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After a volatile 2023, the global banking sector has continued to face a challenging operating environment this year due to multiple headwinds. These include a divergent global economy, high funding costs due to prolonged elevated interest rates, tight liquidity, a decline in global trade volume from the post-pandemic rebound and sluggish capital market activity.

As banks seek more predictable and consistent revenue streams, areas such trade and supply chain financing are coming into focus. According to the International Chamber of Commerce 1, global nominal trade and supply chain finance revenues surged 28% year-on-year in 2021 before gaining a further 6.3% y/y to USD 63 billion in 2022. While it expects a decline of 7.4% in 2023 due to slower trade flows and higher-priced financing products, the ICC forecasts trade and supply chain finance revenues to return to growth in 2024, rising 3.8% annually to reach USD 91 billion in 2032.

Supply chain finance is a particularly attractive revenue stream for banks as the credit risk is inherently mitigated by the dynamics of the value chain and transactional credit history. As suppliers can gain access to relatively cheaper, collateral-free finance, this goes a long way to fulfilling the working capital needs of these primarily medium-to-small-and-medium-sized businesses.

But while supply chain financing might seem like a low-hanging fruit, banks face many challenges in expanding this area of their business.

For a start, the process is typically manual, consuming much time and resources. The lack of a fully automated process means an inefficient workflow between the anchor and the bank. Then, there is operational risk arising from manual processes including critical ones like limits management, overdues management, etc. To add to this, banks also have to contend with low visibility due to the absence of real-time risk monitoring dashboards at a program level.

Digital platforms could resolve these pain points. Indeed, the sentiment was echoed in a 2023 survey2 conducted by the Asian Development Bank, which covered 137 banks across 54 countries and 184 corporations in 43 countries.

The survey found that 71% of the banks agreed that widespread adoption of fintech and digitalisation can facilitate easier, cheaper and quicker know-your-client processes, anti-money laundering checks as well as compliance checks of small-and-medium-sized-enterprises. Around 68% of the banks also agreed that digitalisation can deepen the data mapping of SMEs to help with better client profiling and risk assessments.

However, there’s one obvious hurdle – cost.

The capital outlay required in digitalising banking technology is often one of the main hurdles for banks when it comes to digital integration and enhancements. The ADB survey also cited cost as the main barrier (25%) to digitalising banks’ business and trade portfolios, followed by a complex legal environment (21%) and lack of interoperability of existing platforms or systems (20%).

It’s not uncommon for a medium to large international bank to spend USD 300 million to USD 400 million on technology for its back-end operations and at least USD 20 million to USD 30 million for the front-end. Even a standalone supply chain financing platform/system may cost USD 5 million to USD 10 million.

But it does not have to be all-or-nothing. Targeted SaaS solutions often cost far less than proprietary systems, can be deployed faster and more efficiently, and can sit alongside other banking platforms or systems.

At TASConnect (TASC), we offer a full-suite, end-to-end, SCF platform as a SaaS solution, providing an efficient and cost-effective way for banks to arrive at their destination model without needing to invest hefty sums and invaluable time.

TASC platforms are bank agnostic and can complement a bank’s digital channel for bespoke deal structure, client work-flow automation and straight-through processing. We can help banks deepen and scale up their existing SCF models as we possess the integration tools to connect front and back-end processes, resulting in an overall solution that is even cheaper than a standalone platform.

We can help banks which are new to SCF to digitise their programme in phases, from putting their prospectus into place to pitching, organising, onboarding, disbursement and loan extensions. We have product knowledge and a deep understanding of how relations work in a bank.

When it comes to cost, TASC adopts a flexible/hybrid revenue sharing model based on a combination of subscription-based charges and actual transactions that flow through the platform. Moreover, the revenue model allows for charges to be borne either by the bank and/or the enterprise client.

Features on the TASC platform can also help banks acquire new clients in addition to boosting the asset base and revenues from existing clients with new products and services like dynamic discounting, pre-shipment finance, deep-tier finance, distributor financing and digital FX and payment solutions. We also provide value-added solutions through our partnership model, such as ESG-based financing.

