Yesterday, Visa and US Bancorp announced a joint venture to build a new Financial Supply Chain Network. The new company which will be called Syncada offers invoice processing, electronic payments and integrated trade finance. The joint venture is a good example of the types of actionsI expected from a post-IPO Visa, which is transforming itself from a member-owned association into a more independent and innovative public company. Syncada is one of a few new supply chain finance vendors I have encountered in recent months. Two other noteworthy additions to the vendor landscape include The Receivables Exchange and Aanukaa. With the supply chain finance market already crowded with numerous banks and technology vendors one might what additional value-add these new players bring to the market. In this post I will offer my perspective on the unique business models that each of these three vendors are offering.
Timing for Supply Chain Finance – The Perfect Storm
The timing of these new vendors could not be better from both a demand and supply perspective. With credit markets still thawing and most major corporations pushing out payment terms, there is high demand for short-term financing solutions by small businesses. The situation has worsened considerably in the past month with the struggles CIT, a key lender to SMBs, has encountered. While many financial institutions have tightened their lending criteria, there are numerous individual and corporate investors seeking to invest. The interest rates of most short term investment vehicles are practically at zero. Applying these funds to a supply chain finance model could offer an attractive rate of return for cash-rich corporations, hedge funds or other alternative investors.
CIT Headquarters
Syncada – Visa and US Bancorp's New Joint Venture
As I mentioned in a post early in 2008, if anyone should be well-positioned for success in the supply chain finance market it should be the credit card processing networks. There are strong similarities between supply chain finance and the traditional credit card model involving a merchant (seller) and cardholder (buyer). Consequently, I was not surprised to see Visa’s announcement. There have been other indications foreshadowing this announcement. For example, Visa has been bulking up its supply chain and B2B e-Commerce expertise in recent years adding heavyweights such as B2B legend Nick Marchetti. Not only does Visa add extensive credit and processing expertise to the JV, but it also brings extensive relationships with issuing and merchant-acquiring banks. I suspect the most likely candidates to white label Syncada’s services are small and midsized banks rather than the large global trade institutions which have already developed their own SCF offerings. US Bancorp brings the product delivery capabilities with its PowerTrack invoicing and payments offering. PowerTrack’s roots are in the freight and transportation sector. The company offers a robust suite of applications for logistics visibility, carrier scorecards, invoice auditing and spend management. The JV is a big win for PowerTrack which gains the capital and independence to scale its network to full potential.
Syncada is not just a supply chain finance network that provides early payments to vendors on buyer approved invoices. Instead, Syncada is a true financial supply chain network that includes the electronic invoice and payment processing as well as the financing options. The JV is well positioned for long term success I believe due it’s to potential to bring a broader range of solutions to market. Using PowerTrack’s extensive freight and transportation expertise, Syncada could easily extend its offerings into the high-potential, in-transit inventory financing service. I also think Syncada should leverage the invoice auditing and spend management capabilities of PowerTrack to identify even further savings opportunities for buying organizations. Finally, the JV could integrate Visa’s procurement card offering with Syncada to offer even more flexibility for buyers and sellers to manage payment terms and eliminate paper-based processes.
Visa's IPO (Source: AP)
The Receivables Exchange (TRE)
There is a tremendous buzz surrounding TRE recently. They have already received numerous awards from trade publications and industry associations over the past year. Most recently they have been mentioned in recent Wall Street Journal and CFO Magazine articles. There are a number of differentiated aspects of the TRE model. First, the company is based in New Orleans, which is not where I would typically expect to find the headquarters of a financial exchange. Another differentiator for TRE is the diversity of funding sources. With many of the bank-led supply chain finance offerings, there is only one lending source (the bank). TRE offers a marketplace in which a wide variety of institutions can participate. Funding sources can include the traditional sources such as commercial banks and factors as well as hedge funds, investment managers and asset-based lenders. Perhaps, the greatest differentiator compared to many of the supply chain finance vendors on the market is the control and empowerment offered to the seller. Sellers can anonymously post their receivables to an auction in which they specify not only which invoices to auction but also the maximum fees they will pay and the minimum advance they will accept.
Aanukaa
Aanukaa provides what I would describe as a Do-It-Yourself model for large corporations. The key difference between Aanukaa’s model and other supply chain finance vendors is that there is no dependence on third party financial institutions. The typical model leverages cash on the buying organization’s balance sheet to fund the supply chain finance program. The bank-less model puts both the buyers and suppliers in control of the financing programs and terms. One of the key advantages of Aanukaa’s approach is the supplier registration process. Unlike many of the bank-sponsored programs which require significant legal contracts and paperwork to enroll, Aanukaa advertises no paperwork or contracts for suppliers. Aanukaa’s application provides all the key supply chain finance features one would expect plus a few new capabilities. For example one feature I thought was cool was the analysis tool that can assess “What If” scenarios to determine the optimal set of invoices to finance.
The number of new entrants to the financial supply chain market and the diversity of their business models continue to astound me. It is reminiscent of the B2B marketplace era of the late 1990s, which leads me to believe that there will invariably be a period of consolidation between many of the leading vendors in the over the coming years.
