A 2015 McKinsey report suggested that SCF (Supply Chain Finance) had a potential global revenue pool of $20bn, while in 2017 China’s supply chain finance sector was tipped to reach US$2.27trn by 2020.
Supply Chain Finance (SCF), also known as supplier finance is a set of solutions to help bridge the financing gap between buyers and suppliers being adopted within global industries to optimize working capital, speed up process flows throughout the supply chain, enabling various forms of financing solutions and improving liquidity.
Businesses can use supply chain financing to build stronger relationships with suppliers by providing short-term credit that optimizes working capital for all participants, decrease currency risk and ultimately improve liquidity.
Widely underserved by banks, Supply Chain Finance (SCF) companies are quickly becoming the lending solutions partners for the MSME (The Micro, Small and Medium Enterprises) sector. Due to the intricacies and lack of transparency of current supply chain systems adoption by MSME is not as robust as it could be. However, with SCF solutions integrating emerging technologies like blockchain, IoT, and Artificial Intelligence to address these deficiencies and others the industry is set for explosive growth.
Blockchain, IoT and Artificial Intelligence — A Trillion Dollar Trifecta
Integrating blockchain, AI and IoT into Supply Chain Finance can improve SCF in a variety of ways. Utilizing blockchain can make every payment and every supply chain transaction more transparent, manageable, and easily authenticated creating end-to-end real-time supply chain visibility. IoT provides an integrated network of devices, that connect and exchange data allowing for real-time ‘track and trace,’ reducing risk and improving financing efficiency. And artificial intelligence supplies data that helps a business make more informed decisions about their working capital, simplifying the decision-making process.
“IoT is experiencing double-digit growth according to the IDC’s (International Data Corporation) Worldwide Semiannual Internet of Things Spending Report and will top one trillion USD by 2022. IoT will increasingly be governed by Smart Contract grids sequestered on Blockchains interacting with AI (Artificial Intelligence) and optimized, decentralized, & connected utilizing (DLT Distributed Ledger Technologies). IoT will be central to a myriad of industries including manufacturing, transportation, and energy production and distribution. Considering that nearly 80% of aggregate corporate spend originates in Procurement, Global Trade & Trade Finance are becoming central beneficiaries of these emerging technologies that are becoming intertwined in the old maxim, ‘the sum is greater than the parts’.
China leads the world in Blockchain investment (25%; investinblockchain.com), spending on IoT (159.1 Billion USD; IDC), and, considering that more than 20% of the world’s goods are manufactured in China (Brookings Institute), Trade Finance and Supply Chains are increasingly becoming the targets of these emerging technologies. China now has several Supply Chain solution platforms utilizing DLT, most notably for Supply Chain Finance to transform Accounts Receivables into healthy cash flows, efficient inventories and new immediate opportunities for financing & lending, particularly for SME’s. Small manufacturers no longer need to wait six months, a year, and sometimes longer to receive payment which contributes significantly to unhealthy Supply Chain ecosystems. Now, even small suppliers within a large supplier’s ecosystem can maintain healthy balance sheets by using DLT vouchers for Letters of Credit.
This is just the proverbial tip of the iceberg for these massively disruptive and ultimately, egalitarian technology tools.” — Randy McGuire, Liquid Ledgers CEO
“For BUMO, the most fascinating part of the blockchain based supply chain finance solution is that blockchain serves to solve the key pain point of traditional supply chain finance, which is the lack of TRUST between the financial institutions and small suppliers regarding the capability of repayment of small suppliers. Leveraging the trust mechanism of DLT, credibility can be transferred from large buyers to the bottom layer suppliers, which will benefit the whole ecosystem. From one success story built on BUMO, we can see that small businesses got the funding they were urgently in need of in a prompt and low cost way. Large buyers can negotiate even better terms (more discounts or even longer days for accounts payable) with their suppliers, and banks have access to more clients (one of the banks client base has increased greatly [5x]) and their volume of financing services increased dramatically (11 times increase in SCF business).” — Kevin Liu, Director of BUMO Foundation
These emerging technologies are still in a nascent phase, but the substantial promise they represent is already being realized to solve extensive problems in the supply chain central to the global economy. As the technologies become more integrated, innovated, and refined, they will become integral to all facets of Global Trade. As this transition and evolution reach critical mass, Quantum Computing will be mature enough to power and scale the increasingly massive computational requirements.
It’s a fascinating future that is beginning to unfold now, in Supply Chain Finance.
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