How can SCF players survive the new reality?


Luiza Buserska, Corporate Communications Executive, CODIX, and Jakub Zalio, Project Director, CODIX, talk about how the new reality is impacting the SCF industry.

We are already living in a new business reality, driven by a number of unprecedented global events. One of them has been the COVID-19 pandemic, which has reshaped the way businesses interact with customers and partners, requiring new approaches to meeting their limitations and needs. The question is whether we can see something positive in the current situation and perceive it as an opportunity to change direction, which can and must be fully leveraged. What do companies need to do in order to emerge from this crisis and even take advantage and increase their productivity?

Never before have communication, digital connectivity and data exchange between organizations and their business partners been as high a priority as they are today. The more intuitive, flexible and reliable the digital presence a company can offer is, the more successful it will be – now and in the future. Digital “experiences” are becoming an increasingly important priority for companies and the key to success. However, their implementation requires a more integrated approach that covers all aspects and participants in the process. This is even more true for the financial industry.

Many financial institutions are already realizing that now is the right time to take an active approach to their full digitalisation. And while there are still those who think they have a grace period of several months or even years before their business experiences any negative consequences, the more far-sighted organizations are fully aware that it is high time to develop their own digital strategy for the implementation of modern solutions, in order to achieve a competitive advantage on the market.

Companies had already begun preparations for a more connected world even before the dynamically changing environment of the pandemic, which will literally force those who have remained passive so far to change their way of thinking and invest in this direction or withdraw from the market. Financial companies urgently need solutions that enable their customers to reach anywhere, connect with everyone, and integrate everything that matters to their business.

Although the process of digitalisation has already started, the new circumstances have accelerated and catalysed this course which is happening at a much faster pace and in many areas. In certain areas, this has occurred practically in days. The analysis of infrastructures and the implementation of flexible and multifunctional software solutions create a prerequisite for future development and provide an opportunity to connect customers, employees and partners to an even greater extent.

Against this background, it will be interesting to see how international trade and supply chain finance will develop in the future, given this new potential and the expanded demand for quality and fast digital services.

For the time being, the expected overall decrease in international trade is estimated to reach 15% in 2020. This can create pressure on local production and in countries that are not self-sufficient it can lead to opening new SMEs that will certainly need financing and can be part of domestic SCF. At the same time, we are witnessing lately an acceleration in the use of new technologies that allow not only remote work, but the full digitalisation of the supply chain process. The usage of distributed ledger technologies (DLT), where no physical documents need to be produced and all the information is in electronic form with proof of authenticity is on the rise. But DLT will have only limited impact on the supply chain finance industry as without solid regulation every SCF player would rather keep its own data “Inhouse” than share it. In the current climate, the level of fraud is expected to rise, as many SME businesses have already depleted their cash reserves and would need to maintain their cash flow. In this regard, factors must invest in identifying potential fraud to prevent the whole SCF industry being negatively impacted. At the same time, while many employees work and communicate with clients remotely from home, the importance of automated processes which require action from users only when really necessary, has risen as well.

Recent surveys indicate that banks remain optimistic about the long-term future of trade finance and are looking to invest further. SCF and digital trade have been confirmed as key growth priorities for banks. However, there is a big gap between players of different calibres and ranges in terms of their supply chain finance offerings and investments in digitalization. With increased competition, financial institutions must now focus on how to reach better quality offerings and greater efficiency through modern business solutions. Full automation, extensive digitization, real-time connectivity through APIs, multi-players verification, secure electronic signature integration in business processes and systems to reduce physical interaction, token authentication upon certain actions in the system such as request funding, invoice uploads, etc. – the market is transforming before our eyes.

So, we have no choice but to hope for the best – a “V” shape recovery, and prepare for the worst. That means being ready for a “U” shape and even “L” shape retrieval of the world economy and in particular – the SCF industry.

All this means that solutions must be found and implemented in months, not years. Solutions which can provide greater efficiency through automation of all business processes, enabling users to work from anywhere by maintaining high security standards. Those who are equipped with the right solutions, will be able to make a difference and support the global economy with full strength.