Why all roads lead to collaboration in supply chain finance

According to Allied Market Research¹, the global supply chain finance market was worth $6 billion in 2021, and is projected to reach $13.4 billion by 2031, growing at a CAGR (Compound Annual Growth Rate) of 8.8% from 2022 to 2031.

So what are the drivers behind the growth of the supply chain finance market, what are the remaining barriers preventing small and medium sized enterprises in particular from taking full advantage of supply chain finance, and how will new technologies support deep collaboration between different parties and propel the market forward in the next few years?

Market drivers

The forces behind the adoption of supply chain finance include the need for safety and security in global supply chains in an uncertain world. The recent pandemic exposed the fragility of cross-border supply chains, while also encouraging the use of more automated processes instead of manual tasks performed on-site or in banks’ branches.

With Asia-Pacific, notably India and China, expected to grow their economies significantly, the region will provide huge opportunities for organizations engaged in the supply chain finance market globally. Several large corporate enterprises in Asia-Pacific are actively evaluating advanced supply chain finance solutions to strengthen their technology infrastructures, overcoming the long-standing issue of high transaction and processing costs.

Another driver is the emergence of strategies by major players in the technology industry to collaborate across the sector to provide differentiated and innovative platforms that will serve to reduce the supply and demand chain gap, currently valued at $1.7 trillion.

Barriers to adoption

Inadequate trade finance measures rank among the top three export barriers for SMEs, according to the World Economic Forum (WEF). More than half of SMEs worldwide say they are underserved when it comes to working capital financing.

A second challenge is regulatory uncertainty, including late payments regulation in the EU and changes around accounting and disclosure requirements. A third is a lack of maturity in the understanding of supply chain finance, especially in developing economies. This has traditionally created a level of inertia, holding back progress and impacting corporates’ and banks’ appetite for risk.

Finally, the uptake of technology to support trade finance has tended to be limited to large suppliers and large companies, with the benefits of automation failing to flow down to micro businesses or SMEs. This is because a lot of the platforms used do not provide the capability to onboard large numbers of suppliers at scale.

Organizations also feel less comfortable dealing with high numbers of smaller invoices, many or which can still be supplied as physical documents that need to be managed manually.

The role of collaborative technologies

When done properly and inclusively, supply chain finance is all about managing high volumes of transactions being processed as quickly as possible. It means that technology is imperative to the success of any supply chain finance program, as well as to lowering the barriers to entry for smaller organizations.

Recognizing this need, major players in the sector - CredAble and Finastra - are collaborating to offer a feature-rich platform integrated with a proven and comprehensive supply chain finance system.

Using the integrated solution, banks can accelerate their revenue growth, expand their businesses and increase customer satisfaction using a single supply chain finance platform.

For corporates, the platform provides the ability to optimize their working capital, maintain real-time liquidity for long-term growth and access data to support detailed decision making.

The solution incorporates technologies such as artificial intelligence (AI) and optical character recognition (OCR) to remove friction from processes such as onboarding and invoicing, opening up the possibility for banks and corporates to include SMEs in their supply chain finance networks.

One example of where this has worked in practice is Axis Bank, a leading private sector bank in India. Having worked with CredAble to develop their supply finance platform, Axis Bank onboarded a white label version of the software to support its own client base.

Within a year, Axis Bank brought in more than 50 new suppliers to its corporate clients, representing close to $500 million worth of business. The program is ongoing and has demonstrated how transactions can not only be executed more efficiently, but also satisfy all regulatory requirements.

Examples of successful roll-outs like Axis Bank demonstrate the vital role that the digital public infrastructure (DPI) will play in countries like India in leveraging access to resources such as value added tax or company real estate records.

Not only will this improve process automation still further and reduce the need for manual checks, but it will also prevent fraud carried out through fake invoicing.

Vendors like CredAble and Finastra are focused on developing their platforms to meet the needs of all players in the supply chain, from the self-employed farmer at the bottom to the banks and large corporates at the top.

Deep financing is just one of the most exciting trends in this area, along with adhering to environmental, social and governance compliance as standard within supply chain finance. All roads really will lead to collaboration in this fast-moving, ever more inclusive sector.

¹Supply Chain Finance Market Research, 2031 - Allied Market Research, September 2023