Capco Blog

Supply chain finance. Opportunities unchained.

The phenomenal growth of the physical supply chain is outpacing the adoption and implementation of new financial products, services, and technology required to support it. We are now no longer 'ahead of the wave' in terms of solution availability and fitness for purpose.

There are meaningful – and viable – opportunities to offer new SCF (supply chain finance) approaches, not just for tier-1 global banks, but also for tier 2 and 3 as well as regional and specialist institutions. There are also opportunities for corporate clients with their own treasury departments, as well as for ‘multi-bank’ technology providers.

Original research collaboration between the University of St. Gallen, Switzerland, and Capco has looked in depth at the needs and expectations of the key stakeholders in the supply chain finance market. Our key research findings are presented below.

Banks
On the service supply side there are considerable opportunities, not least for regional and specialist banks outside the tier-1 arena. In addition to cross-selling products and services, these banks can increase customer retention by taking a ‘tailor made’ approach to the supply chain finance they offer to customers. The open account vehicle is growing in volume and popularity and has the potential to increase revenues. And there are new product development opportunities, such as reverse factoring.

Rigorous market analysis and segmentation will trigger an internal re-evaluation of the products, services, and processes that banks offer and are planning to develop. Targeting clearly understood and differentiated client profiles will play a critical role in making product and service offers more relevant and more appealing. Businesses with their own treasury functions and high transaction volumes – the ‘large medium’ enterprises – will be particularly attractive.

Corporate clients
Corporate clients on the demand side still, in many cases, have no centralized responsibility allocated to SCF. This creates an opportunity for expanded offerings of ‘bundled products’ that reduce current service fragmentation and complexity. Working capital optimization is a burning platform for businesses. Consulting services from the banks could focus productively on this area. However, some of the corporate customers we spoke to are not looking for ‘yet more technology.’ Relationship issues are important, with a clear demand for greater partnership and a need to trust the bank – as opposed to being ‘sold to..

Technology providers
Above all, the technology providers need to grow business volumes to leverage economies of scale and efficiency management (this will positively impact the interactions between banks and their corporate clients). As far as innovation is concerned, connecting to the cloud is a major opportunity (requiring open standards and a high degree of integration). Multi-bank, as opposed to single provider options, are generating interest and positive differentiation will be achieved through choice and quality of services.

Exploiting the new generation of SCF opportunities – strategic principles for banks:

  • Consolidated position - for a bank, it is becoming increasingly important to secure the role of preferred supplier or 'house bank' to corporate clients.
  • Loyalty - clients are more loyal to their house bank. Moreover, if a bank is already serving a client with cash management, trade finance, and a credit line, the client will not take the decision to switch to a competitor lightly.
  • Insight into client’s business - if you already have a ‘large piece of the SCF pie,’ it is easier to gain a fuller picture of a client’s trading status, profitability, opportunities for cross- and up-selling, and any risks. It is also easier to respond to (and take appropriate action) developments because there is a shorter lead-time for them to become apparent.
  • Increased profitability: last but by no means least, it is more profitable to cross-sell entire, integrated solutions of bundled product and service packages than to rely on single product sales.

To learn more about the practical and operational implications of adapting to exploit the rapidly evolving world of SCF, access our Point of View - Supply Chain Finance. Opportunities Unchained.

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