Buzzword alert: financial supply chain

Forget about trade services, trade finance, UCPs and documentary credit, what we all do now is called Financial Supply Chain (or SCF for Supply Chain Finance). How many "Heads of" have we seen lately with freshly updated business cards showing new supply chain-related titles? A lot! Revolution or Evolution?

Well, the notion of financial supply chain is certainly not new but the convergence with the physical supply chain is new and mostly perceived as an evolution made possible by advances in technology and by growing demand from corporates to realize the opportunities in such convergence. This evolution or transformation from the traditional trade finance to the "new world" of supply chain management is a bit like the domino effect, only each change reflects a heavier leaning towards corporates and their internal needs.

Letters of credit still are often perceived as expensive and complicated to work with; they are also too often a solution tailored around banks' internal processes and needs. That affected corporates and encouraged them to take matters into their hands and as a result they turned more to open account-based transactions. When that worked (the consensus seems to be around 80% of global trade today), it had a knock on effect on banks. Banks started to earn less money on the traditional trade finance services and were pulled out of the loop all together with regards to trade transactions. The only time they were notified of a transaction was when a payment was required – ouch!

So in order to get back in the loop and gain back the business i.e. cross sell additional services such as financing or FX, banks needed to appeal to corporates by offering them serviced tailored around their needs. Did we say shift of power? Web-based financial supply chain services including PO management and data matching seemed like a good idea.

And surely we can do more. Each one of the components in the physical supply chain i.e. packaging, transportation, insurance, security, customs, compliance, etc. has informational and potential financial impacts. Transparency of the information and financial components of the supply chain can add value to corporates and save time and money on manual processes like order management. But that requires all parties including logistic companies, finance, procurement, couriers, etc. to be on the same network. Sounds great but who should drive that? Should banks go that far? Would corporates appreciate that?