With many banks now taking a back seat in offering e-invoicing services, will they be missing a trick or two when it comes to the provision of supply chain finance? Liz Salecka investigates.
While global banks have long recognised the potential of offering e-invoicing as a service to their corporate clients, entering this space has not proved easy.
However, growing political will to drive the adoption of e-invoicing globally, coupled with improved corporate awareness of its benefits, could mean this is a service they cannot afford to ignore.
“Some global banks did put a focus on e-invoicing and then retrenched their networks or found that funding this type of activity for clients was not viable,” says Dominic Broom, managing director and head of sales and relationship management, treasury services Emea at Bank of New York Mellon.
He nevertheless believes that banks can – and should – be playing a role in e-invoicing.
“How they do this will depend on their go-to market models. Much will depend on a bank’s own individual circumstances; how much control it wants to have over its own process management; and what its clients’ businesses require.”
There is a general consensus among banks and technology companies that e-invoicing goes hand-in-hand with the provision of supply chain finance.
For corporate buyers it enables the full automation of supplier payment processes from the dispatch of invoices to the release of finance. Suppliers, meanwhile, benefit from even earlier access to supply chain finance.
“Although some bank providers claim they do not need to offer e-invoicing services, it is recognised that the practice is vital towards accelerating the invoice approval process. This in turn means finance is released sooner,” says Charles Bryant, European affairs advisor at Tungsten Network, a global e-invoicing network which links buyers with suppliers in 46 countries.
He adds that finance can be accessed within five to 10 days of an invoice being submitted when e-invoicing is used as opposed to 20 to 30 days when a paper invoice is sent across.
At Bank of America Merrill Lynch, Chris Bozek, head of its global trade and supply chain product team, acknowledges that e-invoicing can complement supply chain finance by reducing the amount of paper involved – and hence processing costs.
“This brings increased benefits to both the corporate buyer and to the suppliers,” he says.
However, he also argues that using e-invoicing on its own is not as compelling as when it is coupled with supply chain finance.
“The case for e-invoicing is improved if supply chain finance is made available, but the converse might not always be true,” he says. “One of the key benefits of supply chain finance for buyers is extending days payables outstanding (DPO) – and they can accomplish this by using supply chain finance on its own.”
However, the provision of e-invoicing alongside supply chain finance could encourage supplier enrolment in programmes.
“A lot of banks do experience difficulties onboarding suppliers to a programme and getting them to use the technology. If they can provide one more benefit such as e-invoicing capabilities to suppliers, this can help the process,” says Kitt Carswell, senior offering manager, trade and supply chain at CGI.
Tungsten Network, which recently acquired a bank (now Tungsten Bank), is seeking to capitalise on the strong relationship between e-invoicing and supply chain finance by offering suppliers on its network access to early finance.
“One of the most difficult processes for banks is supplier onboarding; banks do not have digital access to suppliers,” says Bryant, explaining that Tungsten handles onboarding itself and, for some clients, e-invoicing migration is now over 90%.
“If they are on our e-invoicing network we will already have digital access to them and onboarding is therefore not an issue. Suppliers use exactly the same portal they use for e-invoicing to sell invoices.”
Bryant also believes that banks may be disadvantaged in their provision of early financing because, unlike e-invoicing service providers, they do not see the real invoice, only the payment order.
BANKS IN E-INVOICING
The movement by an e-invoicing services provider into supply chain finance could trigger interest from banks seeking to offer value-added services to their corporate clients. However, they do face a number of hurdles.
“One of the core problems to e-invoicing is the existence of multiple fragmented networks and the fact that there is not one single standard that would enable its widespread use,” says Bozek, who also believes that banks and technology providers still need to provide a more compelling value proposition for e-invoicing to corporate clients. “This is a return on investment-based solution and we do see clients crunching the numbers when it comes to e-invoicing.”
The growing cost pressures that global banks face are also expected to impact their IT spend.
Bryant points out that, faced with a complex environment and growing regulatory compliance costs, it has become even harder for banks to build a strong business case for developing and supporting an e-invoicing product.
“For global banks e-invoicing is not a new phenomenon and many of them have tried to enter the e-invoicing market but, bar a few exceptions such as in the Nordic market, they have experienced little success,” he says.
However, although most global banks are committed to developing their own technologies, this is not necessarily the best route into e-invoicing.
Broom at BNY Mellon explains that banks do not have to build their own sophisticated infrastructure. “They can offer these services as part of their business by taking an outsourced model approach,” he says.
“Banks are not technology companies and do not have the same competencies when it comes to technical solutions,” adds Henning Holter, head of marketing and business development at Tungsten Network Finance. “The global banks do want to build their own technologies because they see the technology as a differentiator rather than an enabler, but this does not make sense.”
Banks that rely on CGI Trade360 to offer global trade and supply chain finance services to clients look set to benefit from e-invoicing capabilities soon.
CGI, which is currently delivering an integrated payables solution, is looking to integrate e-invoicing into the next release of its software. It is already working with bank clients on this new capability, which will enable suppliers to upload invoices via the same portal and send them to the buyer’s portal for processing and approval.
Carswell firmly believes that banks that offer e-invoicing and supply chain finance as an integrated solution will have a competitive advantage over those that do not.
“For banks, building their own technologies gives them power, but these technologies are expensive to build,” he says.
Tungsten Network, meanwhile, is offering its e-invoicing capabilities to banks so that they can present this as a service to corporate customers. PNC Bank recently became the first commercial bank in the United States to integrate the Tungsten Network with its invoice automation solution for large and mid-sized businesses.