Thus, through digitalisation, supply chain finance can be an alternative revenue stream for banks as the daunting task of integration and adoption can be simplified and demystified through TASC solutions.

One of the main hurdles to supply chain financing is the complex and fragmented nature of the supply chain itself, especially for global organisations. For instance, a tech multinational firm with a USD 20 bn annual turnover would typically have at least 200 suppliers spread across over 15 countries, each banking with a least a handful of local financial institutions.

Furthermore, global trade processes and systems lag considerably in digitalisation compared to other treasury and working capital processes. For instance, in most countries, international trade documents still need to be physically sighted due to regulatory and legal constraints. This poses a formidable challenge to achieving scale through a fully end-to-end digitalisation process in areas such as supply chain financing.

In order to achieve true end-to-end digitalisation, it is important to not only converge all relevant functionalities and processes onto a single platform, but also attain a seamless and smooth workflow between disparate functionalities and processes through interoperatibility. Taking a look at the TASConnect platform, all activities necessary to facilitate supplier financing can take place on a single digital platform. In fact, we think it can offer much more than that. A one-stop digital platform can pave the way for interoperability, bringing a range of benefits like efficiency, visibility as well as transparency in regulatory compliance.

As a result, enterprises will now be able to scale the depth and breadth of financing programs to include medium and smaller suppliers, which was previously not possible due to manual processes.

Interoperability is the ability for different information systems, devices or applications to seamlessly communicate, exchange data and use the information, regardless of each of their underlying technologies. We highlight below some examples of interoperability in an anchor firm’s digital platform.

Onboarding of suppliers

The on-boarding of suppliers to a financing programme is often a laborious and manual operation involving the supplier, the anchor firm, their respective banks and mountains of documents. Yet, this is a critical part of any supply chain finance programme, as the supplier needs to provide evidence of its business viability and financial credibility to gain access to the anchor’s bank financing.

However, with a digital platform, the onboarding process can occur at speed if the respective banks and suppliers are already on the anchor’s digital platform or can be brought onto the platform. With the latter, for instance, an anchor firm can send out a blast email via its digital platform to its top 50 to 100 suppliers with a link that connects the onboarding process with their choice of banks, thus allowing innumerable suppliers to be onboarded simultaneously.

The know-your-customers (KYC) process to vet the supplier can also be conducted seamlessly as all the necessary information required by the anchor firm’s bank are readily available on the platform. More importantly, none of the stakeholders need to change their processes to facilitate this interoperability. This is a critical point if one is to gain their support for the programme.

Data driven underwriting

Manual underwriting usually involves extensive paperwork and time-consuming data collection. Moreover, these often lead to rather subjective risk assessments, especially for smaller ticket sizes, which can be avoided through a programatic approach.

But with the ‘platformisation’ of data, it is now possible for banks and financial intermediaries to underwrite pre-shipment financing risk using AI/ML driven data analytics on a single digital platform.

This data-driven approach not only improves the underwriting efficiency and reduces manual processes, but also helps banks optimize risk management, thus enhancing their underwriting decisions.

ESG compliance of suppliers

The days of incorporating a token paragraph on environmental, societal and governance awareness in a company’s policies have long passed, especially for global listed MNCs. These days, large multinational public companies are not only required to adopt strict ESG compliance and are rated accordingly, but the onus has gone beyond their immediate operations to include that of their suppliers. Global MNCs now need to ensure and demonstrate to regulators and investors that their supply chains are ESG compliant.

One of the ways this can be demonstrated is through interoperability within a digital supply chain platform. Most banks incorporate ESG criteria in their lending activities, which guides the appropriate interest rates based on a borrower’s level of ESG compliance. Meanwhile, there are data firms which specialise in collecting and scoring ESG data profiles of companies, including suppliers. STACS, a partner of TASConnect, is an example of such.

In this instance, adopting a single digital platform provides an avenue for banks to vet the ESG profile of the anchor firm’s suppliers when setting the relevant interest rates for supplier financing. The action also provides an audit trail to substantiate the anchor firm’s ESG compliance in its supply chain. The process highlights the interoperability benefit.

