Is the supply chain finance market getting too big?
Does the booming growth of supply chain finance signal a healthy market, or could it pose challenges? Tom Dunn, chairman of leading SCF provider Orbian, shares his thoughts.
Trade & Export Finance (TXF): How have you seen the adoption of supply chain finance (SCF) change among corporates over the years? Is it becoming democratized as a product?
Tom Dunn (TD): Supply chain finance as a solution continues to grow in the US and is slowly expanding in Europe and Asia, both from global corporations and large domestic companies. Corporates are becoming more sophisticated in their understanding and requirements as to how SCF benefits can be delivered, whether it is working capital benefits, security of the supply chain, dynamic discounting or a combination of requirements. SCF continues to evolve, so yes it is becoming democratized as a product.
TXF: Is an increased adoption of SCF necessarily a good thing – or could it cause problems?
TD: SCF offers various benefits to a buyer and its supplier community. It is not always about working capital benefits – it could also be about the security of the supply chain. SCF does bring improved financing costs that suppliers would not necessarily be able to achieve on their own. Having access to alternate forms of liquidity can only be positive. Problems will arise, however, if those alternate forms of liquidity prove to be unreliable. A particularly worrying form of such unreliability is the presence of “contrived” liquidity relying on internal “arbitrages” to finance material parts of programmes.
TXF: What does the proliferation of SCF platform providers mean, and will we see consolidation?
TD: The increase in SCF platform providers is strong evidence of the growth and adoption of this solution by corporates on a global basis. Solutions independent of banks is only positive and gives greater choice to corporates. A successful solution is only successful if the execution and delivery of the initiative, from supplier on-boarding to financing, meets the expectations of the corporate strategy. As such we would expect consolidation of offerings.
To hear more of Tom’s insights into the future of supply chain finance, register to attend TXF Frankfurt: Trade & Treasury Event.
The original article can be found here.