Can banks get their act together to offer new services that are aligned to the needs of corporates, large and small, or will specialists emerge to fill the gap?
It looks as though the part of the supply chain that needs the most help is the small supplier, squeezed by ever longer payment terms from the buyers and struggling with cash flow issues as a result, with their problems perhaps worsened by capital constraints because of Basel II and high factoring rates. However, these are the hardest participants for the big banks to reach and, while large in number, also do not provide an easy source of income.
This is the starting argument for Supply Chain Finance, a service EIPP hubs could provide. In fact, Xign (now JP Morgan) is already involved in this with Burns e-Commerce making noises around a particular UK retail bank. The argument has also led to the creation of a growing invoice finance industry (both discounting and factoring). The question now is how can this industry works with EIPP hubs to cater the needs of suppliers (needed cash yesterday) of all sizes and large buyers (delay payments as long as possible).
The article highlights above need by stating
The banks have also been beating a path to the doors of business exchange providers. The Hub Alliance, a grouping of five business exchanges, has been one port of call (IBS, October 2006). These exchanges comprise: two construction industry specialists, Asite and Causeway; a US-based paper industry specialist, Liaison Technologies; and two cross-industry players, Certipost and Burns. These exchanges link buyers and sellers for the electronic exchange of documents such as invoices, purchase orders and remittance advices.
Whilst the article stress on the point of banks working with EIPP hubs, the real innovation will come from private invoice financiers working with EIPP hubs, e.g. GMAC Commercial Finance using Deskom.
Here’s what Neil Baker from Burns had to say
Burns’ sales director, Neil Baker, says there is a lot of interest and that banks are now more aware of the opportunities but they are coming at this with the wrong approach. First, they are asking the likes of Burns, ‘what can you do for us’, rather than looking at a two-way arrangement. Second, they are still only really engaged when talking about the big companies. ‘But there is no point going to an HP or Office Depot [two companies that Burns is working with] and offering financing.’ Instead, the banks should be interested in the small suppliers, which is where technology can help. ‘We have hundreds of thousands of connectivity points with these people.’ This would be a receptive audience – ‘it is the small guys that want the money’. Banks should be able to grasp this opportunity but too often the approach is, ‘you can have this money if you change your banking arrangement and bank with us’. Baker describes himself as ‘a bit bruised and battered’ from his discussions with the banks.
ebdex’s strategy was partner led, we simply wanted to run the hub and let others share the wealth and accompanying risk. Part of this strategy included working with invoice financiers. One conversation I had with a well known invoice financier went like this ..we like your proposition, but come back when you have a decent size user base. ebdex is pretty much history at the moment (unless there is a white knight in the horizon with right connectivity up and down the value chain), and guess what..Causeway’s Tradex has that vital user base, and the credibility.
The article also highlights Tradocs, which I always found a bit of a mystery, even though their business model resembles ebdex (both are document exchanges and EIPP is just an application). Here is the brief about Tradocs (warrant further investigation for another day)
Another potential partner is Tradocs, set up in 2002 by two ex-Bolero managers. Its emphasis to date has been corporates, for exchanging data with, typically, their smaller suppliers. The one recruit that is in the public domain on the banking side is HSBC (IBS, November 2006) which, with a corporate’s permission, will take a copy of purchase order and invoice data and use this to feed through to Swift’s Trade Services Utility (TSU). Tradocs’ global business development director, Barry Harris, says there is interest from several other banks, either directly or via their Swift service bureaux or via their system providers. That interest is picking up now that the uncertainty surrounding the TSU has abated with the recent commercial availability. A lot of TSU testing has been done, with more now to do on the latest version of the utility for volume processing and the ‘push-through’ facilities. Banks are keen to obtain the data from their clients and could provide the Tradocs system for this, probably on a white label basis. It would then be up to the banks whether they merely took that data and used it internally to reduce risk and offer value-added services or pushed it into the TSU to communicate with other banks. Too often for the banks’ liking, they are left in an open account world with only the payment. ‘They do not have information about the level of trading that a corporate is doing internationally and where they are in the supply chain cycle,’ says Harris. As with Burns, Tradocs is finding that the discussions with banks are not always detailed at the outset. ‘They have thoughts about financing and other value-added services but a lot of the time it is just that, thoughts.’
Its worth reading the full article. NeilB, thanks for the lead