2014 TFM Year in Review Part 2

Continuing on our theme on what has impacted the world of business credit, trade finance and working capital in 2014, let’s look at three more trends:

Finance comes to einvoicing and eProcurement

I think the significant thing here is that the market for approved payable finance, or when a seller has shipped, invoiced and the buyer receives and approves, was a dormant market where the asset created, a receivable, stayed on the sellers balance sheet. No more. We now have many ways to liquidate that asset. And these platforms, be they Tungsten, Ariba, or Taulia or someone else, are set to further take off in 2015.

The big differentiator between all these approved payable propositions is that there is only one solution that is actually a bank (Tungsten). Tungsten is the only one that has access to their own database. That is mutually reinforcing. Everyone else either relies on the corporates own cash or third parties. And speaking of third parties, that leads us to our next trend...

Non Bank investors are raising significant capital to invest in alternative finance assets

Investment advisors, asset managers, brokers and others are all trying to figure this out. Orchard, Blue Elephant Capital Management, ApexPeak, Greensill Capital, and others have either raised capital to invest in platforms, are advising others, and or are acting as brokers in the world of business credit and non bank capital. So far, in many cases, demand for these alternative assets has outstripped supply – this has proven the case for invoice auction exchanges, einvoicing networks, and others.

The story is different for installment loans generated by the likes of Lending Club, Funding Circle or others. While banks are major investors, funds are being raised in the market with a specific focus on investing in these platforms.

But these funds should bear in mind that small business loans can have significant loss rates. At the time after the financial crisis, Bank of America reported that its annual loss rate on small business loans was almost 12%. Which leads into the third point...

The issue of bank capital requirements matters deeply

The issue for platforms is that if banks decide to exit lending, it could be a big deal. And I am sure any bank of critical size is analyzing what businesses to be in and what to divest or not grow due to capital issues.

If macro environmental changes were to take place, all bets could be off. Recent news of the additional capital requirements and shortfalls at major banks (JPMorgan mentioned to have $21 billion capital shortfall) could have serious ramifications. On top of that, banks continue to irk regulators around money laundering (Government to keep tabs on Standard Chartered for three more years) and other compliance faux pas.

It should make for a very interesting and dynamic 2015! Stay tuned and Happy New Year everyone!

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