• The pandemic accelerated the quest for corporates and treasuries to conserve cash through deployment of dynamic supply chain programmes and create liquidity for next-tier of suppliers 
• There is a significant uptake of embedding financing solutions into third-party platforms as a way to reach a wider range of suppliers
• The $1.5 trillion SME financing gap is expected to widen further with the increase in bankruptcies on loan impairments  
• It may take longer for supply chains to fully shift and corporates are looking to essentially break up large purchase orders into smaller, nimbler and more diversified supply chains 

With liquidity squeezing up during the pandemic, corporates and their treasuries have shifted focus to conserve cash by deploying more resources into pre-shipment and dynamic discounting supply chain finance programmes. From a Standard Chartered perspective, Michael Sugirin, its global head for open account trade, ecosystem and trade implementation, emphasises that a lot of corporates are now “much more interested in not only meeting liquidity needs of their tier-one suppliers, but also the suppliers that their tier-1 suppliers are sourcing from”, citing a much entrenched ripple effect across the value chain. 

Amid the trend of supply chains moving back to home markets, Michael opines that the long-established production and logistical infrastructure bases will take years to move and he has yet to see that trend accelerate sharply. However he notes that the pandemic has called for much more near shoring that “breaks up large purchase order into smaller, nimbler supply chains by creating diversification”. As a silver lining to the pandemic, corporates have been much more willing to come on to the bank channels or third-party platforms that eventually drive digitalisation and give financial institutions the ability to provide a much richer experience. He adds that as an earlier proponent of data, Standard Chartered Bank has invested in a “uniform data lake” that provides a cross-sectional view of transactions that can tap across its multiple platforms. 

The following is the edited and abridged transcript of the interview:

Siddharth Chandani (SC): Tell us what sort of impact (from the pandemic) are your business clients telling you about and what does this mean for the bank’s existing and new supply chain finance programmes?

Michael Sugirin (MS): Since the start of the pandemic about six, seven months ago, the initial reaction was fairly drastic one. I think, nothing that we've ever seen before. And if you think about the physical supply chain, about the Sino trade wars, there was a significant amount of disruption in terms of the undercurrent. And the pandemic really accelerated everything even more because corporates were literally looking to conserve cash. There was significant concern regarding the sustainability of the supply chains. There was a significant halt in terms of buying behaviours itself. People were moving online because they're locked down. So an all-around fairly significant, destabilising environment. With the corporates and treasuries especially focusing on conserving cash, what we saw is that, in the past, corporates had obviously injected their own funding. And as part of the dynamic discounting programmes into their supply chains, as corporates have tried to conserve cash, they were looking to deploy supply chain finance programmes to help keep suppliers and give them that access to liquidity. But clearly, there was not enough. We had a number of conversations where corporates were looking to provide funding early in the supply chain. We looked at three stages of supply chain finance - there is a stage where invoices are approved, there is an aspect around when invoices are submitted, and then there's the aspect around when purchase orders (PO) are raised and responded to. Lots of the supply chain finance programmes that are out there really are around the approved invoice stage. So corporates are really looking at a lot of pre-shipment finance programmes. But also interestingly, a lot of corporates are now much more interested also in terms of ‘my tier-one supply chain may have actually ample liquidity, but what about their suppliers that they are sourcing from’? So you think about the next tier of financing or the next to supply chain, where there was maybe a lack of financing or lack of access to funding for them given the size of those tier-2 suppliers and obviously has a ripple effect across the board.

SC: What are some of the downside risks that you have helped clients mitigate during this period?

MS: Corporates definitely have been looking for a period to digitise their supply chains because a lot of corporates have started investing in procure-to-pay platforms and ways to essentially connect to cloud platforms. But not all corporates have either implemented or fully optimised their procure-to-pay platforms that connect into their ERPs and then really enrol. And you think about supply chain platforms, they have really been separate from providing funding. So what we've seen definitely is a strong interest in creating or establishing a multi-bank funding or financing platform for their suppliers and really make that happen through more non-bank, a multi-bank type of platform. So the interest has not just come increasingly for using the bank proprietary platforms but even more so in terms of using third party platforms. And from a Standard Chartered perspective, we've seen significant interest in uptake; and using and maximising those aspects around embedding our financing solutions directly into these third party platforms. The interesting piece obviously with these third party platforms is that they are able to reach a much wider set of suppliers and that's probably an answer to your question in terms of how did you really help the smaller suppliers because you think about a bank-funded direct programme. Most of the suppliers that we address are normally the tier-one or top tier in terms of really providing impact, which is the more traditional supply chain finance approach. But it has been a lot of interest around how do I really help the small SMEs out there. 

SC: How have you, from a perspective of the bank, leveraged technology and automation to provide visibility across the supply chain?

MS: We've invested actually very early on. We knew that data and digitalisation and platforms are interlinked. We have within Standard Chartered invested many years ago in a uniform data lake that essentially allows us to be able to look at our client transactions and flows end-to-end and across multiple transaction platforms we have in the bank. This across multiple markets gives us much deeper insights in terms of one, understanding the use of Standard Chartered itself, but also be able to provide clients much more deep insights in terms of where there are potential opportunities around their working capital needs. And be able to also provide lead generation to our own internal sales staff to give a much more structured type of discussion with clients. 