Visibility on physical goods

The ability for a CFO to gain visibility of the supply chain is invaluable as it facilitates timely decision-making. By using physical supply chain in the service of financial supply chain, digitalisation has now made it possible to provide relevant parties (like banks, FIs and large anchors) unprecedented visibility of the physical movement of goods, especially, in the pre-shipment stage.

This visibility and transparency can help to enhance the banks and FIs’ understanding of the pre-shipment process, enabling them to better underwrite credit risk in the pre-shipment stage of the working capital cycle.

Sentiment analysis using AI models

Digital platforms can be adapted to include the risk monitoring of supply chain risk sentiment. Our partner TAS Sense utilizes AI models to scan over 70,000 websites to produce risk assessment scores on suppliers. This means that with a single digital platform at TASConnect, an anchor can monitor the risks of its top 50 or 100 suppliers.

By mining data and websites to spot potential risks to the supply chain such as natural disasters, strikes or fire, a digital platform can provide timely analysis on the supply chain risk sentiment, allowing CFOs the opportunity to make timely decisions to adjust and realign their procurement strategies, if necessary. These tools also allow banks and FIs to proactively monitor portfolio risk.

The ability to substantially mitigate performance risk highlights the adage – ‘Forewarned is Forearmed’.

Global supply chain financing needs have expanded multifold in recent years, driven by a combination of business needs, operational necessities and technological advancement. According to the Supply Chain Finance Market 2024 Report, the global supply chain financing market revenue was valued at USD 7.3 billion in 2023 and is projected to reach USD 12.3 billion by 2032.

The global reopening surge in demand following the pandemic, coupled with supply constraints due to the outbreak of geopolitical conflicts, have pressured prices at both ends, leading to prolonged global inflation. As a result, central banks have raised interest rates and have kept them higher for longer to rein in price pressures. This has significantly increased the financing cost of underlying products and commodities, especially for small and medium-sized businesses which are faced with increasingly tighter working capital constraints. Meanwhile, technological advancements, particularly in fintech, have also unveiled financing opportunities at scale within the supply chain that were previously deemed unfeasible.

What’s more, in Asia, the bulk of supply chain financing remains in the post-shipment part of the working capital cycle. This barely scratches the surface as the majority of supply chain financing needs lie in the pre-shipment part of the cycle. Anecdotally, the pre-shipment section could comprise as much as two thirds of the entire working capital cycle. More critically, this is the area where the typically small-and-medium sized suppliers may often need working capital support to purchase materials or pay salaries to manufacture and deliver their products.

Demand for pre-shipment supply chain financing in Asia has remained largely unmet due to the complexity, fragmentation and semi-to-largely-manual processes. This has hampered the ability for banks and financial institutions to underwrite the risk at speed and scale. For instance, a tech multinational firm with a USD 20 bn annual turnover would typically have at least 200 suppliers spread across over 15 countries, each banking with a least a handful of local financial institutions. The logistical challenges of navigating the often-manual backend processes of SMEs, not to mention their multiple domestic banks, have rendered this part of the supply chain rather unfeasible for financing… until now. So, what’s changed? The onset of digital platforms has, for the first time, made it possible to address the huge financing needs currently unmet in the pre-shipment part of the chain. The ‘platformisation’ of data means it’s now possible for banks and financial intermediaries to embark on data-driven underwriting including underwriting pre-shipment risk using AI/ML driven data analytics.

We, at TASConnect, believe that workflow automation can help penetrate deep into the supply chain to multiple tiers that can’t be reached with the present offerings. Besides, platforms, through the principle of interoperability, can also enable multiple and disparate workflows and activities that are necessary for supplier financing to be done on a single platform, bringing unprecedented levels of efficiency and speed. Some of these functionalities include providing banks and financial institutions with supplier credit profiling, digital onboarding of suppliers, documenting hubs, automated and seamless payment systems, foreign-exchange processing and even the monitoring of supply chain participants through AI model-led, in-situ, software applications.

The bottom line – platforms can enable supply chain financing to reach far more suppliers than previously possible, helping to direct need-based working capital to where it is most required. For instance, while a conventional manual method may be able to reach just 20 to 30 suppliers within a 3 to 4 months timeframe, a platform can enable an enterprise to scale up to almost 10 times over, allowing it to reach 200 to 300 suppliers within that same period without any additional deployment, not to mention the automated workflows that can ensure an error-free environment.

