Blockchain and bitcoin have shown the world the concept of ‘permissionless’ participation. Everyone who feels like it and who is willing to put in the time, download the software and make the financial investment in hardware and sheer energy can participate in this growing digital economy.
Permissionless participation isn’t a new concept: it is very common in the world of infrastructure. Think of roads, electricity and railroads. Everyone with a licensed vehicle, a paid bill or a ticket can join. There are clear rules for participation and they hold for everyone. Whether you are old, young, rich, poor or foreigner. In the world of digital infrastructures, we see the concept as well: think of mobile telephony, email and browsing. Anyone from any place can join, the rules are clear and we all know the working and behavior of the particular service. Whether you are an individual, company or government. large or small, everyone is included. Inclusivity is a condition for wide adoption.
Inclusivity: The next evolutionary step
This inclusivity will be the next evolutionary step for supply chain finance. SCF is not currently inclusive. Not everyone can participate in, for example, reverse factoring which is a commonly used SCF solution today. It is the buyer and the bank’s buyer who decide whether a supplier may participate. Also, the ‘how’ (for example, the technical platform) is also prescribed by these parties, leading to situations where suppliers are forced to support a variety of technical and operational procedures to deal with multiple suppliers. More to the point, a significant group of suppliers who are excluded from this type of financing.
The promise of ‘inclusive supply chain finance’ can be delivered when relevant risk data can flow freely and safely between buyers, sellers and their respective financiers: think of data points such as invoice details and process statuses of invoices (eg, received, approved, paid). There are also the traditional risk practices of profiling actors based on past behavior and sector indicators. All these data points are available in digital form today, but they are ‘locked up’ in data silos such as ERP systems and service provider platforms.
So in order to realise the vision we need to create a digital infrastructure which facilitates this exchange of data. Relevant technologies are available, such as APIs, high bandwidth networks, blockchains, security and digital identity. We only need a harmonized approach available to everyone who chooses to participate. Financing really can become as easy as email.
The ‘inclusive Supply Chain Finance’ (iSCF) conference – now in its second year – takes place in Frankfurt on May 24th. For full details, click here.