Industry leaders discuss how their institutions and clients are becoming more actively engaged in supply chain finance.

Bank of America Merrill Lynch kindly hosted GTR’s roundtable in New York.



  • Bruce Proctor, managing director and head of global supply chain group, Bank of America Merrill Lynch (Moderator)
  • John Ahearn, managing director and global head of trade, Citi
  • Andrew Betts, global head of supply chain business, JP Morgan
  • Dyanne Carenza, vice-president, product development & business planning, Scotiabank
  • Steven Lotito, senior vicepresident, head of trade and supply chain sales, HSBC
  • Michael McDonough, managing director, BNYM
  • Lawrence Meyers, co-head of supply chain Americas, global trade solutions, BNP Paribas
  • Jon Richman, managing director, global product head, trade & financial supply chain, Deutsche Bank
  • Stuart Roberts, head of supply chain finance division, Wells Fargo Capital Finance
  • Dan Scanlan, managing director, regional head of transaction banking, Standard Chartered
  • Bryan Watson, manager – trade services, Americas, Misys


Proctor: All of us in our various financial institutions are investing resources to broaden our supply chain finance capabilities. Are you seeing increased adoption by corporates of supply chain finance (SCF)? And if so, is this because suppliers, in many cases, are still having difficulty accessing sufficient liquidity or accessing it at the right price?

Roberts: We are seeing an increased demand from corporates, and not just in the US. Beyond the traditional working capital requirements, many corporates are trying to stockpile capital or cash.

In 2008, many corporates were quite concerned about liquidity, which brought home working capital efficiency. Beyond that, many suppliers – particularly outside the US and Europe – are driving buyers to do something. One thing that we do not tend to touch upon a lot is changes in accounting practices and accounting rules.

Meyers: There is another factor too. Traditionally, working capital efficiency was impetus for large corporates in establishing payables programmes. Extending DPOs was the driver. Coming out of the last recession, a new secondary drive emerged, namely minimising supply chain risk.

During the recession, many companies experienced stress in their supply chain due to financial pressures on their suppliers. This stress was evidenced in late deliveries, quality problems and, insome extreme cases, suppliers going out of business. Supply chain stress of this sort represents not only a supply chain risk but an enterprise risk as well. Payables programmes offer suppliers the certain ability to discount their receivables should they need cash flow. Moreover, it is often the case that even if the supplier can discount their receivables with local banks, the discount rate in the buyer’s payables programme is more attractive than the rate that the buyer can secure on their own.


Proctor: Large US or European buyers looked at what had happened with suppliers suddenly closing. They were vulnerable because they could not stock their shelves. The last few years have highlighted how vulnerable supply chains can be, most recently demonstrated following the events in Japan. How are corporates changing the way they manage their supply chains?

Carenza: Since the consequences of a blockage in the financial supply chain can be just as severe as a delayed shipping container, treasury departments must seek transparency and control of their cash flows to remedy inefficient processes or unnecessary use of precious working capital.

This is critical in times of tight liquidity since buyers are anxious to lengthen payment terms, while sellers want to accelerate collection of their receivables. This tug of war could be resolved with a more integrated financial supply chain, supported by a financial intermediary, to help each party maximise working capital. This leads to better buyer/ supplier relationships.

Betts: We are seeing some corporates use supply financing as a way of supporting a ramp-up in production. When suppliers are capping out on their working capital facilities locally, this is a way to aid the recovery, to stimulate support and to support growth. There are good examples of major corporates using this solution now as a way of managing growth.

Ahearn: A different model is evolving. Many of our large global corporates have excess liquidity on their balance sheets and are now looking for a hybrid product that enables them to do dynamic discounting, using their own cash but still have back-up lines if cash does tighten, such that they can then come to us for funding.

Banks and corporates are dealing with the same issue of alignment internally. Corporate treasurers are still somewhat disconnected from procurement – their goals are different. It is interesting to try to get that part of the equation joined together. To get the accounting treatment right on everything is quite difficult. What we are seeing then, is hybrids: ‘Use my liquidity today but I want you there in six months if I do an M&A or if there is some other opportunity out there.’

