BBA1023

Lecture 6

FinTech Solutions
Introduction to Fintech
 Our Lesson Today

▪ B2B Supply Chains

▪ Payments and Point of Sales
Innovations
▪ Big Data Systems
 Background
• Supply chain financing is essential for maintaining smooth
operations in the global economy, but it can be complex and
expensive due to the involvement of multiple stakeholders.
• Fintech is playing a significant role in streamlining payments
and working capital management in supply chain finance.
• By leveraging fintech solutions, firms can improve efficiency
and reduce costs associated with supply chain financing,
benefiting both manufacturers and end users.
 FinTech for Supply Chain
How FinTechs are revolutionizing the supply chain finance landscape.

• Supply Chain Finance (SCF) can be explained as commercial

banks, insurance companies, commercial factoring
companies, financing guarantee institutions, microfinance
companies and other financial institutions through the
cooperation with core companies, third-party institutions,
etc., What’s more, from the overall structure of the supply
chain and financing credit, SCF is a system of self-paying
financing, using fintech for control risks, which providing
financial services for SMEs in the supply chain.
 What is it Really?
How FinTechs are revolutionizing the supply chain finance landscape.

• Supply chain finance involves financial solutions that optimize

cash flow along the supply chain, including invoice factoring,
purchase order financing, and inventory finance.
• Traditional supply chain finance can be complex and costly,
involving multiple intermediaries with various fees and a lack
of transparency and flexibility.
• Fintech solutions are addressing these challenges by providing
streamlined and transparent processes, reducing costs, and
offering greater flexibility in managing cash flow within the
supply chain.
 Simplifying Supply Chain Finance
• Fintech is revolutionizing supply chain finance by leveraging digital
technology to streamline payments and working capital management for
businesses.
• Blockchain technology is reducing the number of intermediaries in supply
chain finance, lowering costs and enhancing transparency by connecting
buyers, suppliers, and funders directly.
• Real-time payment systems offered by fintech firms are speeding up
payments in the supply chain, improving cash flow for businesses and
reducing delays and associated costs.
• Fintech companies are providing invoice financing solutions, enabling
suppliers to receive early payment even if the buyer has not yet paid the
invoice, improving cash flow and reducing the risk of late payments.
 Advantages in SCF
• Fintech in supply chain finance increases efficiency
through automation and digital technology.
• Streamlining the supply chain financing process reduces
time and costs.
• Organizations can focus on core operations while
benefiting from improved efficiency.
• Fintech offers advantages such as increased efficiency in
supply chain finance.
 Risks of FinTech in SCF
• Fintech for supply chain finance introduces cybersecurity risks,
requiring businesses to choose trustworthy fintech providers with
robust security measures.
• Technological failures pose a threat to the supply chain finance
process, emphasizing the need for backup plans to minimize
disruptions.
• Fintech's impact on traditional intermediaries like banks and
insurers may lead to conflicts and require careful consideration by
businesses.
• While offering advantages, fintech in supply chain finance requires
careful management of cybersecurity, technological risks, and
relationships with traditional intermediaries.
 AI Revolutionizes SCF Pt 1
• Fintech companies are integrating AI into supply chain finance,
revolutionizing cash flow management and providing increased
efficiency and transparency.
• AI enables automated data analysis, allowing quick assessment of
creditworthiness and faster lending decisions, reducing the risk of
default and fraud.
• AI automates the onboarding process, streamlining data collection,
verification, and risk assessment, saving time and ensuring accuracy.
• AI-powered chatbots and virtual assistants improve customer
experience by handling inquiries, providing real-time updates, and
assisting with dispute resolution.
 AI Revolutionizes SCF Pt 2
• AI identifies patterns and trends in supply chain data, enabling
better decision-making in areas such as inventory optimization and
risk mitigation.
• AI enhances scalability of supply chain finance programs, handling a
large volume of transactions and expanding operations efficiently.
• Data privacy and security are crucial considerations when
implementing AI in supply chain finance, necessitating robust
encryption and security measures.
• The integration of AI in supply chain finance offers significant
advantages but requires careful attention to data protection to
mitigate risks.
 FinTech is Changing B2B Payments

• In the last decade, the fintech industry

has experienced exponential growth. At
the end of 2021, the industry was valued
at US$3.56tn with expectations to grow
at a compound annual growth rate of
23.58% between 2021 and 2025.
Transfermate’s nine ways fintech is changing B2B payments | Procurement Magazine
 Instant Global Payments
• Cheques are gradually becoming outdated as more efficient
and secure payment methods replace them in the US and UK.
• Modern payment methods provide instant payment
capabilities, improving cash flow management for suppliers.
• These methods also enhance supplier relationships and offer
better traceability of transactions.
• While an initial setup may be required, the benefits include
efficiency, security, and improved payment processes.
 Real-time Fraud & Money Laundering Detection

