In-depth analysis of supply chain finance

Editor’s lead: With the deepening of socialized production mode, the market competition has changed from the competition between single customers to the competition between supply chains, and all parties in the same supply chain are interdependent, "one glory will be honored, and one loss will be lost". Therefore, "supply chain financing" series of financial products came into being. This article takes you in-depth analysis of supply chain finance, and I believe you will have a deeper understanding.

The concept of supply chain finance was first put forward by Shenzhen Development Bank in 2001, after which Shenzhen Development Bank initiated the warehouse receipt pledge business, creating a new model for financial development. However, before 2016, the development was quite slow. Except for Shenzhen Development Bank (later renamed Ping An Bank), only a few state-owned banks had trial business. It was not until 2016 that the state began to issue relevant policies that the development of supply chain finance was ushered in.

In 2016, the state encouraged the development of accounts receivable financing centered on core enterprises. In October 2017, it was first proposed that supply chain finance should support the development of the real economy. In 2019, it was proposed to reduce the dependence on mortgage guarantee and increase the proportion of credit loans and accounts receivable financing.

From 2021, the state put forward the concept of inclusive finance, and began to fully promote the development of inclusive finance. From the national policies, we can see that the country holds a very prudent and steady attitude on the road of promoting inclusive finance’s landing.

Mainly because of the emergence of a new format, its development is not yet mature, and the risks behind it have not been fully revealed. In order to ensure the financial stability of the country, a cautious attitude is adopted. However, a prudent attitude does not mean that the ultimate goal of the country is to develop supply chain finance, which is mainly based on accounts receivable. Supply chain finance is a means, and the core of the country wants to make funds flow into the 97% small and medium-sized enterprises in the real industry. Therefore, the scope of inclusive finance is now wider, including more than just a form of supply chain finance. From this we can determine that the core value of supply chain finance is:

• Promote the development of inclusive finance, stimulate the development vitality of small and medium-sized enterprises, enhance their ability to resist risks, and lay a financial foundation for the steady development of China’s industrial supply chain.
• Promote small and medium-sized enterprises from the survival line to the development line, and promote the overall industrial upgrading.

Then we should grasp this core and pay attention to risk exposure in the process of making a supply chain financial platform.

At present, there are two main trends in judging the repayment ability of enterprises, one is based solely on traditional bank risk control, and the other is based on traditional risk control combined with online data. As China’s data age has just begun, the data platforms of local governments and non-governmental organizations are still in the initial stage of construction, the construction of data channels is not complete, and the data collected at present is still under construction according to the data dimension of traditional bank risk control. Some platforms have added business travel, social media and other data, but the cash flow in the important banking system can not be fully obtained to judge the operation of enterprises.

The lack of data dimension leads us to have a poor grasp of the real business situation of the enterprise, and we are bound to be conservative in risk judgment, which affects the coverage of the enterprise and the financing amount of the enterprise.

In addition to the lack of risk control data, we basically judge the future repayment ability of enterprises based on the past data of enterprises at present, and do not predict the future repayment ability in combination with the development trend of enterprises. However, the enterprise will repay in the future, so it will be more stable to predict the future repayment ability than to control the risk based on the past repayment ability. Risk control based on past repayment ability is based on the assumption that enterprises will not be worse in the future than in the past. But this assumption is not reasonable.

There are also many core enterprises that have closed down frequently. The risk control based on future repayment ability is actually a more rational decision based on quantitative analysis. Predicting the future is uncertain, but at the same time it is pioneering. On the one hand, this pioneering may enable us to master more accurate repayment ability of enterprises, on the other hand, we can get higher financing for enterprises with sustained business growth, which will more effectively promote the development of high-quality enterprises. In fact, predicting the future is to help the whole ecology survive the fittest.

No matter from the national or private point of view, supply chain finance is generally started from core enterprises. Starting with core enterprises has several advantages: ① Core enterprises have a high trade status, which makes it easier to drive upstream and downstream small and medium-sized enterprises to do supply chain finance business together, which can make the traffic increase rapidly. ② Core enterprises have a relatively high degree of informatization, and the change cost is relatively lower in promoting the implementation of supply chain finance. (3) The core enterprises have strong credit standing and strong financial strength, and financing the upstream suppliers with the repayment ability of the core enterprises as the guarantee is in line with the current risk control cognition.

Let’s analyze the above three advantages in detail. Now supply chain finance is in the early stage of development, and it is still a blue ocean market, so that the rapid growth of traffic can quickly seize market share and have the first-Mover advantage.

So the first advantage is very important. The second advantage can be replaced by the informatization ability of core enterprises, and technology companies should have more advantages in informatization construction than core enterprises. Only with the help of the information system of core enterprises, the cost of transformation is lower, especially the saving of time cost to further promote the first-Mover advantage.

