Globally, open account trade (a sale where the shipment of goods or fulfilment of a service occurs prior to payment) has already experienced a high level of digitisation and the use of electronic invoicing is maturing.
While considerable digital transformation has taken place in open account trade, this process is lagging considerably in the niche of open account trade finance. This impacts customer experience, creates operational pressure for already stretched treasury teams, increases cycle times and poses risk management challenges, including fraud risk.
There is a push for industry wide standards, using new and exciting innovations such as Distributed Ledger Technology (DLT) or Blockchain. Demica focuses on modernising processes, introducing proven technology to drive speed, straight-through processing and improved customer experience.
The existing market
The supply chain finance (encompassing receivables and payables transactions) market is huge. Banks are the dominant players with 90%+ market share, and we estimate the 15 largest trade banks (excluding China) have circa. $400bn outstanding.
Within most banks, the IT systems that have been used to run these products have been underinvested, some dating back more than 20 years, without features such as web-based user interfaces, integration into corporate ERPs for data extraction, structuring tools, risk reporting and APIs. Instead, data transfer and reporting may be carried out via excel spreadsheets which are then also used to deliver reporting.
Many banks are not able to onboard the long-tail of suppliers, as processes are manual, and the costs exceed the revenue contribution of all but the largest names. Banks often have different systems for different products, which means multiple log ins, multiple and disparate processes, and a customer experience that doesn’t meet expectations.
Reliance on manual processes to facilitate the exchange of data, combined with limited capacity to consolidate transaction data at the receivables level and run third-party checks leaves a significant opportunity for fraud that can’t be underestimated.
The future of the market
Demica estimates that each 0.1% increase in Supply Chain Finance’s share of B2B payments will generate $20bn of incremental funded programmes. The ICC estimates that there is a $1.7 trillion trade finance gap, and that companies around the world are having to either use equity or other funding sources to fund their working capital, or worse, they are forgoing commercial opportunities. Digital transformation is not the final piece of the puzzle, but it is an important one that should enable acceleration of growth with lower risk.
Imagine a world where banks can create a single point of connection with their clients to draw all their receivables, payables, and inventory data from their ERPs. Structuring teams can create programmes in one product-agnostic platform that optimise for advance rate with risk distribution made easy at the click of a button. Clients and banks can interrogate a shared data set to monitor receivables performance across all product types with integration into credit insurers to monitor policy compliance and limits.
That is what we are working to deliver at Demica, and the market is responding. Over the past three years more and more banks have looked for fintech partners to assist them in their trade transformation process. Demica has partnered with HSBC, Standard Chartered, Lloyds, Mastercard and BBVA to name a few, and this trajectory continues as we move into 2022. To learn more about how Demica’s supply chain finance Platform could support you, complete the form below.
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Maurice joined Demica in October 2017 from Wells Fargo where he was CEO, Commercial Distribution Finance, responsible for a $3.0bn of receivables assets and over 400 people. Maurice joined Wells from GE Capital where he held a number of senior positions including Chief Commercial Officer of GE Capital International. Prior to GE, Maurice worked as a senior investment banker at Lehman Brothers, Bankers Trust and Paribas.