By Bernard Lunn
Supply Chain Finance is one tool within Working Capital Finance. Yesterday we looked at how Banks are losing out in this massive market.
Today’s research note explores how the hyper-growth phase of Lending Marketplaces (which we describe here) is fundamentally changing Supply Chain Finance.
Innovation keeps on coming in the working capital finance market. We are in the Cambrian explosion phase, not the consolidation phase. We are seeing new startups, new entrants coming from adjacent markets, early stage players globalizing and strategic moves by established players.
- The latest startup in this space is Advanon, an invoice marketplace based in Zurich.
- The early stage player globalizing is Spotcap. A year ago we covered them in passing in a research note about Rocket Internet. Rocket Internet is an execution machine, so it is no surprise to already see Spotcap operating in Spain, Netherlands and Australia.
- The adjacent market entry move is from Kyriba, a leader in cloud based Treasury Management Systems (TMS). Kyriba is moving into Supply Chain Finance (SCF) by appointing a senior manager to lead that initiative. This adjacent market move makes sense because the people who make a TMS decision also influence and execute an SCF decision.
- There have been two leaders in Supply Chain Finance that have been building for over a decade – Orbian and Prime Revenue. The latter made a big strategic move by partnering with AIG to move beyond the Global 2000 (which already have a credit rating) into the mid market using statistical modeling based Insurance as a proxy for an individual credit rating.
Our market thesis in this research note is that the fundamental change driving this is the hypergrowth phase of Lending Marketplaces. A Lending Marketplace serves an ecosystem on both sides of the transaction:
- Lenders, via an ecosystem of Wealth/Asset/Fund Managers.
- Borrowers, via an ecosystem of sales and origination specialists.
Some of the early players in Working Capital Finance tried to be a network. That game is over. The Lending Marketplace game is a winner takes most network effects game driven by liquidity. Lenders go where the borrowers are and borrowers go where the lenders are.
What we are seeing today is an explosion of innovation around the sales and origination side of the Lending Marketplaces. These sales and origination ventures don’t need to worry about finding Lenders. They are out there on the other side of the Lending Marketplaces, hungry for assets. All they need to think about is generating a flow of good quality borrowers (aka assets in lending speak).
Daily Fintech Advisers provide strategic consulting to organizations with business and investment interests in Fintech.