference in Berlin, where the Euro Banking Association published a comprehensive guide to the business, exploring market opportunities for possible SCF services and making recommendations for a definition of a common terminology for the financial supply chain. Liquidity and supply chain finance are on the agenda again for EBAday 2019,  which this year takes place in Stockholm,  and where intra-day liquidity is a vital agenda item.

Feedback from the EBA Supply Chain Working Group

Erkki Poutiainen of Nordea Bank Finland is chairman of the EBA Supply Chain Working Group. He took time out with Finextra to explain why SCF is now the hot “new thing” for transaction banks and the importance of establishing an agreed market structure and common terminology for the business.

Eugenio Cavenaghi, director trade & working capital at Barclays Bank says that smaller corporates are finding it hard to find access to credit. Supply chain finance can “bridge that gap” for firms, who do not have the resources of large, multi-national organisations who are seeking international financing support.

He highlights three areas where banks can collaborate and work together in offering supply chain financing services, referencing supplier onboarding, technology and infrastructure support, and credit availability.

Cavenaghi spoke to Finextra after coming off the ‘Supply chain finance – getting the formula right’ panel at EBAday.

Read original article here (https://www.finextra.com/news/fullstory.aspx?newsitemid=24887)

The growth of cross-border SCF

Bank respondents also see cross-border SCF programmes further establishing themselves as an increasingly crucial facility, but indicate that their “added-value” status will be retained by virtue of such schemes’ greater complexity.

Phillip Kerle, chief executive officer of Demica, comments, “The upward growth trajectory of SCF witnessed by global banks demonstrates the growing importance of this facility in the trade finance armoury. In addition to the working capital benefits, nowadays businesses are also placing greater emphasis on operational efficiencies and cost reduction. The increased transparency and visibility in payment processes facilitated by SCF will therefore prove to be a particularly valuable asset for suppliers and corporates alike.”