Roberts: That is exactly right. There is X amount that they want to allot, so they say: ‘I want to use my own cash, but I want you guys there,’ and in that period we will jump in and they lose the accounting treatment. There are certain companies that are specifically concerned about working capital metrics, but there are others that say: ‘I have this surplus cash’ – which is often trapped in places like China – ‘so how I can recycle that up to an amount, and after that, I do not want to bank my supply chain’.


Proctor: Would you see this as a temporary phenomenon based on global interest rates at the moment?

Richman: We expect to continue to see the growth in these programmes for a variety of reasons. It is partly to do with risk, working capital metrics, closer relations between trading partners, greater visibility, creating better ways to manage liquidity for all parties in the process, and ensuring stability of the supply base.

The rationale will evolve over time, as interest rates go up and parties become more or less risk-averse. There will also be different purposes. Just like we have seen the traditional trade products ebb and flow for different reasons, this will also change. The reason why the growth has taken off and will likely continue to do so is because we, as banks, are getting better at delivering the service to our clients as well.

We are better at structuring these facilities, at onboarding suppliers, and at helping them with the accounting issues, so the obstacles that slowed the growth are being taken out. All the benefits, which are many and far greater than a typical bilateral or standalone credit facility, can be reached by all of the parties in the process.

McDonough: The large banks and large corporates have done a better job than their smaller counterparts of identifying each other and coming to grips with how to collaborate on putting these programmes together. There is growing demand among the large corporates and the large banks for development of large-scale SCF programmes.

In terms of the tier below the large corporates and the large banks – the mid-size corporates and the mid-size banks – we are seeing a lot of inertia. A lot of banks in that segment, not necessarily those in the US or Western Europe, but around the world, are saying: ‘We do not know what to do. With so many different kinds of technology out there and risks we have to face, we prefer to wait until the market settles down before taking the steps large banks have taken to move into this space.’

In short, the question now is how to move SCF activity downstream to get to that next tier of candidates – and how to do it successfully.

Lotito: We have made a lot of progress over the last few years. The corporates are providing feedback to the banks that are leading to the creation of new products and better service. For example, I have seen that, while supply chain financing became a significant alternative during the financial crisis, driven purely for credit reasons and liquidity issues, corporates today are realising that there are a lot of inefficiencies in the system.

So now they are taking a more holistic view of financing their supply chain and are looking to the banks to help them solve these inefficiencies.

Meyers: Initially these payables programmes were thought to be technology-platform driven.
While it may be a necessary condition to have a low-cost efficient technology platform to support payables programmes, it is not a sufficient condition for success. Onboarding suppliers into a payables programme is equally important to the technology.

We are all better at onboarding that than we used to be, and that makes these programmes more valuable to our customers.

Ahearn: We need to assess as a market where we are today. Corporates will likely not be able to run their business at the same level of liquidity as pre-crisis. Many found themselves short, with revolvers not available. The amount of liquidity on corporates’ balance sheets today is probably three to four times what they had before the crisis.

Right now, they are looking for yield, but there is no yield out there. As a result, there’s more and more of these self-funded types of transactions happening. The clients we are working with are trying to extend days payable outstanding (DPO) or to find a way to get some of the revenue stream that is coming out of that supply base. Also, securitisations may no longer be working today.

A lot of these structures are ending up back on balance sheets, and as a result we are seeing a lot of homeless receivables that the large buyers are able to take advantage of. Factoring is also becoming very expensive, because many companies that were in the factoring business have seen their cost of capital go up quite dramatically.


Proctor: A lot of our focus is on the buyer side. But are you seeing increasing requests to approach supply chain finance from the supplier side?

Scanlan: We want to do more business with the suppliers. Our business with the large buyers is a way for us to open the door for multiple suppliers – that is what we want to do. This, then, is a great opportunity for us to not only finance them on a postshipment basis but then to get into them on a pre-shipment basis and to have them become clients of the bank. That is exactly what our people in Asia are trying to make happen, so it complements very well what we do on the ground. It is an area that is expanding.

McDonough: It becomes more challenging as you go downmarket, for a number of reasons.

Carenza: It depends a lot on firstly, making it stick and secondly, the segment that is downmarket. It also depends a lot on the industry and geography. We have seen a pick-up in Latin America, where it tends to be more the mid-market. There is a really strong, solid mid-market base.

