Seizing the opportunity: How innovation and economic uncertainty can reshape supply chain finance

By Tony Duggan on 5th April 2017

P2P/Marketplace LendingAlternative CreditInvoice Funding


 Seizing the opportunity: How innovation and economic uncertainty can reshape supply chain finance

As Prime Minister Theresa May prepares to pull the trigger on one of the most momentous political decisions in recent history, investors across the globe are set to prepare themselves for the aftershocks. Currency volatility, rising inflation and continued political uncertainty are just some of the hurdles that need to be navigated in the on-going search for yield.


What is clear is that whilst the road ahead will undoubtedly be bumpy, the alternative finance sector once again finds itself uniquely positioned to play a key role in supporting the traditional financial services system, and for investors that creates significant opportunity.


Yes, the doomsayers will shout that many platforms remain untested through the cycle and it’s true that in a worsening environment for both consumers and businesses, defaults are likely to increase. But we must also remember that the sector’s explosion has been fuelled by innovation and the ability to combine specialist knowledge with technology led platforms that increase market participation and disrupt traditional operating models.


When viewed through that lens, the future looks significantly brighter.


Take the example of supply chain finance, which is where my platform Crossflow Payments operates. In a post-Brexit environment SMEs are likely to come under significant pressure. Demand for working capital amongst large scale corporates will increase with pressures such as compliance with the payments code and as a result payment terms for suppliers will become further squeezed.


Crucially this cycle will take place against a marketplace in which the traditional solutions offered by banks are inadequate.

Whilst products like factoring, invoice discounting and supply chain finance have been around for decades, their cost, lack of flexibility and need for personal guarantees have prevented many SMEs from utilising them effectively.


The result?


It means that SMEs have historically been unable to access finance that could have fuelled growth. If this lost opportunity wasn’t bad enough, it is further compounded by the fact many businesses now risk being exposed by working capital shortfalls, at a time when traditional products could add the greatest value.


Thankfully technology and innovation is beginning to change that and a number of new providers have been able to develop platforms that lower costs, provide greater flexibility and have reshaped risk/reward profiles. This evolution is also good news for investors allowing them to put large amounts of capital to work over a short investment period to generate yield in a low interest rate, low growth environment.


Crucially this dynamic also has the power to drive scalability as institutional investors with significant firepower becoming increasingly drawn to the sector. It means funds can now be delivered rapidly from a wide range of funding providers with competitive rates, in turn fuelling the cycle and making the product more attractive to SMEs.


With sophisticated investors increasingly taking equity stakes in platforms, it also means that the sector can benefit from accelerated maturity making the prospect of successful strategic partnerships all the more tangible. It is an ecosystem which provides the right balance of collaboration and competition and is one from which all participants can benefit.


So what are the barriers?


In short it comes down to SME awareness, with the whole sector working hard to shift the opinion generated by years of disappointment with traditional providers, that supply chain finance solutions are realistic sources of working capital. With new alternative finance models challenging such assumptions and economic conditions likely to increase demand, it is a battle that must be won.


Glenn Blackman

09 May 2017 11:15am

I feel that it is not prudent to dismiss anyone highlighting the risks associated with an economic downturn as "doomsayers". Having managed alternative finance clients through the entire economic cycle, before working at, I can testify that it can be extremely difficult through a recession, requiring an entirely different skill set. Some platforms appear to be struggling to achieve profitability in the current environment, let alone survive a full blown recession. Lets hope they are not put to the test in the foreseeable future.

AltFi Toronto Summit 2018

The AltFi Summit is coming to Toronto for the first time.

5th December 2018