The third point is based on the upward transmission of credit of core enterprises, which is actually credit financing in essence, and its credit can only be transmitted upward, but not downward (downstream procurement financing does not rely on the credit of core enterprises), and accounts receivable financing is actually traditional financing, which is not supply chain finance in essence.

After analysis, we find that there is only one advantage of doing supply chain finance based on core enterprises, which is to seize market share quickly. But it also has a disadvantage, lack of penetration, and can’t really meet the financing needs of small and medium-sized enterprises in the whole industrial chain.

It is very important to seize market share quickly, and it must be the top priority for any enterprise. I want to say, can we do more than seize market share? It is the most important thing for us to seize market share quickly at this stage, but in the long run, we have to return to the financing needs and business scenarios of small and medium-sized enterprises, or to the thinking with small and medium-sized enterprises as the main body.

At present, there are many modes of supply chain finance in the market, such as prepayment financing, warehouse receipt financing, invoice financing and tax financing, which are all ways to directly finance small and medium-sized enterprises without core enterprises. But what I mainly discuss here is not the mode of financing, but the main role of financing.

Although accounts receivable financing centered on core enterprises is the most mainstream supply chain financial model in the market at present, it cannot benefit most small and medium-sized enterprises in the market because of its poor penetration, and the blank market is very large. I think it is also a first-Mover advantage to seize the blank market from small and medium-sized enterprises.

In the end, a situation will be formed, one is to expand the market upstream and downstream from the core enterprises, and the other is to expand the market around from small and medium-sized enterprises. If these two models can be combined in the future, a complete market network will be formed. So if someone cuts in from the core enterprises, someone cuts in from the small and medium-sized enterprises, and then the two are combined, it is equivalent to expanding the market at twice the speed.

• While competing for traffic, various industrial platforms will lead to the fragmentation of the whole market. In order to expand customers, SMEs need to trade in multiple industrial platforms, and their transaction data are scattered and isolated, which makes it difficult to integrate into standardized data assets. In the supply chain financial services based on data assets, the services enjoyed by SMEs are still limited. However, each platform is "fragmented" and has not reached interconnection and mutual assistance. The fragmentation of the platform does not meet the real demands of SMEs.
• Unilateral consideration of the needs of financial institutions, ignoring the needs of enterprises. At present, many financial service platforms are mainly built to cater to the financing process of financial institutions, which are not closely integrated with the trade process of enterprises, and the overall experience in the financing process of enterprises is poor and inefficient.
• Regardless of the business prospects and business stability of small and medium-sized enterprises, in order to ensure risk control, a lower quota is given across the board according to the previous risk control model. However, although the small and medium-sized enterprises in the physical industry are small in scale, their business liquidity is usually millions, and the small-scale credit across the board cannot meet the capital needs of small and medium-sized enterprises.
• Without considering the industry attributes of small and medium-sized enterprises, the overall supply and demand situation of the industry and price fluctuations, adopting a unified credit risk control model has low accuracy, which leads to the reduction of the overall quota for risk control.

• At present, all supply chain financial platforms build platform standards from their own perspective, and cross-platform standards may be different, which is not conducive to cross-platform integration.
• The upstream and downstream of each industry are actually cross-industries. For example, the upstream steel suppliers in the automobile manufacturing industry are not only involved in automobiles, but also in construction, roads, machinery, military industry and so on. The downstream 4S shop involves not only automobile manufacturing, but also lubricants, parts and so on. If the standardization is built by the core enterprises in a certain industry, its radiation scope is limited, and there is no way for the upstream and downstream to integrate standardization across industries.
• Some regions are committed to formulating regional standardization, but the industry is not regional, and it is cross-regional, national or even global from the source to the terminal. Regional standardization also has limitations and cannot penetrate the entire industrial chain.

To sum up, if we can’t build cross-platform, cross-industry and cross-regional standardization, we can’t build a full-coverage financial service network. Therefore, the lack of standardization is a major factor hindering the development of supply chain finance in the future, which has not attracted the attention of the industry at present.

With the improvement of risk control, supply chain finance no longer needs the credit of core enterprises, and can meet the ultimate national expectation, that is, in the industrial network of the whole country, where there is a shortage of funds, funds will go, and social funds will be distributed more reasonably and evenly to maximize the utilization of funds. On the one hand, the perfection of risk control promotes the continuous expansion of supply chain finance in the direction of decentralization, on the other hand, the national expectation also drives the development of supply chain finance in the direction of decentralization. We should build a decentralized platform based on this foresight, create this first-Mover advantage in advance, and also promote the development speed of supply chain finance.

Demarcation should be understood from three angles.

(1) assets to the border. At present, there are many B2B industrial platforms, and there will be multiple industrial platforms in the same vertical field, and the management platforms of some core enterprises will also have sales modules to undertake online orders. When providing financial services, each industrial platform takes the orders in the platform as the target, and has its own platform boundaries.