But we're also seeing is that the information that we sit on has some limitations in the sense that from a bank's perspective, we normally operate within the settlement space around when transactions are being facilitated from a payments perspective. But what is interesting is that there's a lot of information that sits within a client ERP from a PO to an invoice perspective and how do we bring this in? In a way that it ultimately then becomes a convergence of information and therefore be able to use that data to potentially do one, obviously risk underwrite, risk mitigate and potentially even detect potential fraud as a means to protect the bank and protect our clients at the end of the day as well.

What's interesting with this acceleration of digitisation is really it's a means to an end. Because in the trade world, banks are grappling with non-standards of PO and invoice formats and there's still really no standard out there that is being widely used. But by overnight clients are much more willing to come on to bank  or third party platform channels to completely digitise end-to-end and that ultimately is going to give us that ability to be able to lift information directly from these transactions and move that into our data lake. So again, to continue to provide a much richer experience to clients, and essentially, also then risk mitigate much more. What we have heard definitely from a lot of clients is that they don't have enough insights or information in terms of whether their suppliers do have enough cash to be able to support their supply chain sourcing and so forth. That information is not readily available, even if you have, it's going to be very dated. So our strong view is that data is going to give us the breakthrough. And that has to be comprehensive. That has to be a very deep level of information available. And you need to be able to use that in a manner that it gives you those rich insights so we can really provide funding in a very proactive manner. 

SC: While there is a shift to traditional trade instruments also coming out of this pandemic but we also see that there is an ongoing shift to open accounts that continues and structures are being implemented. What is your take on that?

MS: I think we've been on this journey in trade for 20 years and we said, open account is going to eclipse letters of credit. We'll be a space where all transactions globally will be open account. And if you look at today, every single global financial risk event, whether it’s 2008, or we're experiencing now, we definitely see a continuous shift back into or continuous adoption of letters of credit because it's a very strong tool or instrument right to ensure risk mitigation on both sides of the buyer and supply side. So I don't think that will go away. However, with this particular pandemic, digitisation of letter of credit is definitely happening. Our efforts around that with Contour (platform), use of blockchain to ensure that we move really into end-to-end digital is really helping accelerate that process and journey. So I strongly believe that both instruments, whether you talk about open account or about the letters of credit, they will continue to exist. What I do believe is that actually, there’s a significant amount of green-field of financing that still needs to be essentially met. If you think about the SME financing gap that sits out there, early this year, we spoke about a gap of $1.5 trillion in financing. I think this has even widened with the amount of bankruptcies on loan impairments have gone in. You have even a significant increase in financing needs that's out there with SME clients. So we need to be able to really harness this data. The ability to digitise and really bring trade to the next level and that will involve significant amount of collaborations across banks. But that will also require collaboration across other non-banking financial ecosystems such as the procurement platforms that are out there.

SC: Do you see in the near future any beneficiaries coming out of supply chains become more concentrated as there is movement of essential parts of production supply chains moving back to national borders or may be countries that are deemed allies? What is your outlook on that?

MS: Last year there was a significant amount of discussions around that because of the SINO-US trade tensions. There clearly was a significant concern around moving factories away from the north into potentially Southeast Asia or India and so forth. We haven't quite honestly seen that take up yet because it takes years to set up that particular infrastructure - the supply chain, the logistics, and so forth. And depending on the industry that you talk about, it is definitely not as easy and a lot of that shifting has already happened. But with the pandemic what has happened is that corporates are moving much more into near shoring. They are also looking to essentially break up large purchase order into smaller, nimbler supply chains by creating the diversification of their supply chain. So a lot smaller suppliers they prefer to go with and that also actually meets nicely the ability to really think about the aspect and the focus around sustainability. As they analyse suppliers, alternative suppliers, or alternative supply chains, whether these suppliers are falling into the sustainability bracket, and one allows them really to have multiple fall-back options. So there is less of a concentration risk which they had maybe in the past.

SC: In keeping in mind this year’s theme at SIBOS, “Being connected online”, what do you think is your key takeaway this year?

MS: We are now completely operating in a remote manner and we are able to just interact as effectively, as efficiently as we have probably even better but the challenge here is, how do we balance that connectivity and being completely digital. And that translates then ultimately, also into the corporate life. As we are now able to remotely connect, can corporates also operate in that manner? And translate that into supplier interactions into corporate client interactions. And we've seen that it's a very interesting transformation that's happening as clients or consumers are moving, buying all their goods online and they don't really go into physical store. I mean, they're still going to physical stores. But the significant shift that's happening, what does that then mean from a retailer to wholesaler perspective in terms of marketing their products in terms of positioning and engagement. You don't have a dinner or a handshake anymore. You move on and have this complete remote engagement. So the way we define collaborations is a very different one. But I think it's actually quite interesting because now I can have 50 people in one room on one zoom session which was unheard of in the past. Because it took me logistically it was very difficult to get everyone on the calendar like that. But I think that's what's interesting because we are able to accelerate this collaboration. Being able to completely move digital, completely work remote anywhere in the world. And I think that's the opportunity here. The question is, what are we going to do with it? And connecting much more instantly and much more remotely. The challenge I see is, how do we connect with new connections? If I have a new business opportunity and new idea, how do I do it? How do I create? So that's something I think, still in the banking world, that is a fairly challenging one. But I think with the tools that are out there, it's definitely going to allow us to do more things there. 

SC: Thank you.