Demica report shows strong growth for supply chain finance
The provision of liquidity is a key driving force behind supply chain finance
Technology will contribute to the development of the supply chain finance market, with the growth of e-invoicing systems seen as a significant market accelerator by the majority of the banking community. Supply chain finance has shown strong growth in the last two years, according to research from Demica that shows average annual growth rates between 30% and 40% at major international banks.
The supply chain finance market is expected to continue to expand strongly to the end of the decade, although the pace of growth will moderate to 20-30% per annum by 2015, and 10% per annum by 2020. Demica’s research, conducted amongst global banks and “a qualitative sample” of international corporates, shows a rising demand for this facility and its increasingly significant role in banks’ trade finance portfolio.
Survey respondents say that the highest growth of supply chain finance currently originates from the US and Western Europe, in particular the UK and Germany. Eastern Europe, India and China are considered the top three regions with future market potential. The driving forces behind the rapid growth of supply chain finance are: the provision of liquidity to suppliers, working capital optimisation as well as enabling payment discounts and/or lower financing costs for suppliers.
Almost 90% of the bank respondents regard supply chain finance as a need-to-have financial product for corporate buyers, with more than three quarters of them considering it an added-value product. In the medium term, bank financiers expect domestic supply chain finance programmes to become an absolute “must have” for corporates, while intensified competition will standardise and commoditise the domestic service offering. Bank respondents also see cross-border programmes further establishing themselves as an increasingly crucial facility, but indicate that their “added-value” status will be retained by virtue of such schemes’ greater complexity.
