Major companies around the world are set to reduce the amount of supply chain finance business they do with domestic banks, opting instead to deal with global banks and non-bank funding through fintechs, according to new research.
Analysts at Australian firm East & Partners surveyed more than 700 corporate treasurers and CFOs in the largest 100 businesses in each of eight countries – Australia, Canada, China, Germany, Hong Kong, Singapore, the UK and the US. They plan to reduce their total number of supply chain funding providers over the next 12 months.
The research found that corporates engage with an average of 14 banks along their supply chains. But engagement with local banks is expected to be scaled back by 6.5% while international banks and non-bank finance-providers are expected to increase their engagements by 11.1% and 25% respectively, from a low base.
The trend seems particularly strong in China where a third of companies have signalled their intention to switch towards international banks.
East & Partners Asia Business Head, Amit Alok added: “With intra-regional and international trade a cornerstone of growth for the Asia region, supply chain funding is a key financing aspect for top enterprises. The report clearly highlights that dealing with China remains a difficult proposition, both for suppliers requiring payment, and corporates seeking funding along their supply chain in that market.
“Chinese banks need to be aware of clients switching to global competitors as the market opens up. With Chinese corporates indicating that they will increase engagement with international banks by a third, domestic banks will feel the impact.”
Growing market, plenty of deals
A research report from Qianzhan Intelligence Co shows that the market size for supply chain finance already exceeds RMB10 trillion and is expected to double to RMB 20 trillion by 2021, reports The Asset.
Deals recently announced in the region confirm that fintechs are gearing up their supplier finance offerings which will compete with traditional bank SCF arrangements.
- Tech platform Tradeshift and CreditEase, China’s largest peer-to-peer lender, are offering finance to Chinese SMEs.
- Fahuidai.com, d.com.cn and Dianrong all announced that supply chain finance will be part of their future strategies.
- Taiwanese iPhone manufacturer Foxconn has partnered with Chinese online lender Dianrong to launch Chained Finance, a blockchain-based supply chain finance platform.
- IBM is partnering with China’s Sichuan Hejia to launch a blockchain supply chain finance platform aimed at the pharmaceutical sector.
Domestic banks provide Chinese companies with 74% of their supply chain financing needs with a further 14% coming from non-bank lenders and 11% from foreign banks, says GTR.
But Chinese banks aren’t sitting idly by. Citic Bank launched a new supply chain finance programme in the automobile industry, while China Merchants Bank also launched its Smart Supply Chain Finance 4.0 programme, says The Asset.
Bank of Shanghai’s Shenzhen branch entered into a partnership with financial services and technology business Flying Financial Service Holdings.
Elsewhere in Asia, CCRManager of Singapore announced the launch of an online platform for the distribution of trade finance, supply chain finance and working capital assets. It has firm backing and letters of intent from a range of banks including DBS Bank, UniCredit, ICICI Bank, Bank of China, ANZ Bank, Bank of America Merrill Lynch, ICBC and others.
In South Korea, Fin2B is launching a supply chain finance platform. Last September, Asian Development Bank signed a deal with Standard Chartered to help make supply chain finance available in Malaysia.
Global banks and fintechs seem likely to have the upper hand for some time to come. Sabine Oudart, Asian Development Bank’s relationship manager for the supply chain finance programme, said that few local banks have the appetite for doing supply chain finance deals. “This is still very, very new for them. It’s clearly a goal to also support local banks but the market in Asia is not at this stage yet.”
Sabine Oudart of Asian Development Bank is a speaker at the first SCF Forum Asia which takes place in Singapore on Tuesday 6th June. Programme and registration details available here.