New era of Efficiency in Supply Chain Finance – Demica

In its recent supply chain finance forecast, Demica identified a number of key trends in trade finance amid major global economic shifts

Demica, the award-winning supply chain finance platform, powers the trade finance programmes of many of the world’s largest trade banks and corporations.

It's these programmes that enable companies to strengthen their supply chains and redeploy capital to drive growth. 

In its recent finance forecast, Demica identified a number of key trends in trade finance amid major global economic shifts. 

Increased direct origination of supply chain finance deals

Demica predicts a strategic shift in the funding markets for supply chain finance over the coming months. Banks that have built their assets through sub-participations will accelerate the origination of these transactions directly.

Given the persistently high interest rate environment, this move is not only driven by a need to build customer intimacy and capture more margin, but also by the necessity to manage the impact of increased borrowing costs on profitability.

Large private credit funds that have been building funding platforms are starting to reach scale and compete, notably in the US where pressure has been felt at the regional banks following the collapse of SVB and others. 

Open account trade drives investment in technology

Banks are expected to significantly ramp up their volume of supply chain finance assets. It's a strategic shift responds to the evolving global trade finance landscape, which is moving away from traditional documentary credit methods towards greater reliance on open account trading.

Open account trade accounts for approximately 80% of all international trade, according to the Wolfsberg Group, International Chamber of Commerce (ICC) and BAFT.

Banks are set to focus on enhancing operational efficiency and risk management by integrating advanced technological solutions. Key developments will include the implementation of portals and digital onboarding platforms featuring straight-through processing, which are vital for reducing the risk of fraud and errors inherent in open account finance systems.

These technological advancements are crucial for maintaining banks’ profitability in trade finance and for navigating the complex landscape of modern financial transactions.

More fintech partnerships in trade finance

A significant increase in partnerships between banks and fintechs is anticipated by Demica this year. These collaborations are essential for replacing outdated legacy systems, enhancing customer experiences, and accelerating the development of new products.

Global trade bank leaders continue to emphasise ‘trade transformation’ projects as integral elements of their future strategies. In India, innovative fintechs like CashFlo, CredAble, FinAGG, Vayana and Veefin are revolutionising supply chain financing, pioneering solutions in AP automation, working capital tech platforms and comprehensive supply chain finance technologies.

Fintech companies are integrating financial services into their sales models, creating new financing opportunities across various industries. This innovation requires strong partnerships between fintechs and traditional banks, as well as active engagement with the broader financial market, to effectively deliver services.

Fintechs are already partnering with key players in the financial ecosystem, significantly contributing to the growing market demand. Their collaborative efforts are leading to the rapid adoption of new technologies in the financial sector, particularly in emerging markets like India, where the absence of legacy systems facilitates faster integration of innovative solutions.

Beyond market growth, these partnerships are proving beneficial in enhancing financial performance and stability for businesses, especially in times of economic volatility.

Sustainability agenda in supply chain finance takes shape

Sustainable finance is braced to take a significant leap forward, particularly in emerging markets.

We're likely to see innovative approaches to extending supply chain finance to smaller producers and suppliers in emerging economies, according to Demica. Partnerships with supranational institutions will play a pivotal role in bringing financing solutions to more businesses through shared banking infrastructure.

These initiatives will be instrumental in democratising access to working capital across the continent, aligning with the broader development goals of global financial institutions. In developed markets, funders will continue to provide preferential rates for programmes supporting the supply chain in industries that drive decarbonisation.

“Banking will continue to face challenges from global volatility," comments Maurice Benisty, Chief Commercial Officer at Demica. "However, our analysis indicates a strong push towards innovation and adaptation, with banks and fintechs collaboratively shaping more flexible and efficient supply chain finance programmes.

"These initiatives, while navigating economic headwinds, are set to mark significant progress in sustainable finance and democratisation of financial access in emerging markets."

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