According to the International Chamber of Commerce (ICC), 90% of the traditional trade finance market is served by 13 banks. However, the landscape of traditional trade finance, comprising instruments like letters of credit (LCs), documentary credit and guarantees, itself has been shifting. Data shows that the share of global trade using documentary credit declined from 50% in the 1970s to an estimated 15% in 2018. LCs have similarly seen a negative growth trend since 2014, and had fallen 2.7% by 2018.
On the other hand, supply chain finance (SCF) solutions, fuelled by the growing integration of physical (logistics) and financial trade data, are seeing increasing traction. According to data from the Bank for International Settlements (BIS), an estimated 80% of global trade happens on open account transactions, which in turn facilitate supply chain finance.
Understanding the Global Landscape for e-Invoicing
e-Invoicing today stands for a lot more than digitalised, structured invoice data; it has fuelled an entire ecosystem of solutions around use cases like real-time continuous transaction controls and clearance, with suppliers and buyers exchanging invoices via centralised government infrastructure. e-Invoicing mandates worldwide are pushing markets, especially supply chain solution providers, to adopt standardisation and digitisation of invoices across business to business (B2B), business to government (B2G), and government to business (G2B) scenarios. As shown in Exhibit 1, maturity of e-invoicing adoption is not restricted to developed markets. Developing markets demonstrate that government mandates for e-invoices are the biggest enablers for their growing potential.
Addressing Supply Chain Finance Challenges with e-Invoicing Automation
The global e-invoicing solution, service provider and enabling market was estimated at a value of USD 8.74 Billion in 2021 and is expected to reach USD 29.68 Billion by 2027 at a CAGR of 21.5% during 2022-27. As seen in Exhibit 3, this landscape is currently dominated by technology solutions providers, and fintechs, who are essentially serving as tech facilitators.
Unlocking SME Trade Finance for Banks
Banks’ participation in trade finance has traditionally been as part of services offered to large corporate buyers. In this scenario, financing has largely favoured larger suppliers, while smaller supply-chain vendors remain underserved. e-Invoicing is increasing the visibility of smaller supply-chain vendors’ financial health and transactions. Specifically, e-invoicing enables cost-efficient onboarding and servicing of SME suppliers with:
Complete and verified due diligence and KYC with mandated tax registrationVerified invoices and visibility into unpaid invoicesVerified tax and invoice data available for modellingPotential for accounts payable/accounts receivable (AP/AR) automationConclusion
Building capacities for supply chain finance is emerging as an important approach to serving the USD 1.5 trillion trade finance gap. SMEs, representing 45% of this gap, are an important but underserved value pool for the supply chain finance market.
The e-Invoicing public infrastructure landscape is witnessing an increasing emergence of government, public and private bodies, like TreDs (India), BPC (Oceania and Europe) and Peppol (Pan European Public Procurement Online), that are spurring innovation and integration in supply chain finance solutions across sellers and buyers, aggregators, lenders and government. Continuous transaction controls and clearance are an important piece of the e-invoicing automation enabled by this ecosystem.
Banks, with their existing trade finance and treasury management infrastructure, are well-placed to adopt these emerging capabilities, and deliver integrated business banking and supply chain finance services to SMEs and corporates alike.
Contact details :
Open Financial Technologies Pvt. Ltd.
Tower 2, 3rd Floor, RGA Techpark, Sarjapur Road,
Bengaluru, Karnataka - 560035
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