Evolution or Revolution? The Impact of Fintech on Working Capital

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Working capital, the lifeblood of businesses, is being transformed by financial technology. At a recent roundtable, C2FO brought together a panel of experts from diverse areas to talk about innovations in fintech, with a specific focus on working capital.

Whether the impact of fintech on working capital is an evolution or a revolution – panellists differed on this point – there was wide agreement that there is a powerful change underway.

Sandy Kemper, CEO of C2FO, and Mark Thomas, C2FO Director of Client Operations, EMEA, were joined on the panel by Mark Tweedie, UK Corporate Banking Head at Citi Institutional Client Group; Charles-Henri Royon, VP EMEA at Tradeshift; and Enrico Camerinelli, Senior Analyst at Aite Group. A number of journalists were invited to cover the event, which was held in London.

The dialogue ranged from collaboration between banks and fintech, liquidity constraints, and whether fintech is a bubble ready to pop.

Whether fintech is destined to pop – and panellists believe it will in some areas – it is still experiencing enormous growth. In just one year, from 2014-15, funding of fintech startups more than doubled, to $12.2 billion from $5.6 billion, according to the PwC 2016 fintech report.

This growth has been transformative, affecting how businesses and major financial institutions adapt and work together. At Citi, Tweedie said, “We are deeply embedded in fintech on a client basis today… We are massively involved on capital markets infrastructure, payment providers, data administrators, market data intelligence, algorithmic providers – we are hugely embedded in that space already.”

There is also the potential for fintech – and innovations in the working capital ecosystem specifically – to impact the world economy. With a continuing credit crunch and countries around the world laboring under negative interest rates, better access to working capital could have a profound positive impact.

Kemper noted that, at any one time, there is $40 trillion of accounts payable and receivable in the world that is not flowing. “We think that’s causing $5-6 trillion of economic tax on the world’s economy every year.” In the UK, “we think it’s between $50-100 billion of negative economic draft against your GDP. Those are big numbers.”

He added, “We have to find a new way. I would make an argument that this anemic recovery has been caused because we still have not untapped the liquidity for those who need it especially as it relates to trade and business to business.”

Technology is the key to getting capital to the businesses that need it.

“We need to completely reinvent the market in this space,” said Tradeshift’s Royon. “There’s a huge amount of money ready to be deployed in the market and there are lots of needs in the demand part. But there’s a massive blockage because of the lack of streamlined processes in the middle. I think the major problem we need to solve with fintech companies is to make sure that that money is given to the people that are craving it.”

Royon summed up fintech’s role in addressing working capital: “In a nutshell, it’s really how to foster collaboration in an easy way for suppliers . . . Without the supplier’s participation, you can’t do it right. The whole idea is to facilitate the collaboration with these suppliers and the buying companies to make sure that they have enough access.”

Education and increased awareness were also cited as essential to bringing fintech working capital innovations to a broader audience generally, and to treasurers specifically.

In Royon’s view, the treasurer’s role is being taken to a new level. “Instead of being a pure operations guy who only looks at how much is in the bank today and tomorrow, if you have access to data and access to your suppliers in an easy way, you can be much more strategic. You can start evaluating which suppliers are strategic and you can start talking to the procurement function in an organisation. It’s really the role of treasury management that is changing.”

Camerinelli also discussed the use of data science for working capital management. He said, “If we can capture information, which is not related only to financial transactions, but on operational efficiency, then you can build what I would call a supply chain bank… Seeing all the transactional history can help determine cash inflow projections, cash outflows, procurement forecast, even credit underwriting.”

As the panel wrapped up, it returned to the question of whether the impact of fintech on working capital is an evolution or a revolution. The verdict was split, with Tweedie and Royon choosing evolution.

“I think its evolution and industrialisation, coming together,” said Tweedie. “We’re back to a state of partnership and ‘frenemy’; I think it’s positive and a good thing for all parties involved. We’re past revolution, it’s good evolution.”

Camerinelli and Kemper chose revolution. “It’s an escalating revolution,” Kemper said, “and we’re not going to be able to put the genie back in the bottle.”