Roberts: As a supply chain finance team supporting that middle-market relationship team, we have access to deals that would not necessarily have been on our radar originally.

With these deals come attractive spreads. While it is a smaller limit, as long as we have the right cost structure around the deployment of technology and legal costs, making sure that the PSA is done quickly and that you have a standardised RPA without negotiation, the spreads become attractive. However, the challenge is then how that spread is syndicated.

We like middle-market names because they have a very defined, limited supplier base. So you have 200 and 300 highly concentrated suppliers to go after. On the flip side, you can go to a medium-sized company with three or four companies that dominate its sales, and you can do a receivables purchase because it is straightforward to take that liquidity out.

Richman: Banks have become a lot better at promoting supply chain programmes to suppliers, whether for our distributor or receivables programme, or just to a supplier of the major buyer. We have become a lot better in terms of quantifying the value proposition to the supplier.

There is a network effect where we have seen suppliers who have then become buyers in other programmes.

It is becoming widely accepted and pervasive. The value proposition just gets greater and greater as the market continues to appreciate the dynamics of better working capital management, and we get better at marketing these benefits.


Proctor: We have seen that when clients have a good experience with supply chain finance they’ll want to adopt a global programme. However, onboarding a client to a global programme can present challenges. How do we best manage the challenges of global onboarding?

Meyers: At BNP Paribas, we are making a large investment in our Asian team. We are adding people who speak several Asian languages and different dialects.

With payables programmes, someone has to introduce the programme to the international suppliers, explain how the programme works and what documentation is required for participation. The largest domestic payables programme that I am aware of processed US$50bn a year in invoices, and even domestically, this was done with a team of maybe 60 people. So onboarding will take people. At least I think that is where we are in the market today.

Scanlan: For us, the local nature of some of these programmes is an interesting issue. Because our focus is Asia, Africa and the Middle East we are well equipped to support suppliers or buyers in those markets. We are not really interested in financing suppliers in Croatia, but give us suppliers in our core markets and we are all over them.

We do not usually have a problem finding partner banks to finance suppliers outside our core markets. In fact, the customer usually has a list of banks that they can work with in those areas. For us, it is really about our network and that is where we want to focus. It is not that we ignore the issues that are outside our network, but typically our preference is to stick to the geographies that we are very familiar with.

Betts: The global programmes hide a multitude of challenges. Typically, it is not just one global programme, it’ll be a buying entity in different countries and onboarding suppliers in those countries. Increasingly, the requirement is that, because the buying entity is in that country, the programme is not denominated by US dollar or euro as perhaps it was in the past.

We are now seeing many more programmes that are global programmes but funded in local currency, which has challenges in China in terms of the renminbi restrictions there; challenges in India, which is a different structure to supply finance than elsewhere; challenges in Russia; and challenges in Latin America in terms of funding in Mexican pesos, etc.

We are definitely seeing a stitch-together of buying entities globally under one umbrella programme, and that is a challenge. Legal jurisdictional issues come through and so on. The large banks who are able to handle that smoothly will add great value to clients, but it is very difficult for everybody to do.

Ahearn: No one has the ability to support a client’s entire spend for the types of clients we are doing, so we are spending a lot more time on making sure that the assets are liquid rather than the onboarding. The onboarding is relatively simple.
Proctor: As we go forward, how do you see the risk mitigation side of SCF developing?

Do you see this becoming a more broadly distributed market? Will it eventually have its own liquidity built into it in terms of participation being sold, traded, etc?

Lotito: I don’t see that as a risk participation process, but as a funded syndication model. For example, to the extent that you can manage the credit exposure via credit default swaps (CDS).CDS is certainly an option that is out there.

I know that that is something that some banks are examining. However, for the most part, from my perspective, what I am seeing is that rather than an unfunded, purely risk participation market, banks are funding their participation in their facilities. Unfunded risk participations and CDS all require the use of bank counterparty limits which are less available in the post-crisis market.

Ahearn: This has become a commercial paper (CP) equivalent. Citi’s distribution model is continually fed with trade paper and our investors are looking for more.

