Standard Chartered tackles supply chain adversities through partnerships and technology
As corporates diversify their supply chain sourcing, there is a rapid shift in how banks are meeting their procurement and financing needs through innovation and digitalisation. To respond to greater demand for time-to-market, Standard Chartered Bank drives ecosystem connectivity and access to its financing solutions via third-party platform and fintech partnerships.
- Most tier II and III suppliers still lack access to adequate, timely and cost-effective working capital financing
- Deep-tier financing requires greater visibility into suppliers and procurement processes through adoption of platform partnerships and technology
- Standard Chartered’s collaboration with Linklogis embeds supply chain financing into customer ecosystems via third-party platforms
Market challenges Buyers’ diversification of supply chains drives new and alternative financing propositions
Global supply chains continue to be upended from crisis to crisis. Disruption will continue into 2023 given the uneven consumption recovery due to frequent factory shutdowns, port closures and congestion, labour shortages and lack of availability of key inputs or raw materials—with the last two being the most common causes of disruption.
This has led to an increase in production costs as corporates switched to alternative suppliers. For instance, the shortage of chips and semiconductors in the last three years caused the most disruption for technology companies.
As the pandemic exposed supply chain vulnerabilities, corporates are re-examining their reliance on concentrated manufacturing bases. Trends such as the move to near shoring/onshoring of inputs, inventory increases, and dual sourcing have shifted the industry supply chain financing (SCF) strategy from just-in-time to just-in-case.
Corporates, particularly those with strong trade interlinkages in Asia, are taking steps to bolster supply-chain resilience. They are diversifying their supply chains by adding new domestic and regional raw material sources and reducing their reliance on individual suppliers—a strategy often referred to as China+1 and China+2.
For corporates, this means an increase in payables on their balance sheets translating to closer working-capital relationships with their banks. In turn, this creates opportunities for banks to introduce innovative inventory and SCF solutions to better serve its clients.
Banks have moved towards integrating their clients into a digitalised ecosystem and onto a single platform. Adoption of partnerships between banks and industry third-party platforms (TPPs) to embed SCF into customer ecosystems continues to grow.
Product and service innovation Disruptions push banks towards new ways of financing supply chains
Delays and cancellation of purchase and shipment orders significantly impacted cash flow for businesses. Many corporates were forced to make a sudden switch from manual and paper-based processes to digital portals which increased the demand for digital SCF.
Recognising the increased demand for SCF amidst key issues impacting its clients, Standard Chartered (SC) launched a ‘pre-to-post shipment’ solution covering the client’s end-to-end procurement cycle to enable faster turnaround time on supplier funding.
The solutions guide clients from the point of receiving a purchase order (PO) to the acceptance of sales invoices by their buyers. The services are available to clients and suppliers through the bank’s online portal, Straight2Bank.
After the client has drawn up a list of suppliers, financing commences when the client receives a PO. It continues until the agreed due date of invoices to cover pre- and post-shipment needs up to the time of payment to the client’s buyer. Pre-shipment finance is paid down by the bank upon processing discounted proceeds upon a buyer’s approval of payments on future-dated invoices.
SC has developed a scoring model based on artificial intelligence that can predict a supplier’s performance based on the trading history between client and suppliers. The scores can predict the supplier’s performance on orders from the client, as well as the invoices converting into approved invoices.
The bank has significantly reduced the average time taken to deliver working capital to suppliers. Kai Fehr, global head of trade at Standard Chartered said: “The solutions typically pay suppliers within 24 business hours from when we receive financing request from suppliers either automatically for all invoices or selective for some invoices.”
For cross-border trade flows, most suppliers are paid in US Dollars, although SC’s suppliers have the choice to select their preferred currency for remittance to take advantage of more favourable foreign exchange rates.
Technology and innovation Powering digital supplier enrolment
SC also recognised the operational challenges when enrolling suppliers from different time zones, for instance, during work-from-home arrangements. Fehr said: “Any SCF programme enrolment turnaround time took longer than usual.”
To meet quicker supplier onboarding in different markets, SC streamlined its supplier enrolment process using digital tools. The supplier enrolment tool aims to transform the way suppliers enrol in SCF programmes through a web-based front-end while providing the enrolment team with intuitive dashboards for monitoring and sending updates to the supplier’s customers.
The portal leverages Demica’s (a fintech) extensive SCF product capabilities and technology via its Software-as-a-Service (SaaS) platform hosted in Microsoft Azure. At the heart of this is a highly digitalised end-to-end seamless experience that includes tools such as an online marketing programme and intuitive digital enrolment process.
The latter leverages digital document submission, e-signature in markets where electronic execution is enforceable and legal, and an automated supplier internal system set up. Collectively, these digital tools ensure timely onboarding. On average, SC onboards suppliers within two business days but providing the submission meets local regulatory conditions, the bank can digitally onboard a supplier within 24 hours.
