New Credit Scoring Models Ahead

Banks will profile corporate credit risk blending financial indicators with supply chain performance metrics.

This point represents the hinge that will connect corporate supply chain process data with innovative credit risk models for banks: Banks will capture and analyze events in the physical supply chain to generate a more profound and realistic representation of a company’s risk profile. This goes well beyond the set of performance indicators that a bank’s credit scoring office currently uses to analyze that same company’s financial statements.

I predict that banks will get inspiration—and feel competitive pressure—from business-to-business marketplaces (e.g., Amazon, Alibaba, SAP Ariba). These marketplaces already integrate the physical and the financial supply chains of the companies in the network, detecting events that trigger the need for financial support: A purchase order triggers the need for pre-shipment finance; an issued invoice triggers the need for reverse factoring; a shipment leaving the port triggers the need for trade finance instruments. Hence, these marketplaces are already able to anticipate the financial needs of their corporate network partners. A clear example comes from the concept of a Bank of Amazon that could offer online financial services.

So What? Banks have little option but to become “supply chain banks”: financial institutions that aim to provide financial support to groups of companies that belong to a common supply chain. The risk will be distributed across the group and will be transferred from the anchor to all participating trading companies. Data capture and analysis of the operational performance of the supply chain network’s constituents will represent the collateral for a supply chain bank.