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The world of supply chain finance will soon become more widely understood as an attractive source of funding for corporates globally, thanks to new accounting standards.

Introduced in late May, the International Accounting Standards Board’s (IASB’s) new disclosure requirements aim to alleviate investors’ concerns that some companies’ supplier finance arrangements are not sufficiently visible. More specifically, the changes affect the IAS 7 Statement of Cash Flows and the IFRS 7 Financial Instruments: Disclosures, and will become effective for annual reporting periods from the start of 2024.

The IASB’s goal is to make a company’s use of supplier finance arrangements more transparent and, in turn, enable investors to make better-informed decisions about the impact on the company’s operations.

For industry specialists like Orbian, these are small yet welcome changes.

“The new standards make it easier to understand supply chain finance programmes,” said Paul Coles, the firm’s Treasury Director responsible for managing relationships with funding partners. “They are also positive for highlighting why this is such a good asset class, which can help plug the so-called trade finance gap.”

The new disclosure requirements have been in the pipeline since well before Covid. They resulted from a couple of corporate collapses involving atypical supplier financing arrangements that should have raised red flags previously – such as abnormally long payment terms, buyers bearing most of the costs and unusually large programmes compared with cashflows.

While these were outliers in the generally well-run world of supply chain financing, the IASB’s response addressed the backlash and subsequent industry-led efforts to find a solution.

“The biggest practical change is to create a more prescriptive reporting requirement,” explained Coles. “Adding specific data points in the footnotes of financial reports will give extra clarity.”

These elements include confirmed obligations, outstandings at the beginning of the year, invoices confirmed during the year, confirmed invoices paid during the year and then obligations outstanding at the end of the year.

Along with investors, rating agencies and auditors will also now be able to more clearly identify and better understand the impact of these financing arrangements on a company’s financial status.

More broadly, while the new requirements won’t result in any significant change, such as reclassifying trade payables into bank debt, they will help demystify supply chain financing programmes.

“Transparency is a good thing for supply chain finance,” added Orbian’s Daniel Smith, Director of Origination – EMEA. “Even though the failed programmes were just two of many thousands, the new standards are a good reminder about what could happen if supply chain finance isn’t utilised for the appropriate corporate objectives.

For corporates, the new reporting requirements will be relatively straightforward to deliver. “Banks or fintechs should be able to provide the extra data points required.”

In the meantime, Orbian is starting to educate existing customers and prospects on the new requirements, plus guide them on which data points they will need.

The timeframe also gives Orbian scope to develop more scalable and automated solutions to facilitate the settlement processes for payments that buyers make to suppliers – including, potentially, providing data in a dashboard format to the IASB’s new disclosure requirements, added Smith.

Ultimately, Coles sees these developments as an opportunity. “We can now further extol the virtues of supply chain financing and the importance of fully understanding its role within the global economy.”

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“Digital innovation has always been Mashreq’s DNA,” said Joel Van Dusen, Senior Executive Vice President and Mashreq’s Group Head of Corporate & Investment Banking. Leveraging the success of its digital consumer bank, Neo, Mashreq’s innovations for its corporate clients are transforming the traditional role of relationship management

Through its Wholesale Digital Innovation Lab, Mashreq has approximately 200 data scientists organized into “digital squads” that are focused on streamlining typical “pain points” for corporate clients, such as onboarding for accounts or trade license processing.

Mashreq’s digital squads are also developing new digital capabilities for corporate customers that have moved credit risk and trade finance functions to the cloud.  “We are using API connectivity and streaming solutions on a very rapid basis to our clients in these ecosystems,” said Van Dusen.

Data analytics are the foundation of Mashreq’s digital innovation. “Data analytics is the new frontier: data is the new oil, and like oil it has to be refined before it can be used,” said Amith Rajan, Executive Vice President, Head of Advanced Analytics (CIBG & IBG) & Data. “Data analytics enable companies to use data to drive decision making to optimize and customize the customer experience.”

Mashreq is using AI and data analytics to drive hyper personalization for customers. For example, based on network analytics for shipping and trade data from across its global platform, the bank uses AI analytics for a wide range of risk management features, from identifying adverse media to early-warning fraud and anti-money laundering alerts.

