When JPMorgan (or Citibank) and Oxygen Finance (or Taulia…) knock on the same corporate door

Given the explosion of new alternative lending models, corporates are now being pitched by not only their bank(s) but software vendors who increasingly are coming with technologies and money to help with early payment solutions.

I have spoken to a few banks that have been beaten to the punch bowl by vendors anxious to tell their story (and of course grow). Because vendors get there first, banks increasingly have to find ways to work with these vendors (or not).

I have written about some of the more innovative small business platforms that present a real threat to banks small business lending. Innovators like PayPal, Kiva, OnDeck Capital, and Kabbage are certainly impacting SMB lending platforms.

But it doesn’t stop there. Vendors developing private pcard like models can bypass the bank interchange system and go after the huge spend in sectors like Healthcare (Hap-X) and the public sector (see Oxygen Finance).

Vendors can provide not just another outsourced AP play, but a process to do invoice reconciliation, line item management, Seller / supplier on-boarding / management, Document exchange / workflow / collaboration (e.g., PO, invoice, ASN, etc.), Finance, and much more.

Now banks risk having to cooperate with different vendors who got there first.

Unfortunately, many banks have platforms that are too rigid and they may not be willing to make changes in their system, for example, to adapt to the way they charge suppliers or send information to networks. The changes may involve huge costs when the future is still quite murky.

In addition, working with vendors this way entails figuring out the elephant in the room – how everyone shares in the revenue.

As the market moves to the cloud for document and data exchange, vendors and banks will increasingly find themselves having to work together. We may not be that far away from the following scenarios

  • A purchase order is issued via Ariba but the invoice comes in via Basware and is paid by Mastercard
  • GXS (OpenText) presents a purchase order and preshipment finance is provided by a non bank based on transaction network data
  • A corporate using GEP for managed procurement pays via Oracle Financials

My colleague Jason Busch understands the interoperability issues much better than myself, and he believes looking ahead, the interoperability of services will be central to the network value proposition.

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Voices (2)

  1. Peter Smith:

    So David, given this, does the actual provision of the supply chain finance become commoditised? That’s what I’m wondering about., which would suggest some of the market excitement / valuations in the sector might be a little on the hopeful side?

    1. David Gustin:

      Valuations are frothy to say the least Peter. Let’s just say being familiar with many vendors business and pricing models, one wonders when you do the math how much scale they would need to earn their valuations.
      As to commoditized, credit is relationship driven when you get above a certain level. Calling on a middle market company to onboard them to a supply chain finance program when what they really need is $25 million dollar line of credit is not something that can be commoditized.

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