Cash management: After the goldrush
Supply-chain finance has been the big hit of the crisis for transaction banks. The product was pushed over the past decade without any big success and has now taken off as working capital has become crucial to companies’ survival and buyers have recognized the fragility of their supply chains. Can market growth be sustained? Laurence Neville reports.
ALTHOUGH SUPPLY-CHAIN finance is not broken out in transaction banks’ results – and there are no independent data sources – growth is thought to be running at hundreds of percent a year. No one doubts that supply-chain finance is becoming a core product for banks but inevitably some are questioning whether or not the current pace of growth can be sustained as the global economy recovers and financial markets normalize.
In the supply-chain finance gold rush, most of the spoils are going to the world’s largest transaction banks – for international mandates only they have the necessary coverage for implementation. Given the relatively recent success of supply-chain finance it is perhaps unsurprising that banks have yet to effectively differentiate their products. Other than network reach and local market knowledge there is little to separate most of the big bank’s offerings.
The runaway success of supply-chain finance poses questions about the sustainability of its business model. By definition it requires banks to lend more, to a wider range of entities – many of which are relatively small and are often in emerging markets. New models for distributing and sharing risk might be necessary if global transaction banks are not to find themselves restricting supply-chain finance through lack of available balance sheet.