Roberts: Right now, the banks have been recapitalised and funded assets are at a huge premium. Nobody wants to just get a revolver. So supply chain finance assets are very attractive for banks, hedge funds and pension companies. They particularly like the buyer-centric side – what we call the payables-type programmes.

The biggest challenge is: ‘When am I going to get funded?’ We want to be a lead in each and every example. We don’t participate in other firms’ deals. We want to be a market-maker for the investors, allowing them to come in and offer multiples of what they could get on a revolver or a CDS, and explain why it is a good asset.

The biggest challenge right now is filling them up fast enough. We have done a pretty good job of that since we gotgoing three years ago.

Betts: Ultimately, the smaller programmes are still held by the banks in the main. Your first distribution point is often relationship banks put forward by the corporate, where you have a risk distribution model. It is a syndicated lending market, really, but that has evolved.

When you start to move into capital markets structures with CP-like instruments issuing notes, the issue is about scale. Unless you have a programme of probably half a billion in limits it is difficult to generate the volume to justify the structure.
Roberts: Because it is a secondary market, when you start distributing CP there is no relationship escalation. That has caused us to go down a true-sale participation model, where we have relationships. One of the great things about Wells Fargo is its extensive correspondent bank network.

We have leveraged that network to build relationships and drive the investor base forward. The scale of the asset demand is such that we are placing deals in places like China with local distributors which are 35-40% oversubscribed. We just closed a deal in Western Europe, which was 45% oversubscribed in Portugal, Spain and France. We are not seeing any kinds of issues in terms of where we are going to place this; we need to just keep sucking up more and more market share to feed these guys.

Ahearn: The issue is that you could have 60-day and 90-day paper without the liquidity backstop, but investors are getting a 40-basis-point higher yield. None of these programmes have reached that kind of scale, where you are arbitraging the CP, but depending on where these things go, that could certainly be a possibility.

Roberts: Again, there will always be an investor class that will never be comfortable with being on unsecured trade credit.

McDonough: The answer to that question raises a series of related questions. How do you get more supply into a market where there is excess demand? Doing these things for Wal-Mart is not terribly challenging from a credit perspective. It may be tough mechanically to put in place, but the credit side is what basketballers would call a slam dunk. But once you’re downmarket, you’re going to run into additional credit issues,additional onboarding issues and additional transactional issues.

Together, these issues are going to force some of the banks out of the market because they cannot take those risks. Given the inability of banks to deal with these downmarket complications, how do you get enough supply in the space to satisfy all the investors who want to buy?

Ahearn: There are two different directions here: funded risk participation and syndicated deals. We are saying: ‘We have five banks pitching. We cannot award all five, so we are going to award you as the lead and you have to syndicate the payables.’

Then we have a very large amount of investors in the secondary market. Citi has also created a multi-bank trade programme in which we have five banks participate with us. This facility provides tranching options and further distribution of risk and we can also do some of these middle market programmes as it is not just supply chain assets that are going into that pool; it is a variety of asset classes. We are also creating credit capacity by using the US Ex-Im programme.

McDonough: Two years ago, we were talking about the lack of up-takers for this paper. There was too much supply and the banks’ balance sheets were getting jammed up. Now, we are talking about the opposite problem – the discussion is all around how to address too much balance sheet supply chasing too little demand.

Ahearn: Everybody ran out of liquidity. So, it goes back to the cycle: two years ago, we were all trying to bring our balance sheets down; now, banks need to lend.

Richman: All of these developments are definitely happening in terms of investor acceptance. We have a securitisation vehicle as well that we are constantly replenishing. We expect that the number and types of investors will only increase.
Similarly, there is still alot of untapped potential on the origination side.

The other moving target is regulation and how we look at risk weighted assets (RWA) in the Basel III environment. It might change the capacity issue a little in one way or the other – we have to wait and see.

Roberts: We had this issue, being in capital finance. That is the borrower base lending part of Wells Fargo. Even in the US, we do PO finance or pre-shipment finance.

If you come along with a programme like Wal-Mart, which takes out a receivable and drops it by 200 or 300 basis points, the customer will not want to move on to the programme unless they can still keep doing the pre-shipment finance. You have to be able to offer both preshipment and post-shipment finance, either directly or in partnership with correspondent banks around the world.

