Supply Chain Finance Business Higher on Asia-Pacific Banks’ Agendas

Wooden mannequins pushing puzzle pieces into the right placeAite Group recently conducted a survey in Thailand, Indonesia and Australia to gauge the current state of supply chain finance (SCF) adoption among banks operating in the Asia-Pacific region. It found that SCF business is now firmly on the agendas of Thai banks and is seen as a business generator for Indonesian banks. While it’s on the agendas of the Australian banks, technology isn’t perceived as offering the necessary support for SCF-related programs.

I asked Enrico Camerinelli, senior analyst in wholesale banking at Aite Group, why the Australian banks have that perception and exactly what they perceive as being the necessary support. He explained  that banks tend to look first at the products they can sell, and then at the enabling technologies to create the proper infrastructure. This is especially because enabling technologies (SCF enablers) usually don’t generate revenue for banks. Electronic invoicing, for instance, is an SCF enabling technology but banks typically can’t charge for it; it’s simply a cost of doing business. Not surprisingly, they’re reluctant to invest in a service they can’t subsidize, particularly in the current economic environment.

In countries where banks traditionally have assisted their local corporate clients in import-export trade-related business, SCF solutions are accompanied by other services that emphasize collaboration. Such services include supplier evaluation, supplier scoring, go-to-market support, lead generation, education on local practices and support in handling local administrative duties.

Interestingly, Aite Group’s study revealed that the domestic market conditions, economic dynamism and level of maturity in SCF awareness influence the decision to invest in SCF products versus services. When domestic market conditions show signs of growth, trends of economic dynamism are positive and the level of maturity in SCF awareness is high, banks should invest in SCF enablers/services. In the opposite conditions, banks should invest in SCF products.

One of the takeaways from Aite Group’s report is that software for SCF enablers is currently in demand from financial institutions in dynamic Asia-Pacific economies. As such, SCF software vendors have an opportunity to supply cash management, liquidity management and trade finance applications for building multibank collaborative platforms. These platforms allow corporate treasurers to have total visibility of cash positions and liquidity pools across all bank accounts. Additionally, they can exchange electronic invoices in any format, as well as issue payments from any bank account and in any format.

Aite Group’s new report is entitled Supply Chain Finance in the Asia-Pacific.

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Start Me Up

??????????????????????????????????????????????????On June 13, 2013 SWIFT held its Innotribe Start-up Challenge Showcase in New York. Innotribe is SWIFT’s initiative to enable collaborative innovation in financial services. Nine early-stage start-ups and five growth-stage innovators delivered pitches to an audience of leading angel investors, venture capital firms and decision makers. This September, finalists selected from the New York event will compete with finalists from showcases in London and Singapore at Sibos 2013 in Dubai.

Of the nine start-ups, I think these four have the potential to offer the most value to the financial services industry: P2P Cash, PeopleHedge, Realty Mogul and XYverify. All except PeopleHedge will be competing in Dubai.

P2P Cash

Banks typically don’t have branches in extremely remote regions, but the inhabitants have mobile phones. P2P Cash is a patent pending solution that enables individuals to send money to any mobile phone on the planet. P2P Cash intends to partner with banks, which will have an opportunity to earn revenue from foreign exchange transactions. Banks also can gain access to new customers who send money home regularly and are potential buyers of micro finance products. So far, P2P Cash has forged partnerships in the Philippines, Kenya and Nigeria and is working on deals in other countries including India and Mexico. The company competes with XOOM.

PeopleHedge

PeopleHedge offers simple risk management tools for currency hedging. Small businesses are exposed to foreign exchange risk, but bank products tend to be too large-scale to suit their needs. PeopleHedge enables to businesses to execute micro hedges (as little as $1) for a fee, and then it aggregates the risk into currency options. The company sees the potential to white label the product for banks, which can then use it to service customers who previously would have been unprofitable. Any type of company can use PeopleHedge, but there are industry-specific offerings that smaller businesses can use. For example, PriceLock enables companies to protect against fuel price spikes, and the Climate Corporation enables agriculture industry participants to protect themselves against the financial impact of adverse weather conditions.

Realty Mogul

Realty Mogul pools money online to buy shares in pre-vetted real estate investments. Essentially, it’s a crowd funding platform like Gust and Kickstarter. It’s designed for qualified customers who want to invest as little as $5,000 in various types of real estate across multiple geographies without the hassle of owning physical property. The entire investment process is done online including executing the legal documentation, and investors have access to a dashboard 24×7. Realty Mogul generates revenue through administration fees.

