Can Banks Really Provide Holistic Working Capital Solutions in this Digital World?

I hear many banks in the global trade, treasury and commercial finance areas are keen on providing holistic working capital solutions to their clients that goes well beyond point solutions such as dynamic discounting or reverse factoring.

In fact a number of banks have even combined their trade sales staff under the Treasury Management banner (ie, cutting trade sales staff and hoping treasury sales can sell the myriad of cash and trade products).

Banks talk to me about how do you execute a holistic working capital model, make it scalable and work with partners. It’s a very challenging landscape for banks for a number of reasons:

  • Analytics – While banks invest in tools to help manage spend files, most of the focus has been payables analysis. Very few banks can take a corporation’s spend file and recommend what works best for their direct spend, indirect spend, intercompany spend, and perform scenario modelling and do this across a number of business units for the bank, including trade finance, commercial cards, and lending. On the receivables side, some global banks partner with platforms and managed service providers to take a company’s accounts receivables and determine eligibility for funding, fraud screening, account receivable profiling and analysis, etc. But most banks and specialty finance providers lack this capability today.
  • Networks - Most bankers I talk with have little detailed knowledge of the vast differences between source to pay and order to cash networks. For example, the differences between an AmeriQuest, Coupa and Taulia, while all providing B2B and Purchase to Pay services, are immense. Spend Matters has detailed numerous trends shaping both the evolution of network technology development and e-invoicing and supplier connectivity/document exchange adoption, as well as use cases for network solutions in the market. These include everything from the convergence of technology and managed services (eg. tax compliance) to EDI replacement. See e-invoicing market outlook 2016-2018
  • Interoperability – This is a poorly understood area and one that many think is a technology problem.   Interoperability between networks will not come easily, and is more of a tolling issue than an API issue.  Why? Because each individual network has their own pricing matrix that gets disrupted under an interoperability method. Banks, believing they are the center of the universe due to having the account data of their clients, make vendors play by their rules for passing payable or other file information. But if they are to play more aggressively here with solutions that involve taking PO data, shipment data, including data between networks, they need to understand interoperability issues.
  • Tie-in with Logistics – Core to any transactional trade finance product is information richness and the potential ability to manage collateral. Logistic companies play a critical role because they have data around physical moves and typically offer portals to manage operational information (e.g. Pending orders, Shipment bookings, goods receipts, etc.) Accessing this data is not easy. GT Nexus can tell you how hard it is to connect to 100s of logistics and transportation vendors and major freight forwarders to aggregate data to enable tracking goods flow.
  • Supplier Onboarding – This is an area banks have historically underachieved. In the early days of reverse factoring, supplier onboarding was a necessary evil to gain flow. Today, it’s a Trojan horse for many areas, ranging from maintaining accurate supplier master data to managing e-invoices and other transactional documents to receivables and payables financing — and much more.
  • Sales and Silos – Banks are looking to cut costs in this era of low or declining revenue for many businesses, including trade finance. In addition, holistic working capital solutions cuts across many bank silos – including commercial finance, factoring (if they offer it), securitization, treasury, trade finance, commercial cards, and others. Developing holistic working capital solutions means figuring out the sales model and proper incentives. Some banks will double or even triple count trade finance and receivable finance revenues today to provide incentives. To me, that is just putting gum and paper clips on a silo model.

As more banks struggle with designing solutions that take a more global view, they will need to address many of the above issues. In the meantime, non banks and transactional finance platforms will continue to nibble at their heels.

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