The Role of Fintech in the Supply Chain

Fintech is making supply chains more efficient.

A supply chain typically has a buyer and a seller. Fintech companies are acting as value-adding intermediaries between buyers and sellers in a supply chain.

When a fintech solution is applied to a supply-chain environment:

   It reduces working capital needs.

   It reduces the cost of processing and managing contracts for both buyers and sellers.

Therefore, supply chains are becoming efficient.

The nuts and bolts

The healthcare and equipment finance sectors have already embraced fintech solutions for their supply chains. And they are seeing huge benefits. Besides, small and medium enterprises (SMEs) have also begun to employ fintech in their supply chains.

Why is fintech relevant?

Fintech has been growing in size and impact globally. In the last three years, the sector has attracted USD $ 31 billion in investment. Close to half of the needs of emerging markets are serviced by fintech companies. 33 % of consumers worldwide use at least two fintech services.

Fintech speeds up transactions and removes bottlenecks that traditional systems had.

So, fintech is very relevant.

Fintech brings win-win deals to supply chains.

In supply chains, fintech promises a win-win opportunity for both buyers and suppliers. Thanks to fintech acting as an intermediary, suppliers get paid upfront or within a specified time frame without having to go through any painful follow-ups. And buyers receive the advantage of pre-negotiated payment periods as per their agreements with fintech players.

Fintech players have a network of banks and financial institutions that they work with. So, they are able to secure hitherto unavailable funding options for buyers and sellers in a supply chain. The choice and variety that fintech offers makes sourcing credit both attractive and affordable.

As a result, fintech companies have streamlined supply chains. The entire process in a supply chain today is automated. This has been the greatest gift from fintech. And it serves as a boon for businesses. So, everything from procurement to delivery is simple, convenient, secure, and fast.

SMEs benefit the most.

SMEs never quite had the leverage with financial institutions in the past. They always had to struggle to manage their working capital needs. They also needed funding to evolve to the next levels in their growth journeys. With no credit history or corporate pedigree to back them, affordable capital was always inaccessible to them.

The entry of fintech players has changed the game for SMEs. On the one hand, they are connecting buyers to banks who have never lent them money in the past. On the other hand, they are ensuring that payments to suppliers are not held up. This has had a transformational impact on the business landscape.

Therefore, supply chains are well-oiled now. Any supply chain that works efficiently is always good news for businesses and for the economy!

The impact on buyers

Buyers are able to see huge benefits from embracing fintech. The procurement process is simpler. The financing terms have never been this good. The administrative cost of processing a transaction has been reduced considerably. All these have eased working capital requirements and cash flows.

The impact on sellers

They get paid on time. They don’t have to go through laborious follow-ups. Resultantly, they are seeing huge cost savings, improved cash flows and positive bottom-lines.

The nuts and bolts

Fintech companies have disrupted the supply chain industry. in a very good way.

They have incorporated the “procure-to-pay” system that offers two functionalities: purchase management and accounts payable.

A fintech integrated solution begins with a purchase requisition from the buyer. And it ends with a payment to the supplier.  

This system now reduces costs for buyers. It bridges the gap between procurement and accounts payable while streamlining all the other allied, in-between, processes.

For a supplier, the process of engaging with the buyer now involves just downloading an app on a smartphone and getting started.

When a supplier and buyer decide to do business together, the buyer raises a purchase requisition. And the supplier raises an invoice. The rest of the process is now taken over by the fintech platform. Thanks to the fintech firm’s network of funding institutions, suppliers can get paid way ahead of when they would have been paid in the legacy system. It depends on the credit terms they negotiate with the buyer. In some cases, they can get paid even within a week, as opposed to the 60-day to 120-day credit period that they once had to offer.

The same funding mechanism, from the fintech firm’s network, offers the buyer a longer payment window, which impacts their working capital positively too.

So, in effect, everyone is happy.

Fintech companies are beyond being just brokers. Yes, they do manage to arrange funds for parties in a supply chain. But they also bring technology and architecture into play. This architecture employs data science, AI, regtech, biometric security and also offers customized industry-specific solutions. So, healthcare companies will have a bespoke fintech interface for their supply chains. And the supply chains of equipment finance companies will have a completely different, spoke, interface.

In conclusion,

Conventionally, a supply chain was all about sourcing, making, and delivering. Now, thanks to fintech, supply chains are beginning to see the power of employing immediately available capital at affordable rates.

As technology evolves and as supply chains in more sectors embrace the power of fintech, businesses and customers, not just buyers and sellers, stand to gain phenomenally!