Aside from enabling efficiency and unlocking economics for all the value chain participants, there are also wide-ranging benefits for the enterprise in facilitating pre-shipment supply chain financing. We highlight the most obvious benefit – helping the enterprise build supplier loyalty. A typical SME supplier tends to supply the top handful of competing enterprises of that particular market or industry. Thus, it is important for a CFO that when the need arises, the supplier in question will prioritise the enterprise over its rivals. For instance, in the event of supply disruption or other unforeseen circumstances that could jeopardise the enterprise’s business.

By standing out among its rivals with programmes that help suppliers gain access to funding, an enterprise can build supplier loyalty as these programmes pave the way for smoother business operations for the supplier. As a result, the supplier becomes sticky to the enterprise, indirectly benefiting the latter.

After bearing the brunt of one of the most aggressive US interest rate hike cycles since the early 1980s, it’s no surprise that the prospect of rate cuts by the Federal Reserve has become the hottest topic for Enterprise CFOs this year.

The anxiety is understandable, whether for SMBs, regional conglomerates or MNCs. Between March 2022 and July 2023, the Fed raised rates by a total of 11 times, sending its benchmark policy rate to a 23-year high of 5% to 5.25% from a near zero percent. For CFOs who have seen their companies’ financing costs jump 10-fold in 18 months, the impact on the bottom line has been significant. But a Fed rate cut has remained elusive so far. What’s more, the Fed has signalled it may keep rates higher for longer. Even if some rate cuts do happen later this year, rates will likely stay in the 3-4% band for the best part of this decade.

Clearly, CFOs of global multinationals would be well advised coming to terms with this new normal, and focus on what is within their control. For example, the case for optimizing working capital for themselves and their extended value chain (suppliers and distributors) is the most compelling it has ever been. The opportunity here is a digital transformation of enterprise working capital management processes. Such a transformation program, if well conceived and executed, would bring material improvements to the cash conversion cycle (CCC), a metric that expresses, in days, how long it takes a company to convert the cash spent on inventory back into cash from selling its product or service. Needless to say, freeing up cash trapped across the value chain is a vastly superior option to mobilising funds externally in this inclement rate climate.

While value chain finance programs have existed for a long time, their manual and paper-based nature has meant that CFOs are unable to adopt them for the long tail of their companies’ suppliers and distributors – the very entities in the value chain, that happen to need liquidity the most. This is especially so for global corporations with suppliers and clients in multiple countries, regions and cities – each with their own unique payments process, credit terms and domestic banks.

TASConnect’s mission is to help enterprises with tools to effect such a digital transformation. Our innovative working capital solutions, focused on empowering enterprises, harness technology to connect enterprise treasuries with the extended value chain and the banking system, thereby effecting a material improvement in the cash conversion cycle and related metrics.

With the help of TASConnect’s award-winning platform-as-a-service, clients can extend the scale & scope of their supplier and buyer financing programs. The platform enables fully automated workflows in procurement-to-pay and order-to-cash cycles through a single sign-on thereby eliminating the need and hassle of managing many-to-many multi-party touchpoints. The net effect is not just improvements in capital efficiency, but enhanced availability of liquidity to suppliers and distributors, at better rates.

The importance of this factor is worth underlining. For example, the potential for a small but critical supplier to slip into financial distress due to liquidity problems should not be underestimated as most small businesses operate on tight liquidity and margins. And if suppliers are not able to meet their commitments to the enterprise, this can be a significant risk to business operations.

TASConnect’s platform allows more suppliers to participate, and allows them to access cheaper financing via a programme supported by the larger enterprise. This helps alleviate the financial pressures faced by the suppliers while strengthening the company’s supply chain resilience as well as its relationships with strategic suppliers.

As the adage goes, in every adversity lies an opportunity. Given that the new normal is here to stay, adopting a transformative agenda in working capital management may be the single most important initiative for CFOs and Treasurers to consider.

TASConnect is here to help. We build working capital management programs that are just right for your circumstances. Do reach out to us today for a free, no obligations discussion.