The Factoring World has no Amazon – Yet! David Gustin - October 4, 2016 1:30 AM | Categories: Receivables Finance | Tags: Amazon B2B, data science, Factoring World, receivable auctions, Tokenized invoices When Amazon gets involved in a business area, you can bet the current incumbents are shaking in their collective shoes. There will be disruption. The Giant has too much tech, too much capital, and too many resources. Just a few examples of the dominance include 55 percent of online shoppers start their products searches on Amazon and 185 different types of distribution centers in the USA alone (eg. Prime Hubs, Delivery stations, sorting centers, etc.) If you look at valuation, Amazon’s market capitalization is $400 billion compared to some banks (Deutsche Bank $13 billion; CIT Group Inc. $7 billion, Barclays Bank $25 billion and non banks (PayPal $45 billion, Ant Financial $60bn). So what does Amazon have to do with the world of factoring? One area is people. Data scientists combined with an understanding of credit and new risk and underwriting methods are the new rock stars. They don’t work in the banking world. The data contained in procurement networks, b2b networks, einvoicing networks, Transportation SaaS companies, Construction SaaS companies, etc. is enough to make the idea of Petabytes seem quaint. No one knows when this combination of data science, digitization and new risk and underwriting models will reach a tipping point, if ever. But I wouldn’t bet against it. Traditional lenders are inundated every day by the PR hype machines. Let’s face it: Blockchain is not (yet) impacting the factors world – tokenized invoices and new forms of payable and receivable finance using blockchain have a ways to go. Receivable auctions have not had an impact on factors. Neither have procure-to-pay (P2P) systems, with new forms of early pay finance, from Ariba to Tungsten and in between (including dynamic discounting) had an impact yet. Network-based factoring replacement models (e.g., Basware) have not yet scaled Supply chain finance is not really impacting their customer base – at best one or two clients may partake in programs. What has had the most impact is the merchant cash advance market on small factors. I have talked about how MCAs have an advantage given control over cash. But again, this only impacts small companies, typically below $10 million. So with no Amazon on the horizon, you can feel the only competition is beating the brains in of your fellow lenders. But I would bet every enterprise customer will have some early pay capability (and most likely a suite of them) in a few years. And if their suppliers, the customers of factors, start getting good rates to retire a receivable in 5 days, perhaps we dont need an Amazon. If your model still relies on an origination team, brokers, credit underwriters, document administrators, you may find receivable erosion over time. Or maybe not, maybe we are suffering a fool’s gold. But I wouldn’t bet against it. Nor would I bet against Amazon and other big data experts getting into the factoring game. Don't forget to sign up for TFMs weekly digest delivered to your inbox every Monday here Related Articles Die Factoring, Die – Middle Market Companies Use of Early… Die Factoring, Die – Middle Market Companies Use of Early… Are Merchant Cash Advances eating into Factors Market at Low… Are Early Pay Techniques Eroding Receivables for Traditional Collateral Lenders? Key Differences between Asset-Based Lending and Traditional lending Can Banks Really Provide Holistic Working Capital Solutions in this… Voices (2) David Gustin: 05.10.2016 at 1:24 pm Conrad I dont disagree, but we are talking about companies with revenues above $20 million that have much more complex issues than a small business. Cheers, David Reply Conrad Ford: 05.10.2016 at 11:15 am I’d wager that it will be growing adoption of accounting software APIs (think Xero, QuickBooks Online, etc) in tandem with the dawn on bank account APIs that will truly disrupt the SME factoring market, as simpler, faster and cheaper alternatives emerge based on live visibility and/or control of an SME’s sales ledger. That doesn’t need an Amazon, but it certainly needs good tech! Reply Discuss this: Cancel reply Your email address will not be published. Required fields are marked *Comment Name * Email * Website Notify me of new posts by email.