Is FinTech the Future of Supply Chain? – Part 1
Quarantines and lockdowns throughout the world have put a hold on both the global and national economies, causing companies to brace for the recession that experts say may follow.
In fact, some predict the COVID-19 crisis will institute a recession on par with the likes of 2009 or worse. But, how FinTech platforms will fair in this is unknown.
“Given the current COVID-19 crisis, we’re on the cusp of a major financial recession, which means we can expect two larger financial trends in the near future,” says Edrizio De La Cruz, co-founder and CEO of Arcus Financial Intelligence Inc., New York. “During recessions, there is usually a major move toward consolidating high-interest debts. This could be a major issue for any buyers who have outstanding balances with suppliers. However, there have been advancements in FinTech that enable easier debt consolidation, which can help here.”
Specific to supply chains, FinTech is used as a way for manufacturing and logistics companies and their partners to better manage financial operations, allowing buyers to complete payments faster and suppliers to receive funds faster.
Most FinTech platforms are accessed through a cloud management system, where businesses simply download an application or access an online site to manage their payment accounts. Previously, it could be as long as three months for a supplier to receive payment on an order, whereas FinTech streamlines this timeline immediately. Now, suppliers have more control on payment deadlines, allowing them to enact a longer period of time for a deadline or finance heavy equipment themselves.
FinTech firms also work across banks to determine the most beneficial payment option for each company. This, coupled with their much lower rates, have disrupted the way supply chains operate financially.
Those who will benefit most from tapping into FinTech solutions are startups, whose credit profiles are less sturdy and not as successful when working with banks. Suppliers and manufacturers whose processes have longer lead times can also benefit.
“A startup in any industry will be most adaptable to FinTech because their riskier credit profile is a good fit for FinTechs, which can use alternate means to determine credit worthiness, instead of the more traditional approaches that a big bank requires,” says Shawn DeVries, managing director of B2B at Kin + Carta. “Industries with long lead times will benefit from the financing options that FinTechs can provide.”