No Supply Chain Finance League Table Hinders Market

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Everyone talks about the growth of Supply Chain Finance (also known at Reverse Factoring or Approved Trade Payable Finance), but when I tried to get the major players to develop a League Table, very few wanted to lift their kimonos.   That is unfortunate, because how can you comment on a market when you don’t have any idea of its size, only guess work from analysts and consultants based on private conversations with asset originators, mainly banks.

I was talking to a banker (who wishes to remain unnamed) and he believes cross border reverse factoring programs are much smaller as a percentage of assets versus domestic.  He believes the majority of these programs are domestic (ie, a Brazilian Buyer with a Brazilian supplier).  By being domestic, they are easier to book, do Know Your Customer on, etc.

The problem is we just don't know because there is no sharing of this data.  I understand at a minimum we would need the following conditions:

1. anonymous data (it would need to stay anonymous due to many banks not providing otherwise)
2. Transparent, auditable process (ie, onsite verification)
3. Specific product definition

These programs can be defined and what needs to be done is to have an audited Post Shipment Buyer Approved Invoice data for market sizing.  How can a secondary market be established without proper market sizing?  Right now, the banks have the luxury to be able to distribute any required capacity to regional banks, who are both deposit rich, asset hungry, and do not have the origination capability to sell this product. Therefore, they help fund these programs originated by the likes of Citibank, JPMorgan, or PrimeRevenue.  But recently, the insurance industry received approval to invest in these assets, opening up another huge source of capital looking for short term, fixed income yield –see Insurers now free to invest in Trade Finance Receivables.

One vendor told me banks are not going to want the market to know how limited their deployments are especially when you talk about credit utilization.   For example, he mentioned an auto manufacturer in Europe who deployed a European Bank and 12 months later they had 0 suppliers operational.

I think the market could greatly benefit by this data and transparency.   Otherwise we continue to guess growth and overall market size by region.

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