This article was originally published on LinkedIn by our Head of Business Development, Chris Coleman, in September 2022.
This week’s WOA community convention in Mainz, Germany was a wonderful chance to spend time with the global receivables community.
My sincere thanks go to Erik Timmermans, John Brehcist and the WOA - World of Open Account team for hosting such a valuable and well organised event.
For those of you who didn’t make it, here are my top 3 takeaways from the day’s talks and my conversations with other delegates:
#1. Banks’ emerging market strategies are one to watch
Today’s fast-changing trading dynamics require creative thinking and robust supply chains. However, many economies are re-shoring production, to the detriment of developing markets.
Funding and banking services in developed markets are well supported by established and embedded financial products, but a lack of certainty is stopping them innovating and leading the drive into new markets. As a direct measure of this, factoring represents less than 1% of financial servicing in the Indian market.
Innovation drives down the cost-to-serve. Where banks once needed regional infrastructure to offer a high quality customer service, this reliance in ‘material’ banking is becoming less and less. The rise and rise of smartphones, fintech innovation and ongoing activity to make lending legislation more robust in new markets are the wind that banks need in their sails, and will be the key to the proliferation of factoring and receivables finance in new markets.
#2. When it comes to data, it’s time to think different
Effective invoice finance needs good debtors. And to find good debtors, we need good data.
Today, lenders’ default data source on potential clients is credit-rating agencies. To take advantage of opportunity in emerging global markets, IF lenders must expand their pool of potential borrowers by getting comfortable with alternative data sources on debtors.
Open banking and payment records are two key alternative credit data disciplines but finding enough markers to build robust PD and LGD ratings is key. Many innovators are focused on finding new data flows to give themselves this comfort. While this will come at a high cost, it surely will offer a competitive edge.
#3. ESG killed CSR (but could yet suffer the same fate)
There was widespread agreement that ESG must now play a central role in directing lenders’ business strategies to support the betterment of all as typified by the UN Sustainable Development Goals.
Alexander R. Malaket, CITP, CTFP, GCB.D of Opus Advisory gave an excellent definition of ESG for lenders (and any other type of business): ‘ESG means moving from maximising profit to contributing to our environment and society with the products and services we offer.’
We learned that there are 120+ companies each offering ESG ratings worldwide. Cynical companies can choose the ESG ratings that give their current operations a ‘pass’, and avoid those ratings that would otherwise ‘fail’ them. Standardising ESG ratings is critical to ensuring fairness and transparency in future.
CSR fell by the wayside primarily because too many firms used their CSR programs to ‘greenwash’ their reputations. ESG must succeed in gaining true support and for the right reasons. Finding positive incentives for business to act on ESG must come before government mandates, if the shift to ESG is to be truly successful. It’s on all of us to make sure our industry does better this time round.
I’ll look forward to seeing you at next year’s event.
Until then – back to it!