“We are leading the industry in terms of real applications in the market for corporate banking customers,” said Rajan. Innovating the use of AI, blockchain and intelligent scanning to facilitate digital onboarding for customers, Mashreq is the only bank in the MENA region that allows large corporate customers to open accounts electronically using facial recognition.

Mashreq’s international banking is using digital innovation to leverage opportunities across its global network. “We are using internal and external data to capture end-to-end transaction journeys to make more informed decisions on where to invest and where to expand,” said Tarek Al Nahas, Senior Executive Vice President and Mashreq’s Group Head of International Banking.

For Mashreq’s international network, spanning from Hong Kong to New York, governance can present significant challenges. The bank is automating the regulatory reporting process to streamline local compliance and regulatory requirements, with a focus on strict regulatory requirements on data sharing. “Automation ensures that our regulatory reporting is always on time and accurate,’ said Al Nahas.

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The potential for frictionless, digital payments in Africa is growing, spurred by the collective efforts of an expanding ecosystem of market players.

This offers a compelling opportunity for businesses and individuals alike. Across online, mobile point-of-sale and other electronic channels, for example, total transaction value in Africa’s digital payments market is already projected to reach $146 billion this year, according to Statista Market Insights, based on data from April 2023^[1]. Further, between now and 2027, the expected annual growth rate for total transaction value is 16%.

While the aim at a corporate level is to enable smoother flows for business, Standard Bank’s Nombasa Hlathi also pointed to the rising importance of facilitating remittance payments as people who travel across the continent need to send money back home. “This is becoming the driver to enabling faster and less costly payments,” she said.

Initiatives to overcome hurdles to borderless payments such as exchange and other controls are gaining traction throughout different parts of the continent by taking a regional, step-by-step approach.

This is essential given the size of the task and divergence in areas such as policies, regulations, payments infrastructure and language.

Yet programmes in Eastern and Western Africa to create centralised clearing houses, for example, are gradually breaking down the borders. Authorities are also adopting a common approach in signing treaties to enable pan-African payments that support more trade. “A lot of work is being done in different regions to simplify how we do business,” added Hlathi.

At the same time, integrators such as fintech companies are helping to accelerate borderless digital payments.

In short, they are driving greater connectivity with both central banks and commercial players in local markets, to pilot and showcase technology-led solutions that offer the required agility to move money in a way that also makes it readily accessible between countries. “Cash is still king for a lot of African people,” explained Hlathi.

At the same time, some regulators, including the South African Reserve Bank, are shifting stance, creating a ‘sandbox’ to road test payments-related technology.

Bringing a wider range of market players to the table is vital to a sustainable and effective payments infrastructure in Africa.

“Banking is no longer just about banks and regulators,” said Hlathi, explaining that new parties from fintechs to retailers have big roles to play within the ecosystem. “They introduce new ideas as they view banking through a different lens.”

Customers themselves are also changing the rules of Africa’s payments game, as they start to dictate to their banks how and where they want to access their funds. “Rather than banks selling solutions to customers, we need to meet their evolving demands,” added Hlathi.

She believes Standard Bank is well-placed to navigate the new landscape emerging. Despite the digital nature of transactions, a physical presence in multiple markets within Africa is a key differentiator, as is customer trust and being able to offer the same experience in each region. “The bricks-and-mortar element has a psychological impact on our clients,” said Hlathi.

Further, she added, being a platform bank enables Standard Bank to partner with fintechs and other complementary players, ultimately playing to the institution’s strengths.

In Hlathi’s view, it is realistic to expect a viable digital, borderless payments landscape in Africa by 2025.

This outlook aligns with the focus among the continent’s regulators on a 2025 goal for interoperability and real-time, seamless payments. In addition, the financial industry wants to meet SWIFT’s ISO 20022, an emerging global and open standard for payments messaging.

Regulatory backing will support such rapid acceleration of solutions to facilitate digital, borderless payments. Mobile banking in Kenya is a case point, plus experiences in other parts of the world provide an important reference point. India, for instance, which shares similarities with Africa in terms of scale and its developing status, is seeing notable success in how it is digitising its payments landscape.

^[1] https://www.statista.com/outlook/dmo/fintech/digital-payments/africa

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