Supply Chain Finance (SCF) has continued to exhibit strong growth in the last two years, according to latest research from Demica, which reveals average annual SCF growth rates between 30% and 40% at major international banks. The SCF market is expected to continue to expand strongly to the end of the decade, although the pace of growth will moderate to 20-30% per annum by 2015, and 10% per annum by 2020. Demica’s research, conducted amongst global banks and a qualitative sample of international corporates, illustrates the climbing demand for this supplier finance facility and its increasingly significant role in banks’ trade finance portfolio.
Financiers surveyed in this research exercise believe that the highest growth of SCF currently originates from the US and Western Europe, in particular the UK and Germany. Eastern Europe, India and China are considered the top three regions with future SCF market potential. The driving forces behind the rapid growth of SCF are:- the provision of liquidity to suppliers, working capital optimisation as well as enabling payment discounts and/or lower financing costs for suppliers. Technology will also contribute to the advancement of SCF, in particular the growth of e-invoicing systems is seen as a significant market accelerator by the majority of the banking community.
Almost 90% of the bank respondents regard SCF as a need-to-have financial product for corporate buyers, with more than three quarters of them considering it an added-value product. In the medium term, bank financiers expect domestic SCF programmes to become an absolute “must have” for corporates, while intensified competition will standardise and commoditise the domestic SCF service offering. Bank respondents also see cross-border SCF programmes further establishing themselves as an increasingly crucial facility, but indicate that their “added-value” status will be retained by virtue of such schemes’ greater complexity.
Phillip Kerle, Chief Executive Officer of Demica, comments, “The upward growth trajectory of SCF witnessed by global banks demonstrates the growing importance of this facility in the trade finance armoury. In addition to the working capital benefits, nowadays businesses are also placing greater emphasis on operational efficiencies and cost reduction. The increased transparency and visibility in payment processes facilitated by SCF will therefore prove to be a particularly valuable asset for suppliers and corporates alike.”
* Research was conducted amongst global sample of banks during April and May 2013. Specifically, the research was conducted amongst the European top 25 banks, plus a qualitative sample of international banks from Asia, Australasia, Africa and the United States. Furthermore, the same questions were also presented to fourteen international corporations to gather qualitative validation of the trends identified by international banks. The selected sample of international corporates ranged across a spectrum of industries including telecoms, automotive, information, retail, manufacturing, construction and consumer goods. Global bank respondents were asked about their views on the growth of SCF, their perception of this financing facility as well as their banks’ approach to this offering. Corporate respondents were interviewed on their usage of SCF, main drivers for introduction, experience with the programmes and implementation difficulties.