In a world where lending is tight and economic conditions are bleak, companies increasingly look to supply chain management to wring liquidity out of their operations. “Therefore, banks must carefully focus on how corporations are freeing up cash,” according to a new report from Oliver Wyman’s Celent. “Funding corporates’ supply chains requires knowledge of the inherent risks,” the report notes. “”There is an inherent information asymmetry regarding the credit situation, and banks need to know more about supply chain management processes to reduce process risk an better assess corporate liquidity risk.”
Banks generally have “developed (or white labeled) electronic platforms to manage their SCF portfolio, made of instruments such as factoring, dematerialized letters of credit, reverse factoring, and purchasing of receivables,” the report says. But the market could process $31 billion to $62 billion of SCM finance solutions “beyond the more traditional factoring and letter of credit business. Banks need to grow fast in this domain,” according to Celent.
“All the major banks have SCM offerings,” says Enrico Camerinelli, senior analyst with Celent’s bank group. “They’re hiring people from the SCM world, seeking expertise from outside sources,” he adds, but so far the big banks have come up with “nothing new.” Further, there’s no standard revenue model “that you can say has been tested or really works.” And many of the layoffs seen in the past year have focused on bank IT departments. Large banks are outsourcing with software partners and hiring SCM experts at the same time.
Ironically, smaller banks appear to be better positioned to benefit from this market. “They have a closer relationship with the client,” Camerinelli explains. “There are more one-on-one relationships with owners of the company.”