Tech is driving down the cost of funding in supply chains

How commercial lending technology is driving down costs and time-to-money

Barclays, the multinational bank, says the cost of funding in supply chains, financing gaps, and time-to-money are all being driven down by improvements in commercial lending technology.

James Binns, Global Head of Trade and Working Capital at Barclays Bank, spoke at a Fintech Finance Virtual Arena event on the digitisation of trade and working capital, with Trade Ledger’s CEO and Co-founder, Martin McCann.

James said: “I see a far more efficient, consistent, predictable source of funding across supply chains.” With technology transformation, he said, “we’ll end up with a more open technology setup, and will be able to offer a more simplified, focused solution-set and processes, enabling a much faster decision-making environment. It’s not just about the banks, it’s also about how quickly businesses can approve invoices and make payment decisions. That fast decision-making will drive quicker time-to-money, which will drive down the cost of funding, and financing gaps, in supply chains.”

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"Supply chains will compete against each other on the basis of how efficient their funding is”

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– James Binns, Global Head of Trade and Working Capital at Barclays Bank

Consumer-style experiences for working capital

Advances in technology also lead to better customer experiences. APIs – which provide data connectivity for business finance software – are proliferating in both enterprise and banking systems, said Martin. “This means that [banks’ business] customers can simply connect up, and have a more consumer-like experience, like what's been happening in retail banking for the last 10 years."

"You get the ability to move to a needs-based analysis, and the ability for more frictionless consumption of lending products”

– Martin McCann, CEO, Trade Ledger

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He said: “The key concept we're seeing here is a move away from the vertically constructed Manufacture / Distribute / Service product concept that's dominated the banking scene for probably three decades, to a customer-centric, needs-based analysis approach, where the customer might not even know the definition of the products. They just know the outcome that they need – better cash flow management, bridging a gap in cash flow, or some changing dynamics in the way that their business operates, which impacts cash flow.

“When you connect up the data of the business with the expertise and systems of the bank, you get the ability to move to a needs-based analysis, and the ability for more frictionless consumption of the lending products that the bank can offer to help those customers.”

“Within three, or certainly five, years, the types of products, and the basis on which banks compete within trade, financing and working capital credit products, will be very different than it is today. A lot of the blockers that have been there in the last three years are either already gone or they will be gone within three years. That's how fast it's going to happen.”

More data means simpler funding

"It simplifies how we provide funding to the working capital cycles of supply chains”

– James Binns, Global Head of Trade and Working Capital at Barclays Bank

James said that the big banks are now willing to put their transaction engines and platforms onto externally hosted cloud lending platforms, with API gateways off them. “Once you've got the connectivity, then you can start adding different data feeds over a period of time, layering on the data you need to make more decisions.”

But this doesn’t lead to complexity: “In a trade and working capital environment, [there’s] not just invoice and payment data, but also all the logistics data, the shipping data and other types of data, associated with the movement of goods and services. It ultimately simplifies everything that we do and how we provide funding to the working capital cycles of supply chains.”

Supply chains will compete on how efficient their funding is

“When you can start to optimise the working capital cycle at a supply chain level, that's where you can really drive significant benefits in terms of the cost of delivering product to end users,” said James. “Ultimately, I think, supply chains will compete against each other on the basis of how efficient their funding is end-to-end, particularly if and when we move back into a higher interest rate environment.”

Small businesses have more data

Lenders shouldn’t overlook SMEs, said Martin. They “have much more digital data than larger corporations. All their accounting and operating systems are cloud-based [and] API capable. And the data structures and the richness of the data that they have is generally better than larger organisations with systems which are typically 15 plus years old."

Until now, he said, “It was difficult for banks to understand how to consistently evaluate the situation with those businesses. With larger business there's a higher degree of consistency. But now, with better data, you can have much more customised propositions and even new products designed specifically for SMEs by the bank.”

Building an ecosystem

Martin said banks are becoming interested in forming value chains or ecosystems. “We're starting to see an appetite by banks to say: Here's the segments that we can service; here's the things that we would love to be able to service but for various reasons we can’t – it could be cost to serve, regulatory, or risk appetite – they may be able to form a value chain where they provide only part of the solution. For example, banks are very good at regulatory compliance, know your customer, anti-money laundering and so on. So they might offer that as a service to a non-bank lender to provide a cash management or credit service, which [banks] are unable to offer to that sector.

It's a collaboration to create a new type of proposition, where components of that value chain are contributed by the participant in the ecosystem who can best provide that, at the lowest cost, consistently.”

James agreed: “With the connectivity that we're talking about, there's the ability for new players to come into those supply chains to start enabling funding, to reach parts of the supply chain that we just can't at the moment. And I find that hugely exciting.”

Watch the half-hour discussion by clicking on the image above, or get in touch to talk about value chains, APIs, ecosystems or any other aspect of business lending technology.

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