What is P2P? Purchase-to-Pay or Peer-to-Peer?

Investors and Technology Vendors need to learn each other’s language

A big part of the reason Jason Busch and I decided to form Trade Financing Matters is that we saw worlds colliding from different perspectives. Jason saw things from his years being involved around innovations in electronic marketplaces, e-procurement and networks, and I saw things with more of a bank, credit and capital markets perspective.

What we both have found interesting is that the terminology and understanding from many sides needs to come together. And that will take time. Take a simple acronym example such as P2P. One could easily be referring to peer-to-peer lending or purchase-to-pay. Take your pick.

When I first started reaching out to technology vendors and started asking them about KYC, asset management, perfecting interest in collateral, Basel III, IFRS accounting for rebates, etc., understanding was at best rudimentary and many times nothing at all. Or as one of my colleagues likes to say, Crickets.

I find it very interesting as structural changes continue to manifest. GE exiting non-captive finance is just another example. There is no doubt we all sense times are different. We know banks and non banks have different compliance regimes and this is providing opportunities for third-party capital. We also know companies are flush with cash and adopting integration technologies in the cloud that present opportunities to fund their supply chain. Meanwhile, marketplaces are exploding with innovation beyond search and discovery.

But things are much more complicated than we give them credit for, and much of the hype generated out there takes these trends and comes to an oversimplified conclusion. We all wish the world was that easy.

Not a week goes by when another fund is established to invest in P2P (that’s peer lending), or trade finance (however that gets defined), or inter-firm trade credit. Some of us know banks cannot maintain the leverage they once did. That is a structural change in the market. When you read about these funds, 2 things come to mind: ownership and management. They are different functions and it is critical to understand the relationship between the owner and manager of a fund.   As you’ve seen from a prior post I did, banks have been both. That is not good. It pays to read the fine print and find out who advisors are working for.

There are many companies now that are playing the role of advisors around this space. Advisors can originate and structure assets – they can be involved in servicing, brokering and structuring, but generally receive no fees for managing money. Asset managers receive fees for managing funds and are generally paid for assets under management (AUM).

As to investors, one thing they need to fundamentally understand is what vendors are manufacturing assets that can (potentially?) be sold to third parties. There really are only a handful of these e-invoicing, supplier network, etc., vendors out there. Understanding where and how these vendors transfer assets is a first step.

This continues to be a fast moving and developing space, an area I like to call Connected Commerce. Jason and I will continue to cover developments here that bring insights and not just regurgitated news stories.

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