• Payment fraud is a persistent challenge for

organizations, with 49% of firms reporting serious
fraud attempts in 2021, leading to financial losses for
15% of companies.
• Modern payment solutions incorporate automated
fraud detection to identify and prevent suspicious
payment transfers or fraudulent supplier invoices.
 Transparency

• Good communication with suppliers is essential for

an efficient supply chain in the procurement
function.
• Modern payment methods enable transparent
tracking of money transfers and ensure that the
amount paid matches the amount received, unlike
traditional payment methods.
 Reduced Bank Fees

• Traditional payment methods often incurred banking

fees, especially for international transfers, resulting in
a reduction in the total amount received.
• Modern fintech payment rails eliminate such fees,
ensuring that the amount paid is the exact amount
received, potentially reshaping the financial services
ecosystem and increasing pressure on incumbents.
 Reduced Forex Risks and Costs

• Traditional payment methods for procurement may

involve foreign exchange fees and currency
fluctuations, adding additional costs and risks.
• Modern payment solutions mitigate these risks by
providing near-instant payments that bypass
currency fluctuations and foreign exchange fees.
 Procure-to-get paid
• Businesses partnering with fintech payment providers
can earn money on FX transactions, transforming
traditional B2B payment methods into additional revenue
streams.
• Fintech companies' global infrastructure enables them to
offer commissions on international payments and FX
margins, allowing businesses to generate revenue from
global payments instead of considering them as mere
costs.
 Digital Innovation
• Fintech payment companies have a global network of
regulatory licenses and bank accounts, enabling them to
operate in multiple countries and bypass traditional
banking payment rails securely.
• Fintech solutions have revolutionized B2B payments by
creating a digital, global banking infrastructure that
eliminates the need for manual work and enables
seamless and efficient transactions, according to
Transfermate.
 Automated Mass Payments

• Modern payment solutions enable the procurement

function to streamline mass payments, reducing time
and minimizing errors.
• Automated solutions empower procurement teams
to confidently send mass payments in batch form,
eliminating the previous challenges associated with
manual processes.
 API Integration

• The global payments system faces challenges due to

the need for different systems to communicate and
interact with each other.
• Fintech companies utilize modern API integration to
connect disparate payment systems, driving greater
efficiencies and delivering substantial savings in
terms of both time and money for businesses.
 POS Innovation and B2B Payments
• The B2B payments flow, projected to surpass USD 200
trillion by 2028, is shifting towards a B2C-like 'checkout'
experience, presenting a significant opportunity for banks
to generate USD 13 trillion in SME lending revenue.
• Fintech innovation aims to address long-standing
inefficiencies in B2B payments, such as manual
processing, high costs, limited visibility, and payment
delays, by digitizing the process and enabling automated,
fast, and frictionless transactions for buyers and sellers.
 Industry Players

• Various players in the industry, including payments

service providers, card networks, merchant
platforms, and financial automation providers, are
digitizing different parts of the B2B payments value
chain, addressing AP-AR automation, cash flow
management, ERP system integration, and more.
 Benefits to SMEs
• SMEs can benefit from this digital transformation in three
significant ways:
1. Access to financial automation features that can reduce
costs by 75% and unlock USD 1.5 trillion in productivity
benefits.
2. Increased ability to accept payouts in multiple payment
modes, improving the chances of faster and frictionless
payments.
3. Access to credit and liquidity management solutions
embedded in the payments flow, helping to bridge the
working capital credit gap that SMEs often face.
 The World Market
• FinTechs focused on B2B payments are leveraging
transactional data and alternative risk assessment to provide
transaction or PoS-based lending to underserved SMEs in the
mid-market segment.
• The global commercial lending market is projected to grow at
a CAGR of over 15%, generating up to USD 27 trillion in
revenues between 2021 and 2028, with SMEs accounting for
USD 13 trillion. B2B POS-based lending offers banks a low-risk
opportunity to scale SME lending and capture the mid-market
commercial lending segment.
 POS Based Lending

• Banks provide unsecured working capital credit

through credit lines or corporate credit cards, relying
on traditional business data for assessment.
• This approach limits credit access for new
businesses, those with limited credit history, or those
not yet profitable despite steady revenues.
 B2B POS Lending
• B2B POS-based lending enables banks to offer financing
options like BNPL or early/instant settlement at the point of
payment.
• Digital B2B payments generate valuable transaction data for
risk assessment and credit decisions.
• The data includes invoices, cash-flow position, retail sales,
payment settlements, credit history, and merchant
performance.
• Access to real-time transactional data across the value chain
enhances the accuracy of credit assessments.
 Example POS Based Lending

