Why Factors Should Care That We Are Moving From Analog to Digital

Banks and other lenders face challenges from up-starts (e.g., Tungsten, Taulia, Nipendo, Amazon, Basware Pay) and non-bank lenders (e.g., private equity, asset manager) when it comes to financing trade today. These new models are leveraging data, algorithms, and non regulatory money to provide a source of lending to vendors that previously had to wait until their buyers paid the bills.

My colleague Jason Busch believes banks will face this disintermediation quite aggressively in the coming years. He says,

I have a strong feeling that traditional banks are going to face a rising tide of disintermediation from alternative lenders that leverage technology (both their own and third-party tools). And factoring lines of business, especially the ones that fail to make the transition to technology-enabled finance leveraging visibility into trade documents and approved invoices from buyer systems, are in for perhaps the rudest awakening of fall.

He certainly has a point. Traditional factoring is seller-focused, labor-intensive and consists of several distinct services: receivables monitoring and collection, credit assessment, payment guarantees and financing that can be replaced in an automated fashion by networks.   What will the market look like in three to five years?

With bank intermediated credit being the dominant form of finance, relationships can die hard. But collectively, banks must hold way more equity than they did pre 2008 and this equity is really expensive. This has enabled non traditional players to make great strides.

I will be hosting a webinar on this topic later this month with the Commercial Finance Association.  I hope you can join.

 

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