Revolutionising the supply chain
As new technologies invade the transaction banking area and widen its possibilities, stakeholder such as banks need to change their approach to remain relevant. In Asia, Supply Chain Finance is on the cusp of huge potential growth, driven by growing sophistication of market players and interest rate differentials.
An increasing use of technology in physical and financial supply chains implies the availability of greater digital information, which in turn means the ability for banks to take better financing decisions, thanks to better risk management along the working capital cycle. This can also drive dynamic pricing as goods move from purchase order stage to manufacturing to sales. However, the availability of greater digital information cannot substitute the need for credit risk appetite on suppliers, especially if pre-shipment financing is being considered.
Societe Generale actively looks at ways to enhance our Supply Chain Finance offering, deploying both in-house technology and collaboration with fintechs to serve corporate clients better.
Technology and supplier onboarding
Supply Chain Finance programs are primarily driven by large corporates looking to secure their supply chain by establishing closer, deeper and mutually beneficial relationships with their suppliers. However, for full relationship benefits to be realized, it is imperative for the anchor corporate to be fully involved in selecting the right suppliers and selling the program to them.
A well-executed SCF program involves high success rates in supplier onboarding, and banks like Societe Generale use digital onboarding tools that enable this.
However, the proliferation of SCF programs also means that suppliers could be overwhelmed by the multiplicity of programs and platforms that they are requested to participate in.
Driving sustainability in supply chains
Sustainability goals have not been forgotten in this equation and can be a major beneficiary of the digitization of supply chains. Supply Chain Finance brings buyers and suppliers onto a common platform, and the resultant visibility could enable better forecasting resulting in sustainable stocking levels. Such programs can also be utilised by buyers to drive better Environmental, Social and Governance objectives within their supply chain.
While Supply Chain Finance has been mostly uniform in the way that it has developed across regions, there are specific variations under progress. e.g. there is greater demand for dynamic discounting in Europe, primarily driven by negative interest rates. Pre-shipment finance of suppliers can develop earlier in Asia due to the large trade finance gap in the region. While supplier onboarding is ostensibly more complex in Asia, it remains knotty even in “single” markets like the US or EU due to the fragmentation of legal and compliance framework.
Working alongside fintechs
With corporates increasingly demanding that 100% of their supply chain be financed, banks are increasingly collaborating with fintechs to fill the gap that banks have in supplier onboarding, e.g. in onboarding the tail end of a corporate’s supply chain. Though fintechs can be nimble in adopting new technologies and offer better technology experience of corporates, they also collaborate with banks to secure funding. Fintechs are also bringing in alternate capital providers to the SCF market, which is promising for the development of the overall SCF space but needs to prove scalability that is available only through greater standardization.