Commerce Meets Finance, Again

Commerce and banking are old friends. The history of banking is intimately linked to the evolution of trade and commerce; indeed, banking was born off the back of the traders and farmers travelling and selling their products across Assyria and Sumeria in 2000 BC. Banking systems globalised and became increasingly sophisticated through the booming global trade of ancient empires, the Silk Road, European expansion to America and the Southern Hemisphere, and most recently, the Industrial Revolution. As commerce has changed over the years, the ties between these two industries have only grown deeper and more complex. 

We have reached an age where the digitisation of commerce is changing the way people and corporations relate to physical goods in ways that have never been seen before. This affects all parts of the commerce value chain, from front to back.

We all know that, over the past 18 months in particular, the shift of retail commerce to digital channels has been dramatic. I won’t delve into those figures now for fear of stating the obvious, but do think it’s helpful to highlight the many consequences of such change. 

The incumbent brands that once dominated our retail landscape have had their leadership jeopardised, and the physical business districts of our cities have been reshaped. Consumer demand regarding availability and immediate access to physical goods has transformed – expectations have never been higher. 

Offline stores as the last-mile distribution points have been replaced by last-mile distribution companies. Riders, bikers and other delivery personas have become the de facto force in meeting the demands of 21st century consumption habits.

Brick and mortar stores, which used to serve as micro-warehouses for last-mile shopping, have been displaced further up the value chain by dark kitchens, dark stores, and a whole cohort of near-proximity “dark structures”. All these changes started with the commerce revolution in the end-customer environment, but really, they are just the tip of the iceberg. The most significant changes are taking place upstream in supply chains.

Further upstream, the means of production - raw materials, factories, shipping companies, warehouses, etc - have had to adapt to a clockwork, just-in-time world. They have become excessively optimised, where even brands lose their meaning in favour of large-scale production and distribution networks. All this spans, in different shapes and flavours, the entirety of all global production chain. 

And, of course, data, data, data: this ecosystem is increasingly interconnected and governed by data layers that bring some order to this progressively complex matrix. 

Alone, all these consequences are significant; together, they are transformative. Fundamentally, e-commerce is now much more than payments and shipping. 

In this context, where every component of the commerce maze is continually reinvented, redesigned, and digitised, the opportunity for financial services is endless and touches many parts of the commerce value chain. Within the fintech space, we have seen the booming of 'buy now pay later' start-ups across the globe, primarily as ecommerce facilitators, with some of the latest fintech unicorns and decacorns - Klarna, Affirm, etc - emerging in this very category. 

There is a growing number of start-ups fuelling liquidity through supply chains in order to improve access to working capital for middlemen and commercial partners. Some even allow for better inventory rotation. These are all 'classic fintechs', which are reinventing classic financial services products such as consumer lending, trade finance, receivables finance, and factoring, etc in a way that is more tailored to the new habits of commerce than incumbent offerings. 

More interestingly, there is a myriad of other start-ups that are exploring the cross-over between financial services and supply chain technologies that, I presume, will develop more radical innovations over time as the boundaries between the industries get blurrier and blurrier. These will be the unicorns and decacorns of tomorrow, finally uniting under one roof these two old friends: finance and commerce.