I interviewed Thomas Nash who discussed Predictions for the Financial Supply Chain.
There is a lot happening with the financial aspects of the supply chain. Could you talk to me today about 3 of the trends you see in this space?
Absolutely, I would be happy to. We could probably talk for hours about this topic of trends in the financial supply chain, but let me narrow it down to 3 that myself and my team are dealing with on a regular basis and why I see them as trends. To make this a little more fun, our magic letter for today is “P”. The complex B2B financial supply chain space may not be naturally so exciting so let’s make this a little more interesting.
The first P for today is Platforms.
One of the trends is about vendors who have new and mature eprocurement and payment platforms and the attempt to add a finance component to them. Everyone is looking for value added services to leverage their existing technology investments, both on the technology provider side since many of their old revenue streams have or will become free services, as well as on the customer side, where they have spent money on ERP systems, accounting systems and need to squeeze more out of them, or decide to migrate to newer cloud based systems. Looking at examples beyond enterprise resource planning systems, have a look at supply chain management systems that are looking for new hooks. Look at global networks like GSX, SWIFT and others who have spent years to create massive networks of data exchange. They are now looking to add payments if they have not done so already, and for those already in the payment business, they are looking to add financing components, like trade finance and supply chain finance, and in some cases better support audit. While everyone talks about the term collaboration (I mean, what system doesn’t say these days that they have some form of collaboration), the real goal is to leverage whatever data sharing and collaboration there is to find a common version of the truth in information and use that in down stream processes, and, more importantly for the vendors of these solutions, design new revenue streams.
Very interesting. What is your second P trending topic?
I would like to now speak a little about pricing models as the second P. As mentioned before, pricing models are changing. It’s no different than when IT basic services went from a prime revenue source for vendors to a free service and freemium models with upgrade options that would cost customers more. The same thing that has happened with email services over 25 years is happening with more complex solutions. What hotmail and Google did with email to what Microsoft is now doing with desktop applications, the same trend is in place with more complex solutions, and supply chain management is one of the more complex areas of business. The cloud has created flexibility for the vendors to pick and choose what they want to charge for. As an example, basic research systems for procurement may not cost the customer, but the payment service on the back end might. Being able to search for transportation carriers from a centralized database might not cost the customer anything, but taking advantage of preferred rates might. Where will this all end? Nobody knows, but the logical extension is that perhaps some procurement and payment services become standard out of the box and the supply chain finance or trade finance becomes the chargeable value-added service provided at higher margin to the service providers.
Could you elaborate on a third trend in this industry?
Next I would like to discuss Partnerships as our third P.
The financial supply chain is a confusing space right now. Partnerships are necessary to bridge the gaps between all the complex processes from demand and supply management all the way through to real time transportation management, payment and auditing. The David’s and Goliath’s are all trying to dance together and decide how to pair up. Large banks are not good in general at partnering with small technology firms, so it will be interesting to see if any of them can work well together and create something truly innovative. Geographic coverage is another reason why you are seeing more unique partnerships forming out there. What we are seeing is a trend towards morphing identifies. This is a culmination of the trends we have already discussed. In other words, the change in platforms, pricing models and partnerships is forcing the repackaging of financial supply chain services to the point where some bank offering are starting to look more “full service”, some technology firms are starting to look like payment and finance companies. The landscape 5 years from now will look significantly different.
Out of curiosity, is there an area within which there is very little change?
The one thing that has remained constant is the growth of electronic B2B payments. Despite the fact that almost 50% of U.S. B2B payments are still in the form of paper, electronic payments are growing at a good clip and that should continue for the next 20 years until the law of diminishing returns starts to kick in to that trend graph.
Thank you, Tom. Can you provide a brief background of yourself?
I have been the CEO of Xalles and its predecessor companies for the past 19 years. Our firm’s focus has been on the financial aspects of the supply chain, including procurement, contracting, payments, financial reconciliation as well as payment related auditing. We have implemented systems for transportation payments, intergovernmental transaction reconciliation and consumer payment solutions. Our team focuses on solution strategy and design in addition to building and implementing financial supply chain systems. We have done business in over 25 countries. As the leader of the team, I try to stay current on what is happening in our industry.
About Thomas Nash