• AMEX introduced Business LinkTM, a digital B2B

payments platform for offering B2B credit solutions.
• Visa Direct enables real-time fund settlement for
SMBs through its SMB Payouts feature.
• B2B POS-based lending complements a bank's
working capital credit portfolio, categorized based on
borrower roles (buyer or seller).
The Banking Stack

B2B POS-based lending

would be a part of their
working capital credit
portfolio, aligned with
other unsecured forms
of lending.
 Use Case 1 - PGIS
• Payment Gateway Instant Settlement (PGIS) provides merchants with
immediate access to funds, reducing the need for cash contingency and
improving cash flow.
• Most payment intermediaries now offer instant settlement options to
merchants, often in partnership with non-banking financial institutions for
financing or credit.
• Banks have an advantage in offering PoS-based credit through PGIS, as
they have direct visibility into transactional data and can provide instant
settlement directly to SME customers.
• PGIS offers settlement frequency options, nominal fees, separate handling
of refunds and chargebacks, and multiple choices for receiving settlement
funds, providing low-risk exposure for lenders.
 Use Case 2 - CODIS
• Cash on Delivery Instant Settlement (CODIS) addresses the
challenge of delayed payment settlement for merchants accepting
COD payments.
• COD remains a popular payment mode, especially for Direct-to-
Consumer (D2C) brands, requiring trust-building with customers.
• Logistics providers often experience a delay of 7-10 days in
depositing collected COD payments, leading to a longer working
capital lock-in for merchants.
• CODIS leverages transaction data available with payment service
providers to assess merchant financing eligibility and offer short-
term lines of credit based on transaction history.
 Use Case 3 – B2B BNPL
• B2B Buy Now Pay Later (BNPL) offers collateral-free, short-term
credit embedded within the payments experience for improved
inventory turnover ratios and immediate access to payments.
• Fintechs currently dominate the B2B BNPL opportunity, driven by
automated credit decisioning and embedded experiences.
• The B2B BNPL market is fueled by the growing global B2B e-
commerce segment, projected to reach USD 25.65 trillion by 2028.
• B2B BNPL provides benefits for both sellers and buyers, enabling
sellers to receive payments promptly and helping buyers manage
their cash flow and inventory effectively.
How PGIS and B2B
BNPL would work
with a bank
functioning as the
lender.
 Why Banks Would Adopt B2B PBL
• Traditional risk assessment methods limit financing
eligibility for less than 50% of SME business spends,
driving the need for alternative financing approaches like
cash flow or transaction-based lending.
• Fintechs have captured significant market share and
revenue from traditional lenders, with annual revenues
of USD 8 to 10 billion and control of 10-15% of the supply
chain finance market.
 Why Banks Would Adopt B2B PBL
• PoS-based lending is gaining traction as a liquidity management tool
for SMEs, offering benefits to both SMEs and lenders.
• Banks are increasingly participating in the shift towards PoS-based
lending through distribution partnerships with fintechs, although
their potential to fully own and monetize the merchant relationship
remains limited.
 New Capabilities & Models
• Digital Onboarding: Streamlined onboarding process for
SMEs through digital channels, leveraging APIs to validate
data from various business tools within 24 hours or less.
• B2B Checkout Experience: Integration of a multi-modal
payment gateway within the merchant's order-to-cash
flow, offering a seamless and real-time POS-based
lending experience within the native banking channel.
 New Capabilities and Models
• Credit Decisioning: Automated risk assessment using
direct access to business data such as balances, sales,
inventory, payment history, and partnerships with data
aggregators for enhanced credit scoring based on
alternate data.
• Delivery and Repayment: Automated workflows for
calculating and delivering settlement amounts net of
interest/fee, along with flexible repayment options and
the potential to control spend through APIs for micro-
transactions and shopping carts.
 Adoption Strategies
• Distribution Strategies: Banks leverage partnerships with
payment service providers or merchant platforms to
enter the POS-based lending market, but face limitations
in direct access to SMEs.
• Building or Buying Technology Platforms: Banks can
choose to develop or acquire technology platforms with
payments and POS-financing capabilities to enhance
engagement with existing business banking relationships
and attract new-to-bank SMEs.
 Adoption Strategies
• Cloud-Native SaaS Platforms: Emerging as an alternative to
on-premise solutions, these platforms offer integrated
financial management systems with a multi-modal payments
experience, enabling merchants to accept various payment
modes and providing banks with embedded alternative
underwriting capabilities.
• Key Decision Points: Banks consider factors such as adoption
agility, integration with existing infrastructure, workflow ease,
and capital expenditure when deciding between distribution
strategies and technology platform adoption.
 The Importance of Big Data
• Data Size: Big data refers to the massive amounts of data that
traditional technologies cannot handle.
• Real-Time Processing: Big data requires processing data in real-time
to meet the needs of enterprises.
• Data Variety: Big data platforms should be able to handle various
data formats, including unstructured data like audio, tweets, status
updates, and videos.
• Growing Value: The value of big data increases with advancements
in IoT, mobile technology, and improved authentication
mechanisms, providing new financing opportunities for previously
underserved audiences.
 Big Data in FinTech
• Big data in fintech refers to the vast amount of
structured and unstructured data used by financial
organizations to predict consumer behavior and
make strategic decisions.
• FinTech companies leverage big data to forecast
client behavior and perform advanced risk
assessments, giving them an edge over traditional
financial institutions.
 Big Data in FinTech

