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One comment coming from a SCF expert who wishes to stay anonymous.

<< Enrico, the only part I substantially disagree with is:

"Slow adoption of SCF programs does not depend on lack of demand from companies. The steering wheel is squarely in the hands of banks (could it be otherwise?) that are either unable to comply with KYC controls or unwilling to cannibalize the very profitable income of their factoring business units."

Slow adoption of SCF programs by the banks is partially subjective due to their inertia and the traditional operational silos but also objective:
- Managing value chain and SCF is not really their core competence
- Selling SCF big way requires changing their culture towards proactive
marketing and real competition, which they both do not know how to do.
- Regulators would not like it

The bottom line - it would require separate subsidiaries as for wealth
management or even serious factoring or leasing.>>

Open Account instruments and LCs are indeed part of SCF. What I've learned, though, is that it takes time to educate the market to consider them as such.

Nahum, you make a good comment. I believe you will find of interest this article http://treasurytoday.com/2012/08/smes-shun-banks-and-embrace-alternative-lenders

Points very well taken. Thank you for your precious feedback

A comment from a reader:

<<Hi Enrico, agree with you. Anchor (e.g., buyers, sellers) and their supply chain collaboration (SCC) will shift from passive to active (or driving the) SCF. Integrators can play a role by bridging banks trade finance products to SCC balance sheets>>.

I received an email from a European large automotive company that prefers to stay anonymous that reads: “It will be very useful when buying and paying for services on the internet. For instance when we as a large corporate want to buy as a one-time transaction a supplier or customer financial report from an official or private data base we have to order via our internal system. Quite a heavy administrative process more suited to recurrent transactions. Would be nice to find a more flexible way, for instance credit card in our company name.”

Can we post blog articles during your period of closure?

Thank you Olivier for sharing your opinion on this very important subject. My take is that the ICC has squarely reconfirmed itself as the main and privileged interlocutor for trade finance related matters. For this reason I would welcome a clear position from the ICC as to what are the components of a modern trade finance practice. I believe it's about time we pull down the barrier between documentary credit and open account, and speak instead of an overall trade finance (TF) discipline. Many of the banks and vendors I talk to have different opinions regarding what falls under the trade finance umbrella (e.g. Is factoring part of TF or not?). It's not just a semantical debate. Rather, a definite glossary of TF components will allow corporate practitioners to compare apples with apples.

Interesting debate. TB does not stop at payments, though.

Wat follows is an article I posted in September 2009 on the Celent (my company at that time) blog:

SCF is dead. Long live GTS

Two years ago at SIBOS most of my interactions were around the topic of what was SCF (Supply Chain Finance). Banks were truly interested to know more about it.

Last year, at SIBOS in Vienna, the conversation was on what banks had ready (or almost so) to go to market with their SCF products and services. The questions were about pricing and what technology was best.

This year, at SIBOS Hong Kong, SCF was “missing in action”.

Apparently the term is not so “catchy” any longer. Major cause, in my opinion, is because SCF has been always confused with Supplier Finance (i.e., invoice-centric, post-shipment, payables financing). This has relegated the entire area to a subset of Trade Finance, at the very best at the same level as LC’s (letters of credit).

When I was almost there to surrender to frustration (SCF is one of my preferred areas of coverage – read my reports Supply Chain Management: A Source of Corporate Liquidity and Business Models for Supply Chain Finance Services) to my rescue came the panel with the heads of Global Transaction Services (GTS) from Citi, HSBC, BofA, Deutsche Bank.

Well, what they were taking about as the “next big thing” was, guess what?, Supply Chain Finance services. They just used a different tag: GTS.

This is not to say that GTS is a new invention. What is new, I feel, is that the services under the GTS “umbrella” (cash, trade finance, payments, FX) will be ever more offered in bundle, to cover the financial supply chain needs of corporate clients.

Bottom line for banks

1. SCF is not (only) supplier finance
2. GTS is the name of the game
3. Internal organization, knowledge of business processes, and technology investments are the pillars

Bottom line for corporations

Start comparing banking offers under the light of their ability to cover the larger spectrum of the procure-to-pay and order-to-cash processes