“We can work with banks to complement their capabilities,” says Bryant. A number of Nordic banks including Nordea, Swedbank and Danske Bank have successfully entered outsourcing partnerships with e-invoicing services providers. “By working with third parties, banks can outsource their non-core technology activities and take advantage of the technology available.”
At BofAML, Bozek confirms that the bank is not averse to working with e-invoicing providers. “Our experience to date is that the substantial growth of supply chain finance is not connected
“Notwithstanding, we take our lead from the clients. If they request we interface with their chosen e-invoicing provider, we can. Banks and technology companies can work together on programmes based on the best solution available for that client.”
E-invoicing is here to stay
Despite concerns over lower-than-expected corporate take-up of e-invoicing globally, there are a number of factors which indicate that it is here to stay.
According to Tungsten Network’s Charles Bryant, e-invoicing has now passed a tipping point. “Fixing network issues is something that we can sort out. There are ongoing discussions at international level to reach agreements on linking different e-invoicing networks together,” he says.
Moreover, the adoption of e-invoicing is also being increasingly spearheaded by governments seeking to encourage a movement from paper to the e-transmission of documents.
“E-invoicing is an area which will experience ongoing changes on a dramatic scale,” says BNY Mellon’s Dominic Broom. “Technology is a key enabler and is being put to work in this space. At the same time there is a shift in political will and many governments are now driving the e-invoicing agenda.
“Corporates are also recognising the advantages and cost reduction that can be accrued in the supply chain management space.”
The role of governments in driving e-invoicing is already evidenced in regions such as Latin America, where its use is becoming less of an option. Given the growth of trade between Latin America and other regions, this is influencing the adoption of e-invoicing in countries which are regular counterparties.
“Many major Latin American countries including Brazil, Ecuador, Chile and Mexico too have made e-invoicing mandatory for all organisations or are planning to do so,” says Bryant. The main driver has been their desire to improve transparency into the value added tax payable.
“Portugal, which does a lot of trade with this region, is also looking to adopt the same model, so it is coming into Europe. There is an international spillover that gathers momentum when a country finds it is trading with other countries that use e-invoicing.”
He explains that across Europe the uptake of e-invoicing has been relatively slow because it is voluntary.
However, an EU e-invoicing directive has been passed, which is now being implemented in member states, and this requires all public authorities to support e-invoicing by 2018.
Broom believes this could be a major instigator of change: “Government regulations and initiatives such as Europe 2018 mean that this is a space that banks will have to play in,” he says.
Meanwhile, at BofAML, Chris Bozek agrees that the most significant adoption of e-invoicing has been in Latin America and Mexico as well as Europe – especially in Nordic countries. He also notes that this has been driven by strong government encouragement to switch to e-invoicing – and sometimes the mandate to invoice electronically.
“Governments are the largest procurers in their countries and if they make this a requirement of doing business with them then this will drive implementation for suppliers of all sizes,” he says.
Friend or foe?
While e-invoicing providers start to make their mark in supply chain finance, other types of technology-led companies are also making their presence felt. A number of platform solution providers such as Platform Black and MarketInvoice are leveraging on their technological prowess to offer supply chain and invoice finance to suppliers, using crowdfunding to finance this activity.
But do these new entrants represent a competitive threat to the establishment or are they simply offering a complementary service?
According to a GTR survey of banks conducted at Europe Trade Finance Week in Hamburg in June, it is a combination of the two. Whereas 11.4% of banks responding to the survey consider crowdfunding-financed platform providers of invoice and supply chain finance as competitors, 48.6% see them as complementary. And 40% consider them to be both.
At BofAML, Chris Bozek believes that while technology companies are starting to branch out and offer both platform services and access to capital, corporates will continue to work directly with their lead banks as the primary funding source to grow supply chain finance programmes.
“An important concern for many buyers is ensuring sustained access to capital – not just for today but into the future as programmes are expanded. This is because suppliers become dependent on this type of financing to fund their working capital,” he says, adding that companies using the services of e-invoicing providers will also have credit relationships with banks.
“Given the market dynamics, successful banks have learned how to compete with new players in the supply chain finance space one day – and then co-operate with them the next.”
Meanwhile, most IT entrants still see themselves as offering additional services because they are focusing on companies that many banks do not reach.
“Platform providers like Platform Black are absolutely complementary to the banks. The banks focus exclusively on investment grade clients: if you are not investment grade you do not fit the banks’ credit committee criteria,” says Louise Beaumont, the company’s chief sales and marketing officer and co-founder. Platform Black specialises in funding the supply chains of sub-investment grade companies.
Tungsten Network, meanwhile, aims to cater for smaller suppliers that fall outside banks’ parameters.
“Bank supply chain finance programmes are rolled out for the largest suppliers – not the smaller ones. This means that the service we are offering is complementary,” says Henning Holter. “We are most likely to be creating new financing opportunities or taking volume from the older traditional factoring businesses.”
At BNY Mellon, Dominic Broom notes that new entrants are not constrained to technology companies – although they are coming in because their technology adds value.
BNY Mellon is supporting all new entrants offering supply chain finance services in the same way that it supports banks with services that include facilitating the payments infrastructure they use.
“There are no reasons why new entrants cannot – or should not – compete against larger financial institutions in supply chain finance,” says Broom. “What we are seeing as a result of the leading role of technology, regulatory changes and corporates’ own reviews of their business processes is a shift in how this market is being financed. There is plenty of room in this market for new entrants to play a role.”
He notes that while technology companies are competing against banks to a certain degree, they are also competing against each other.
“To a certain extent, platform providers of supply chain finance are competing against each other – and they are competing against e-invoicing services providers entering this space too,” he says. “However, like most banks, they also have their own niches and segments. Some are focusing on the state sector and others are looking at the corporate market alone. Some are looking to offer services in a specific geography.”