That’s why we like our combination of great correspondent relationships and first class structuring and syndication expertise.

Ahearn: I think the bigger issue is one that no one is really talking about. There have been a lot of mandates and awards and a great investor base. One of the problems we are seeing, however, is that the programmes are just not ramping to the potential that they have.

A programme that is supposed to be US$500mn is US$100mn; a programme that was US$250mn is US$75mn. Keeping the momentum with the client and trying to get some real asset ramp-up within a realistic time is key.


Proctor: The third party provider has had a long-standing role in this business. How do you see that role evolving?

Ahearn: The technology is commoditised – myou can buy this technology for US$1mn. The third party competitors are going to be in a very difficult position because there’s a certain amount of balance sheet you can put behind this and it comes down to how well you can distribute the paper. It is a bank sector.

The real differentiator is how well you can onboard the suppliers and distribute the paper.

Betts: I agree. There has been a big development in the third party provider space but that has had its time. As banks are more proficient now at running these programmes, they are looking to agent or co-lead arrange these deals. As we have become sharper on the syndication aspects of this and moving through into CP and capital markets structures, this has gone from letters of credit to capital markets structures, which is quite a long way. As we sharpen our capability and take it to the next state, the technology piece is a small part of the answer.

I do not see a bright future for third party providers.

Meyers: The risk to the third party provider is the expanding capability of banks to distribute short-term trade-related assets. I have been in a room with 30 treasurers, where some say they will never use a third party company. However, others say that third party platforms give them flexibility.

Every bank programme has a size limit, and when a company reaches that limit, a third party platform allows the company to easily bring in another bank without conflict. However, when banks have the ability to distribute the assets in a payables programme to other financial institutions, programme sizes become less of an issue, and this represents a risk to the third party provider.

Carenza: There is no one bank or nonbank player today that has achieved a fully integrated supply chain solution.
Most banks are migrating their traditional domestic platforms to cross-border standards. Some of the established leaders in trade finance offer fragmented solutions locally but not globally. There is no common standard to enable the exchange of data among different technology platforms.

Meanwhile, non-bank players are leveraging recent technology innovations to position themselves as key participants in integrated financial supply chain services. This is the right environment for striking alliances and partnerships based on client relationship, technology offering, geographic presence and products to offer integrated financial supply chain solutions to both large corporates as well as the SMEs.

Watson: As a third party solution provider, I believe that bank-powered platforms are going to be the ones that are more widely adopted. Technology is a key enabler, as are standards that support a collaborative SCF environment. John is right that technology itself is only going to provide a platform for banks, but it is a crucial component of a successful SCF programme.

Third party solutions provide a differential in terms of the services that banks can then provide to their corporates, but bank-powered platforms provide for better integration with back-office processes, for example, to share some of the payment and financing fulfilment, imaging and risk management capabilities you have in your enterprise, rather than just being point solutions.

Technology platforms, both providing for deeper integration into the back-office environment and providing flexibility to allow the bank to deliver very specific programmes to your corporates, then offer a very attractive proposition.

Richman: Third party technology providers clearly play a role, but they might be best positioned in the background.

McDonough: Technology is a huge risk to entities that have not yet gone into the market. Some banks in Indonesia, for example, are acknowledging that they have to provide supply chain services to corporate clients that are starting to ask for it. Those same banks are looking at 70 different kinds of technology out there in terms of possible supply chain service solutions.

The technologies are all great, but the banks do not know what to buy, and they cannot afford to make a mistake by buying the wrong thing and having to go back to their board of directors in two years’ time to ask for another US$5mn of capital to buy the right technology.

Scanlan: The technology is not the issue, at the end of the day. It is overrated, to be quite frank. From the buyer’s and supplier’s perspective, it is not that important. Certainly, the names that you mentioned did get early-mover advantage in some cases, particularly with some of the large buyers, and that gave them some cachet, but I would agree that that cachet is gone now and we are in a situation where it is no longer about the technology.

It is about what you can do as an organisation in terms of providing the suppliers an easy way for them to do what they need to do, and get the finance that they need to get. GTR