Is Fintech in Supply Chain the Next Digital Disruption?

Fintech companies are playing an increasingly pivotal role in the supply chain landscape, greatly influencing supply chain companies. Acting as intermediaries between suppliers and buyers, these companies are enhancing the financial domain and providing benefits to both parties. Their primary focus is on improving working capital and reducing contract processing costs for both suppliers and buyers. This approach has been successfully adopted in various domains, such as healthcare supply chains and equipment financing, and is now gaining popularity among small and medium-sized businesses.

Fintech, which refers to financial technology, has disrupted several industries over the past decade, including banking, finance, insurance, and payments. It is now making headway into supply chain management, offering innovative solutions to longstanding issues in this critical area of business. In this blog post, we will explore how fintech can transform the supply chain and what advantages it can offer to businesses that adopt this technology.

Fintech Role in Supply Chain

Fintech companies play a crucial role in the supply chain by acting as intermediaries between companies and their vendors. This enables both suppliers and buyers to improve their working capital by leveraging the former to extend payables and accelerating payments to the latter. As a result, supply chain finance can achieve greater liquidity and less variability in scheduling and disbursing payments.

According to McKinsey & Company’s report, “Supply Chain Finance (SCF): The Emergence of a New Competitive Landscape,” fintech currently controls 10–15% of the market, making it a relatively overlooked area in the global supply chain. Late payments can have devastating consequences for an entire supply chain, particularly for small and medium-sized enterprises (SMEs) where margins and working capital are tight, as a missed payment can lead to business failure.

Fintech companies often operate as cloud-based software platforms, allowing for much-needed procurement-to-pay integration of supply chain functions. By leveraging fintech to enable sustainable supply chain operations, most SMEs in the UK and the US could become as competitive as large corporations like Apple, Dell, P&G, Kellogg’s, and Siemens.

Market segmentation

This is critical in the financial services sector, which is one of the most concentrated industries driving global economic growth. Purchasing companies often employ supply chain finance, also known as reverse factoring, to provide their suppliers with initial payment on their invoices.

The Blockchain In Supply Chain Finance Market, valued at USD 360.75 Million in 2023, is expected to grow at a CAGR of 49.75% and reach USD 13,453.48 Million by 2030, according to Statista’s outlook report on worldwide fintech. [https://www.statista.com/outlook/dmo/fintech/worldwide]

Impact of Fintech on the Supply Chain

The impact of fintech on the supply chain industry is significant, particularly in terms of how businesses manage and finance their operations. Fintech is revolutionizing the supply chain in several specific ways:

• Improved Cash Flow Management

Fintech companies now offer financing options for businesses that need to pay suppliers but lack the cash on hand to do so. These options include invoice factoring, which allows businesses to sell their outstanding invoices to a third party for a fee, and supply chain financing, which enables businesses to secure financing based on their outstanding invoices, improving cash flow management.

• Enhanced Payment Processing

Fintech has made payment processing more efficient and secure. Blockchain technology, for example, allows for near-instant payment processing without intermediaries like banks. This can reduce payment processing time, improve the speed and efficiency of the supply chain, and enhance security.

• Better Inventory Management

Fintech provides real-time data on supply and demand, helping businesses make more informed decisions about when to reorder products, resulting in better inventory management.

Key Challenges to Consider

The fintech industry has grown rapidly in recent years, impacting various industries including supply chain. However, fintech companies in the supply chain space must overcome several key challenges to succeed. Here are some of the main challenges:

1. Fragmentation of the supply chain

Supply chains can be complex and fragmented, with many players involved. Fintech companies must develop solutions that can integrate and streamline these disparate systems.

Solution

Fintech companies can develop solutions that allow for better integration and communication between different players in the supply chain. This can include developing APIs that enable different systems to share data and creating a common platform where all stakeholders can access the same information.

2. Integration with legacy systems

Many organizations still use legacy systems that are not designed to integrate with newer technologies. This can make it difficult to implement new supply chain technologies and create a seamless flow of data.

Solution

Integration platforms that can connect different systems and data sources can help to overcome the challenge of legacy systems. These platforms can provide a single source of truth for supply chain data and enable real-time visibility and decision-making.

3. Limited access to funding

Fintech startups in the supply chain space may struggle to access funding, as many investors may be hesitant to invest in new and untested solutions.

Solution

Fintech companies can explore various financing options, including venture capital, angel investors, crowdfunding, and strategic partnerships. They can also leverage government grants and subsidies, which are often available to startups in the technology sector.

4. Limited adoption of emerging technologies

Although emerging technologies such as blockchain and artificial intelligence (AI) have the potential to revolutionize the supply chain, their adoption is still limited.

Solution

Piloting and testing emerging technologies such as blockchain and AI in a controlled environment can help organizations to understand their potential benefits and limitations. This can also help to build a business case for wider adoption.

Successful Case Studies

There have been successful case studies of fintech companies implementing solutions in the supply chain industry.

• Taulia

Taulia is a fintech firm specializing in providing businesses with supply chain financing and invoice management solutions. Through their platform, suppliers can request early payment on their invoices, while buyers can extend their payment terms without adversely affecting their cash flow. Taulia’s technology has been widely adopted by numerous Fortune 500 companies, including Coca-Cola, PayPal, and Pfizer.

• C2FO

C2FO, another fintech firm, offers dynamic discounting solutions for suppliers. Their platform enables suppliers to receive early payment on their invoices at a discounted rate, while buyers benefit from longer payment terms. C2FO’s technology has been utilized by prominent companies such as Costco, Whirlpool, and Allergan.

What does the Future Signify?

The future of fintech in supply chain management is expected to be very promising, with the integration of finance and technology bringing numerous benefits such as cost reduction, increased transparency, improved efficiency, and enhanced security. Digital payments are also expected to become more prevalent in supply chain management, which can reduce the risk of fraud or theft and improve security while lowering costs associated with physical currency handling.

Overall, businesses can leverage new technologies and digital payment systems to streamline their supply chain operations and realize significant cost savings and increased efficiency, making the future of fintech in supply chain management very promising.

For more information, visit Gyan Consulting.