Customers get credit on one platform based on the overall credit status of the enterprise, so once they get credit on one platform, it is difficult to get credit on other platforms, but customers’ transactions may not be limited to one platform, which leads to only a part of customers’ orders being financed. The boundary of this industrial platform leads to customers not being able to enjoy adequate financing services.

In the future, services will be provided by real financing scenarios of small and medium-sized enterprises, and breaking the boundaries of platforms will be a prerequisite for providing better financing services.

2 funds go to the border. Every financial institution gives credit to an enterprise based on its overall credit status and repayment ability.

Once a financial institution gives credit to an enterprise, it is basically difficult for the enterprise to get credit from other financial institutions, so the financing services enjoyed by the enterprise will be limited by the service types, interest rates, cycles and targets provided by the current financial institutions.

It is not flexible enough from the perspective of enterprise’s overall asset management. A more favorable way for enterprises is to have a professional platform to assume the responsibility of risk control and give flexible credit lines according to the overall dynamic repayment ability of enterprises. Then the financing application is diverted to various financial institutions through routers, and financial institutions only undertake financing services. In this model, financial institutions no longer undertake the credit granting work, or even the whole risk control outsourcing, which reduces the risk for financial institutions through risk transfer, and at the same time reduces the demand for organizational personnel, which can benefit enterprises and achieve the goal of inclusive finance.

For the platform, because of the provision of risk control services, it not only breaks the boundaries of financial institutions and provides more flexible financing services for enterprises, but also enhances the strategic position of the platform and becomes an indispensable existence in the whole model. At the same time, risk control can increase revenue for the platform. For enterprises, they can enjoy more flexible financial services and lower interest rates.

③ The type of financing service goes beyond the boundary. At present, various financial service platforms will launch a variety of financing service types, and each type needs to apply for a quota separately. The business model of enterprises is diversified, and many times a variety of financing services are needed to cooperate, but different quotas are scattered and fragmented, so enterprises need to make some matching when using them.

It is likely that there will be a target with a large amount, but at present, the quotas obtained by enterprises are scattered and unconnected, and none of them can meet the financing needs of the target. Therefore, the solution I propose is that the platform gives enterprises a comprehensive quota, which is applicable to all types of financing services launched by the platform. Enterprises only need to apply for the quota once, and the subsequent financing needs to be applied on demand, sharing a quota.

It not only reduces the operation of enterprises applying for credit, reduces the number of times that risk control calls their credit information, but also improves the utilization rate of credit lines. The premise of the type of financing service going to the border is that the capital side goes to the border.

At present, social funds are mainly concentrated in three places: banks, enterprises and individuals. Enterprises are the only export to create wealth. However, enterprises mainly use their own money to create wealth. Personal money is deposited in banks, and bank money is given to a small number of enterprises, that is, most money can only create a small amount of wealth for a small number of enterprises.

The uneven distribution of funds in the whole society also leads to the situation of insufficient utilization of funds. The state encourages inclusive finance to support the development of small and medium-sized enterprises, which is actually to distribute social funds in a balanced way, so that social funds can play a greater role. Banks give money to more enterprises to create more wealth, and enterprises can invest in production, investment and innovation with more funds, so that the gears of industrial upgrading can roll. In order for banks to give more money to more enterprises, the early stage must be to build a portrait and credit evaluation of enterprises in the whole society and do a good job in risk control.

In the later stage, it is to let banks give money to enterprises more smoothly and efficiently. Therefore, the automation of financial service process will be gradually popularized in the later period.

By then, the whole system will automatically provide financing services and automatic settlement according to the capital needs of enterprises. Enterprises can enjoy the support of bank funds at low cost, and the surplus profits can be further invested in innovative research and development, industrial upgrading, and enhance the profit rate of enterprises. Once the capital channel can operate without obstacles, it means that the capital turnover rate of the whole society will be improved, social wealth will continue to grow, and inflation can be reduced.

Therefore, the automation of financial service process is not only the demand of enterprises, but also the demand of the whole society and the whole country, and the future must be the direction encouraged by the state.

When the automation of financial service process reaches a certain popularity, the role of banks is to take over the distribution of social funds in an all-round way, and the role of enterprises is to innovate and connect. The comprehensive functions undertaken by the original enterprise as a single role are decomposed, and the capital functions are completely subcontracted to banks. Enterprises concentrate on the production and circulation of things, and the social division of labor is further reconstructed. After the social division of labor is clearer and finer, the overall social operation efficiency will be higher.

Therefore, the future development of supply chain finance is not only to support small and medium-sized enterprises in the real economy, but also to reconstruct the social division of labor and create a new social ecology.

　

This article was originally published by @ Weekend Living Room. Everyone is a product manager. Reprinting is prohibited without permission.

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