The world of alternative finance is increasingly varied.
There are property equity crowdfunding platforms, remittance firms with Wikipedia payment models. Specialist lending products are growing in popularity and some firms are looking at blockchain technology.
Platform C2FO is focused on helping to bring liquidity to business supply chains. It gives companies visibility of their entire chain, enabling them to pay suppliers early, utilising excess cash to generate a return. Suppliers (for whom the scheme is optional) simply register their interest in early payment and, via C2FO’s online marketplace, offer the discount they would be prepared to give in order to be paid early.
As their need for cash at a given time changes, that discount can be altered and agreed on with the company being supplied. C2FO works with large firms – the likes of Pfizer, Costco Wholesale and Toys R Us – and their suppliers.
I caught up with senior vice president EMEA Colin Sharp to hear about his take on the industry, and P2P more widely.
C2FO offers an alternative way of doing invoice financing. What concerns you about traditional discount models?
Paying suppliers early in return for a discount is a concept that has of course been prevalent for some time. Initially this was done manually and procurement was tasked with negotiating individually with suppliers. In recent years more digital tools have been available, like dynamic discounting, whereby a sliding scale is used to calculate the invoice discount based on the payment due date. Generally, the challenge with these models is that it is the corporate who dictates the amount of discount that the supplier should offer. Our experience shows that, ultimately, this is bad for the supplier, which is in turn bad for the buyer, due to the limited adoption of such programmes.
How does your model compete or conflict with the Supply Chain Finance (SCF) programmes offered by banks?
Actually, the two schemes are very complementary in that the SCF schemes tend to be focused on the very large suppliers, while C2FO (although still applicable to large suppliers) tends to be very well suited and easy to roll out to smaller suppliers. Any corporate which has cash, wants to increase profit and support their supply chain should be looking at this alongside an SCF programme.
If innovative finance can help solve the liquidity challenges that businesses face, and provide a far more visible working capital experience for them, do you see the role of banks being pared back? And over what time frame?
As we all know, banks are under increased regulatory pressure, making it difficult to provide liquidity to some sectors, particularly the smaller companies with lower credit ratings. Innovative finance is filling this gap. Inevitably there will be some overlap with the banks, but they provide a valuable service which is unlikely to be pared back, certainly in the short to medium term.
To put this in perspective, we estimate that, around the globe, there are circa $40 trillion of invoices due for payment at any point in time, with roughly $2-3 trillion of invoice finance schemes available from financial institutions, leaving $37-38 trillion without finance. That’s a very big gap for us to fill.
Many are concerned about how the P2P industry would fare during a downturn. Are you? Which sub-sectors do you think are particularly vulnerable?
In any downturn, the need for liquidity often becomes more acute, which is good for the P2P industry. P2P will be a welcome additional source of cash for companies in this scenario. Risk models will need to ensure that they reflect the economic conditions, which inevitably will mean the cost of credit increases. Fortunately for C2FO and our customers, our model is risk free.
Where do you see space in the alternative finance market that's yet to be sufficiently addressed?
Invoice financing, or so called dynamic discounting, is an area that is gathering significant momentum but is still in its infancy. Although we are already facilitating billions in early payments, the potential market can be measured in trillions. Foreign exchange is another significant area that has huge potential but as yet is underserved by alternative finance.
What else excites you about the P2P lending industry?
Anything that gets liquidity flowing to the companies that need it is ultimately a good thing for the economy, and so we are very supportive of P2P lending, providing the rates charged are reasonable and visible.
The growth of the fintech sector in London is genuinely very exciting. In fact, funding of fintech companies doubled in 2015, reaching $12.2bn globally.