Open and Closed

One of the trends in supply chain finance that has emerged is the movement to bank independent technology platforms that allow multiple banks to participate directly in a supply chain finance program rather than through a single bank’s proprietary supply chain finance platform.

CFO Magazine conducted a survey of corporates and 2/3 said open, bank independent platforms were a requirement for success with supply chain finance. As McKinsey stated, “Any bank, regardless of size and ambition, must recognize current market expectations for openness in the best-case scenario, we expect that as this market grows, big global banks will likely experience a loss of market share.”

As Enrico Camerinelli, a supply chain finance analyst, said on his blog recently “Banks have largely ceded supply chain finance for large corporations to electronic marketplaces like PrimeRevenue, Orbian, Ariba (an SAP company) or any of the eMarketplaces.”

There are only a handful of banks left who cling to providing supply chain finance solely through their closed, proprietary platforms. There are several specific reasons why the market is moving in this direction. A few of the key ones are:

1. 1. Pricing efficiency. A bank independent supply chain finance platform enables the large corporate to utilize the bank that offers the best price in each region rather than a lead bank who controls pricing to all participating banks. Further, pricing remains efficient since banks must compete on price rather than a lead bank monopolizing pricing.
   2. Deeper supplier access. Banks often don’t want to fund particular suppliers, for example, suppliers that are too small, have existing liens on receivables, are located in certain jurisdictions, have particularly long payment terms, etc. With a bank independent supply chain finance platform, the technology provider can always find a bank to fund each supplier situation.
   3. No syndication costs. With a bank proprietary supply chain finance platform, the lead bank charges syndication fees to other participating banks who then add those fees on to the supply chain finance rate charged to suppliers. There are no syndication fees with a bank independent technology platform.

Markets generally migrate from closed proprietary solutions to open solutions as they mature and we’re seeing that with supply chain finance.