Commenting on key developments that may impact the growth of receivables finance

Receivables finance is a business that has evolved in a significant way over the last years. It has gone from a traditional model, in which the risk was mostly based on the commercial contracts supporting the transaction (bill of lading, letter of credit, etc.), moving to receivables finance in open account basis, in which risk has to be analysed for each of the counterparties. In the last years, the use of insurance to cover the underlying risk has become very usual in the market, increasing the capabilities of the banks. These evolutions explain in part the double-digit growth seen in the last 10 years in this business. However, we still see a lot of room for development in this field.

How would you comment about SCF’s development over the next five years compared to what you thought one year ago before the Brexit results and Trump being elected?

These political events are going to make free trade and global supply chains more difficult to manage, but they will not be strong enough to reverse the trend of globalisation - especially considering we also have a lot of technology developments that make this thesis irrelevant. Supply chains will remain global, the need to finance them will remain, but it will probably become more complicated. The task and opportunity for the banks is to improve the way they understand the localities and, on the other side, how good they are at connecting all the dots and making sure that supply chains function and that the financing of the supply chain keeps functioning, even if they are now more physical and economical across states.

Can you comment on the market for mid-cap buyers buying from Asian suppliers in supply chain finance?

I would say certainly that globalisation, although there are some threats to it, is still here and Asian suppliers need much more cash then European or North American suppliers would. These are very small companies and even if they have access to bank finance it is very expensive. So really, in this case, the arbitrage between the interest rates that European or North American companies would pay versus the SMEs in Asia is certainly beneficial to Asian companies. So supply chain finance is certainly, in this case, used at its extreme meaning – really playing on interest rates to facilitate the pre-shipment finance which is so important for these SMEs in Asia.

Is Bank Payment Obligation (BPO) still alive?

Yes, it is alive. The potential is there and the business is growing, slowly but steadily. In the last year we have seen a growing interest in our corporates for the BPO, on the import and export side. The biggest hurdles we experience are banks that have not invested in the BPO yet or are not BPO ready. We try to support them and get them ready and we are happy to share our experience. Banks might hesitate due to investment reasons, lack of knowledge regarding the business potential or problems to create a business case. I see growing potential for the BPO, steady increase of BPO business and hope that the BPO reaches the tipping point in the near future.

Should we be concerned about global protectionism coming in after Trump’s inauguration?

Yes, absolutely. This is a tendency that we cannot afford in a country with volumes of trade at stake. This can also contaminate other countries with a reaction of whether they should do the same thing, then it will be global and we do not even know the size it will become. The entire world has been working in recent years for an open global market and now we are going in the opposite direction.

Pondering the possible impact of Trump

“Trump may or may not have some influence on changing things to make it easier for banks to lend, and supply chain finance is ultimately a form of funding. I think that, on the regulatory front, there won’t be much difference. Obviously if the economy is stimulated then there will be more business and more trade, but if there’s shorter supply chains there might be less supply chain finance.”

Addressing the fintech challenge- time for factors to act?

Commenting on the juxtaposition of fintechs and factors in the receivables finance industry, Michael Bickers acknowledged that traditional factors are well trusted, but noted that fintechs are quickly closing in on this advantage. He said: "factors need to ensure that they understand the rapid changes and developments that are taking place in this now challenging environment".

FCI’s Deputy Secretary General reacts to Brexit

Commenting on the future of the ABFA within the EU Federation, Erik Timmermans said: 'ABFA, together with IFG, is the founding father of the EU Federation initiative and it would be very sad to see them leave. On the other hand, considering the focus of the EU Federation on EU regulation, this only offers value to associations in EU member states.

Supply Chain Finance Summit 2016

Commenting on the Supply Chain Finance Summit, Lionel Taylor, Managing Director at Trade Advisory Network, said that the Summit reflected 'One of the best agendas', and contained 'a good contingent of treasurers which changed the nature of the debate'.