Since its inception in the early 1990s, supply chain finance has transformed from a simple working capital enabler to a conduit for financial stability and sustainability. Angel Bustos, global head of supply chain finance at Santander Corporate & Investment Banking (Santander CIB), discusses the evolution of the product, and how new technological solutions can allow large corporates to expand and reinforce their supply chains, while getting small businesses the cashflow they need to grow.
Q: How has supply chain finance evolved over the years?
Bustos: Supply chain finance as a product was originally invented by Santander in the early 1990s. We were the pioneers in offering it, and we have actually held the trademark on the term “confirming” since 1991. Our first transaction was with a Spanish company in the food sector, which was very well received by the market because of its solid value proposition: enabling suppliers to obtain financing at competitive prices, and buyers to strengthen their supply chain.
Since then, the product has evolved, especially from a technological and servicing point of view, but its essence remains unchanged. Supply chain finance has implications in many areas. On the macroeconomic level, it can be used to inject liquidity into the real economy, both in normal situations and, as we saw during Covid-19, during times of crisis.
Beyond this, the beauty of the product is the connectivity that it allows throughout complex supply chains, which makes it a natural tool to help companies embed sustainability practices. Through sustainable supply chain finance, we are incorporating responsible banking standards right across the economy. This is something that we’ve recently enabled UK retailer Tesco to do with a ground-breaking programme that incentives suppliers if they meet targets around carbon data disclosure, emissions reduction and progress against sustainability goals.
Q: Is demand for supply chain finance changing?
Bustos: The versatility of the product means that corporates’ motivation for undertaking supply chain finance programmes can vary across sectors and geographies. The benefits it offers go beyond the financial proposition – the technology side brings connectivity, while the platform offers a positive user experience for buyers and suppliers alike. However, first and foremost is that clients want to strengthen their supply chain.
Ensuring the financial robustness of the supply chain is essential, and while this issue has been magnified as a result of the pandemic, it has always been a key focus over the years.
What has changed is the scope due to the globalisation of supply chains, with new markets and new dynamics in supplier relationships. Fortunately, at Santander CIB our global reach comes with local expertise in every country where we operate, enabling us to ensure we have the flexibility and versatility to continuously meet our clients’ needs.
Q: Traditionally, supply chain finance has only served the first tiers of corporates’ supply chains. What needs to be done to extend liquidity out into the so-called long tail?
Bustos: At Santander this has always been a competitive advantage for us, in that we have always been able to reach lower tiers of the supply chain thanks to our strong local presence in the geographies where we operate.
In recent years, a confluence of factors, from macroeconomic shifts and new political risks to globalisation, has led to many clients developing a wide variety of management strategies for their supply chain, seeing them connect with suppliers in new geographies, setting up offshore treasury centres and looking for strategic alternatives to manage their working capital.
To respond to our clients’ evolving needs, which are taking their supply chains to geographies in which we do not necessarily have such a consolidated bank footprint, we have leveraged our organisational strength and commitment to innovation.
We have digital onboarding tools, multi-language teams, and 24-hour service availability, which is where we differentiate ourselves from purely technological-focused providers, who do not have that level of servicing capacity.
Providing services to the long tail requires a very large critical mass and specialised teams that only handful of players have, because unless you have the kind of scale we do, it’s simply not feasible.
Q: In recent years, new non-bank players have entered the supply chain finance space. What is your view of the competitive landscape?
Bustos: Nowadays, many technology companies have jumped into the market to facilitate some parts of the process. Santander’s approach however is holistic: we are not facilitators of product features; we provide a complete product.
We have built a high-performance team that is fully dedicated to evolving the technological aspect of our supply chain finance product, and within that team we have incorporated talent from top technology companies.
Additionally, we have set up the Digital Solutions Group, a dedicated team that monitors and develops digital innovation, enabling us to connect with any new fintech and explore new opportunities of collaboration and improvement to our offering.
Because of all of this, we remain confident that our differentiating factors and full end-to-end product offering make us the preferred choice for our clients.
Q: To what extent is the ongoing digitalisation of trade and trade finance changing your approach to supply chain finance?
Bustos: Covid-19 has accelerated the digitalisation of almost everything, including trade and supply chain finance. This is an exciting challenge, but also one of the areas where we feel more comfortable. We have been navigating the fast-changing world of technological revolutions in supply chain finance for three decades, and we’ve positioned ourselves to be able to continue evolving for at least another three, and beyond.
Digital tools are just a part of the evolution in how we carry out transactions.
It is part of our strategy to continuously be at the forefront of what we do, counting on the most innovative technologies and agile structures combined with the knowledge and talent of our team.
However, we’re not carrying out innovation for innovation’s sake. We have a portfolio of more than 1,500 confirming clients, with whom our teams are in permanent communication. This ongoing interaction gives us constant feedback that enables us to understand how the specific needs of corporates are evolving. Meanwhile, our technological partners continually update us on the trends and needs that we need to incorporate into our product offering. We’re seeing new trends around the evolution of connectivity, with APIs and enterprise resource planning (ERP) add-ons.
We also have more than 300,000 suppliers on our books, and through the use of big data, we can dissect and understand supplier behaviour, which then enables us to provide advisory to our clients around trends such as payment periods in their core geographies, sectors and currencies.
We are evolving towards artificial intelligence and machine learning on our platforms to be able to generate much more focused and much more efficient business strategies to enhance the user experience.
All of this is managed by a dedicated team of more than 60 people who work to produce tailor-made solutions for each of our clients.
Q: What’s next for supply chain finance?
Bustos: One of the next steps in supply chain finance involves taking a fresh look at how we get liquidity to where it is needed. To do this, we are moving towards solutions that provide financing at an earlier stage of the procure to pay cycle, enabling suppliers to access liquidity sooner. We are about to launch the first pilots with clients, and look forward to expanding this out further.
Whether our clients are established exporters or importers, or exploring global opportunities for the first time, supply chain finance can help to break down structural barriers for provisioning liquidity to enable commerce for all, while encouraging and promoting greater sustainability and resilience.
The pandemic has reinforced the fact that supply chain finance needs to be part of the solution to building back better.