The transformative power of fintech for supply chains

The fintech ecosystem in India has grown exponentially, especially in terms of supply chain, since demonetisation in 2016. That was the time the country became aware of the potential of cashless transactions.

Enabled by the penetration of mobile phones and high-speed mobile data networks, more people began transacting digitally. This in turn sowed the seeds for the emergence of a vibrant and thriving fintech ecosystem.

But the potential of the fintech industry isn’t limited to the consumer sphere. Its next cycle of growth will come from the business-to-business sector. The transformational impact wrought by fintech firms in streamlining supply chains is the perfect example. Integration of fintech in the supply chain offers a look into the future when a majority of transactions, regardless of the consumer or B2B spaces, will take place in the digital realm.

What has changed?

Supply chain transactions were traditionally protracted, expensive affairs. You had the buyer, the supplier, and between them a maze of banks and complex trade agreements. It was a time-consuming set-up that demanded a significant amount of working capital. But above all, it was far from inclusive.

That’s because banks would grant finance only to companies with strong credit histories and profiles. That left an entire chunk of small and medium-sized firms — the mainstay of our economy — and startups, increasingly the drivers of our economic growth, without access to supply chain credit, thereby limiting their potential. This in turn put a cap on our country’s economic growth, hindering it from realising its full potential.

But fintech platforms have removed these roadblocks.

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Effective intermediaries

Fintech firms effectively act as intermediaries or brokers between buyers and suppliers. Well-connected fintech firms also have links with a network of banks.

Crucially, fintech firms create a win-win situation for buyers and suppliers. Suppliers get paid upfront or within a short duration of the transaction taking place by the fintech companies. Buyers are given an extended period over which to pay the fintech middleman as per negotiations in the agreement.

The network of banks a fintech firm has links with not only offers a greater choice of financial institutions from which to secure funding, but also allows the parties to pick and choose those institutions that offer the most favourable financing terms. It makes for greater choice of more affordable credit.

Blessing for SMEs, startups

Fintech platforms have the potential to streamline the supply chain. The whole process from procurement to delivery is made easier, more convenient, seamless and, most importantly, cheaper, in large part due to automated processing of payments.

That is why the combination of supply chains and fintech firms is a blessing for small and medium enterprises (SME) and startups in particular. These are the companies that need to squeeze everything they can from their investment at the lowest cost. These are also the companies that need funding the most to unlock the next stage of their growth. At the same time, these are usually the companies with the most unproven credit histories.

Fintech firms have effectively levelled the playing field for them, giving buyers adequate time to secure funding, putting them in touch with banks that would otherwise not lend to them, all the while making sure payments to suppliers aren’t held up. Fintech firms keep the wheels of business turning.

What the future holds

When it comes to fintech adoption in supply chain financing, we have barely scratched the surface. A big reason for this is that it is still a new concept and making that initial transition from conventional to digital, especially for small businesses, is still somewhat a leap of faith.

But there is no denying the transformative power of fintech. As its benefits become more obvious, supply chain fintech adoption will only gather momentum. With its potential to smooth out the supply chain and spur a more inclusive approach to financing, it has the power to unlock growth in individual businesses and, by extension, the broader economy.