No innovative digital processes are supported without a highly skilled team. Through dedicated team, with strong geographical and local-language coverage, can service suppliers end-to-end in over 80 markets. This set-up provides suppliers with a single point of contact for seamless service.
Moreover, a dedicated post-enrolment service team based on ‘following the sun’ services model provides round-the-clock customer support irrespective of geography and time zones. It enables suppliers from any location to reach its regional servicing hubs for help, increasing responsiveness and reducing delays.
Business mandate/case implementation Enabling deep-tier financing through platform partnerships
SC is making the finance initiation processes easier through partnerships with various leading third-party platforms. Driven by ability, willingness, and co-creation with customers and TPPs, SC expanded its partnership with Linklogis in China to offer deep-tier finance, funding not only tier-1 suppliers, but also financing tier-2 and beyond in the procurement process.
Fer said: “Deep-tier financing allow large corporates such as Shenzhen Comix Group to secure their supply chains by making working capital available to not just their larger, direct suppliers but to manufacturers and raw material providers, deeper in the procurement processes.”
International comparison Marketplace competition in SCF solutions remains high
Industry-wide trends indicated heightened near-shoring and offshoring activities that were followed by more buyers extending working capital to suppliers to create access to liquidity as well as optimise their own balance sheets. . Key global and regional banks focused on enabling suppliers to onboard to the programme with the least amount of friction and as quickly as possible.
Most banks reported stellar double-digit growth for their SCF businesses but varied in terms of their SCF efficiency parameters. In The Asian Banker Transaction Finance Survey for 2022 (based on https://www.asianbankerawards.com/transactionfinanceawards/scard.php), Standard Chartered stood out in terms of its ability to onboard suppliers within two business days and typically disbursing working capital within 24 hours of receiving financing requests.
Relative to other market players, Standard Chartered was also able to demonstrate the commercialisation of its collaboration with LinkLogis powered by blockchain technology in China, where it enabled the expansion of financing to Comix’s suppliers deep into their procurement chain. COMIX’s suppliers can now be onboarded on the program in a T+0 timeframe as opposed to 3-7 days earlier with financing available on the same day.
Business impact Standard Chartered grows SCF revenue by 57% in 2021
Bolstered by a strong franchise presence across Asia, including all 10 ASEAN countries, SC grew its SCF revenue by 57% in 2021 and holds a market share of 8.3% based on SWIFT volumes in Asia Pacific. The number of SCF programmes launched by the bank in 2021 maintained its growth at 19% while active customer utilisation of its programmes edged 17%.
Fehr explained: “As evidenced by partnerships with TPPs to deliver integrated solutions, these collaborations have allowed SC to offer new, state-of-art and fit-for-purpose functions that cater to customers business requirements whilst improving time-to-market.”
The bank has also collaborated with other fintechs that provide digital trade finance needs. SC’s Contour, for example, is where clients can connect with their trade partners on a single, simplified channel, enabling the digital approval, issuance and exchange of documents such as letters of credits (LCs) through an open network.
Recognising the need for bank agnostic solutions—and that many of its corporate customers deal with multiple banks and proprietary channels—SC has subscribed to various TPPs that enable it to receive client instructions and provide ‘easy to bank’ solutions to customers.
End-to-end digital trade is powered by e-presentation capabilities. Export customers can now speed up their transactions, and importers can eliminate demurrage charges and fraud.
By aligning its priorities with those of its clients, and curating sector-specific solutions supported by digitalisation across the ecosystem, SC saw trade flows increase by 14%.
Outlook Surviving in a cutthroat marketplace
Despite the macroeconomic challenges, SCF portfolios of major banks saw high growth as clients onboarded more suppliers to existing SCF programmes. As suppliers’ need for working capital grew when alternate forms of financing dried up, banks and fintechs offered solutions to deliver greater connectedness and transparency to both buyers and suppliers.
Even as Standard Chartered continues to work with fintechs and platforms to offer technology-enabled solutions, competition among banks—alongside the entry of SCF fintechs—will rise. Fintechs continue to mature their SCF offerings, particularly in areas like dynamic discounting, where the buyer’s money is used instead of a bank’s to extend early payment to suppliers in return for a discount.
Despite the positive developments for the industry last year, the challenge still lies in the way the programmes are structured, with the client’s needs seemingly taking priority over the supplier’s. Many banks’ risk models also prevent them from financing suppliers in the lower tiers of supply chains.
Moreover, companies are increasingly focusing on implementing fair and sustainable trade practices, which has led banks to deliver commitments on combatting climate change. Coupled with a rising wave of conscious consumerism and the development of environmental, social and governance (ESG) standards for sustainability, corporates, suppliers, and their financiers must collectively drive ESG‑compliant global supply chains. SC’s deep-tier financing is a step in that direction.
Keywords: MSME, SME, Supply Chain, Digitilisation, Cash Flow, Technology, Banks
Institution: Standard Chartered