Can FCIreverse avoid the same results as SWIFT’s Bank Payment Obligation?

Recently, FCI and Demica announced an interesting partnership. In my words, it went something like let Demica be the low cost platform for supply chain finance, and leverage FCI’s network and infrastructure to build out supply chain finance to the middle market. In essence, develop a 4-corner model so banks dealing with an obligor that isn’t highly rated can still do cross border supply chain finance in a low cost manner, without the high fixed costs of onboarding, KYC, AML, etc.

This makes a lot of sense. At first it reminded me of another 4-corner model that SWIFT launched back in 2013 called the Bank Payment Obligation. I have written about this payment instrument numerous times (see here here and here)

But FCIreverse is different to SWIFT’s BPO. As Matt Wreford, Demica’s CEO explains, “the BPO is a great idea but requires banks to adopt a new payment message into their IT systems, get a new product approved for the guarantee, and then doesn't solve the real challenge of buyer/2 banks/supplier collaboration to roll out the program.”

The primary aim of FCIreverse is to unlock supply chain finance for FCI Members and their middle market customer base by giving them access to a pay as you go platform. Tthe second aim is enable cross border supply chain finance by supporting collaboration between multiple banks. FCIreverse uses Demica's infrastructure already in place, the guarantees between the 400 members of FCI that already exist, and has no bank IT integration requirements and uses existing receivable purchase agreements so the barrier to adoption is low enough to market programs to the middle market.

Will it succeed? It certainly sounds like this venture has merit. I know regional banks that dont have an answer for supply chain finance, chiefly because middle market lending sits squarely with the Asset Based lenders who are all about collateral and secured lending. It is hard to find a champion for supply chain finance when you not only have to fight credit risk, but also IT folks, and develop onboarding skills, etc. If FCI Reverse can help to enable banks in different jurisdictions to collaborate better, it’s a potential win for the middle market companies doing business overseas.

Global Business Intelligence is conducting market intelligence here to discover how financial service providers and specialty lenders are creating middle market supply chain finance solutions and how banks are addressing opportunities here. 

For those interested in the current research, contact me at dgustin@tradefinancingmatters.com

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