XYverify

XYverify uses mobile phone tower technology to securely certify a person’s location and reduce the risk in financial transactions. Individuals go through a one-time registration process without having  to download special software on their mobile device. Its primary use is to reduce fraud, lower false positives and prevent account takeovers. It also can be used to send customer loyalty messages: for example, the customer can receive a message on their mobile phone when they walk into a branch or gaming facility. XYverify is on-boarding beta customers. The business model is to generate revenue through a flat monthly access fee. Customers can opt in or out at any time. To ensure privacy, they can set up geo-fences so they are not tracked within certain areas. As for XYverify’s competitors — Google recently announced a geo-fencing offering.

While I found these companies the most interesting, that’s not to say that the other five start-ups don’t have commercial potential. Here’s a snapshot of their offerings:

AgentPiggy

Based in Chile, AgentPiggy is designed to educate kids aged 6-12 years old about making better financial decisions through a technology-based on a virtual bank account. The kids can pick products they want to buy from an online marketplace, create a wish list and track their savings and progress toward purchasing those items. The business model is to provide education as a service. It’s subscription based for individuals, and schools can license it for a small annual fee. So far, AgentPiggy has partnered with the government of Chile, BBVA and Banco Estado, and it has some partnerships in Brazil as well. It is also exploring opportunities in Florida and Texas. The company competes with firms such as Playmoolah and Vitual Piggy.

Agile Credit

Agile Credit is an online direct lender for small businesses, many of which either can’t get credit or they’re unhappy with the credit arrangements they have. Traditional lenders simply can’t service many of these businesses profitably. The concept is to leverage information in the cloud to provide prompt online relationship lending and professional advice. Agile Credit provides the dashboard for free, and it charges interest on working capital, while managing defaults and retention.

GoodApril

GoodApril is an automated online tax planning resource for consumers and self-employed individuals. It provides a forecast of tax liabilities as well as intelligence to identify tax saving opportunities. Individuals can optimize their withholding levels, for example, while the self-employed can use it to track expenses, calculate quarterly payments and identify deductions. GoodApril pre-populates the tax return, reducing the amount of time it takes to file taxes. The company competes with H&R Block and TurboTax, but neither company has a tax planning solution. GoodApril offers a free version as well as a more sophisticated, subscription-based solution. Since it went live in March 2013, and it has signed up several hundred users.

LICUOS

LICUOS is a B2B payment platform that allows businesses to pay commercial debts, net payments and fund working capital in a cost-efficient manner. The solution is compatible with ERP, accounting and e-invoicing systems. It leverages proprietary patent pending technology and adheres to security standards as well as external and internal daily audits. The company’s business model is to generate fee income by providing an alternative to traditional banking. Among its competitors are PayPal and Intuit.

QuantConnect

Most trades on exchanges are automated through algorithms, yet mass retail customers have little or no access to quantitative methods of investing. Quant firms typically require investors to put up $10 million or more. QuantConnect has a network of established quants who build and test algorithms on its platform. It then connects to brokerage accounts for execution. The company has raised money from quants working in the industry, it has partnered with leading data providers, and it is considering sales to hedge funds. It offers some basic services for free. Subscription fees range from $19 per month for “hobbyists”, $99 per month for “professionals” and $499 per month for teams of 10 engineers.

Good luck to all the Innotribe Start-up Challenge participants.

Big Data Gets Smart: It’s All Semantics

Computer Tape Backup StorageLike other organizations, banks are trying to come to grips with big data: a vast amount of data coming from many sources at a faster rate. At the SWIFT Operations Forum Americas conference in March, David Saul, senior vice president and chief scientist at State Street Bank, made an interesting point. He said he thinks in terms of “smart data”, which encompasses not only volume, velocity and variety, but also value.

Big data is problematic for banks when it comes to regulatory reporting. They have to calculate and report aggregated risk positions to multiple agencies, and they’re going to spend billions of dollars annually doing it. This exercise would be easier and more cost efficient if reports could be produced in the same format and transmitted in the same way to all regulators globally.

Pulling  information from disparate systems and platforms that have no knowledge of one another is a challenge. However, banks can use semantics to connect data in one place to data in another place in a similar fashion to the Internet. Essentially, semantics allows the data from the sub-units in an organizational hierarchy to be connected along with the meaning.

To this end, the Enterprise Data Management (EDM) Council has been working to create the Financial Industry Business Ontology (FIBO). A key piece of FIBO is the Legal Entity Identifier (LEI), which uses semantics to create a common identifier for a logical entity. A few years ago, the EDM Council began a collaborative effort to turn FIBO into a standard that maps to business needs and contains the correct meanings and relationships. An outgrowth of this initiative is the Smart Regulation subgroup, which is focusing on ways to standardize regulatory reporting.

By bringing data together with the semantic models, banks can prepare regulatory reports much quicker. Once the data is brought together, it doesn’t have to be mapped again, which saves time and money. Moreover, banks can start to query the same big data to make smart strategic decisions that ultimately generate revenue.