• Real-time data allows FinTechs to adapt quickly to

market changes, while traditional banks struggle to
keep up.
• FinTechs utilize big data to make informed decisions
and provide personalized consumer experiences,
moving away from traditional risk assessments.
 Benefits of Big Data in FinTech
Customer Orientation

• Fintechs leverage big data to create detailed user

profiles and implement precise client segmentation
strategies for customized services.
• Sophisticated modeling techniques consider various
factors such as risk perception, age, gender, location,
and relationship status to offer personalized services.
 Benefits of Big Data in FinTech
Enhanced Security

• Big data helps fintech in developing

accurate fraud detection systems for
enhanced security.
• FinTechs use digital applications to
inform consumers about security
concerns and protect their money.
 Benefits of Big Data in FinTech
Improved Risk Assessments

• FinTechs specializing in big data analytics integrate

data from multiple sources for comprehensive risk
assessments and improved financial management.
• Predictive analytics is changing the way banks
approach risk, enabling FinTechs to offer competitive
rates and greater financial certainty.
 Benefits of Big Data in FinTech
Unmatched Customer Service

• FinTechs leverage big data to establish a digital trail

of customer behavior, identify potential issues, and
provide consistent assistance without the need for
phone calls or long wait times.
• Using data and forecasts, FinTechs can recommend
tailored services and products based on clients'
specific spending habits.
 Benefits of Big Data in FinTech
Chatbots, Bots, and Robotic Process Automation
• Intelligent chatbots powered by artificial intelligence
enable 24/7 interaction, assisting customers with
transactions and providing essential information.
• Robotic Process Automation (RPA) enhances the user
experience by automating repetitive tasks, reducing
errors, and allowing team members to focus on more
complex issues, leading to improved customer
support.
 Importance of Big Data in FinTech
Lack Of Personal Connection With The Customers
• Mobile devices enable fintech companies to gather
various types of user information, including
geolocation, user interactions, behavior, and
browsing history.
• This information can compensate for the absence of
face-to-face interaction and help companies address
user needs and provide personalized services.
 Importance of Big Data in FinTech
Fintech's Social Media Footprint Is Growing
• User behavior on social media provides valuable
insights for FinTech firms to enhance their product
offerings and services.
• Social media data can be utilized by insurers to
develop customized plans and by banks to create
credit scores.
 Importance of Big Data in FinTech
Expectations Of Customers Are Shifting.
• FinTech companies gather consumer data from multiple
channels to offer tailored solutions and exceed customer
expectations.
• Online banking has transformed the customer experience,
eliminating the need for physical visits and reducing
transaction times.
• Fintech's use of real-time data sharing and personalized
financial services has prompted traditional players to adapt
and has made fintech firms more agile in responding to
market changes.
 Importance of Big Data in FinTech
Fintech Is Becoming Increasingly Competitive.
• Big data empowers FinTech companies to optimize
operations and deliver superior services based on real-
time insights.
• Cost savings from automation enable firms to allocate
resources to marketing and offer competitive pricing,
fostering a competitive edge.
• The expanding FinTech sector requires businesses to
leverage big data to drive efficiency, reduce expenses,
and gain a competitive advantage.
 Conclusions
• Fintech is revolutionizing supply chain finance by improving
payments and working capital management.
• Fintech reduces the number of intermediaries and offers real-
time payment solutions, benefiting SMEs in obtaining supply
chain financing.
• Businesses should be cautious about cybersecurity and
technical failures when adopting fintech for supply chain
finance.
• Mitigating risks associated with fintech enables businesses to
leverage its benefits and achieve growth targets in supply
chain finance.
 Conclusions
• The FinTech sector is rapidly evolving, reshaping
customer experiences and expectations.
• Personalization through AI, machine learning, and big
data has become a key factor in attracting customers to
FinTech businesses.
• The enhanced customer experience offered by FinTech is
a major reason for its growing acceptance and
competition with traditional financial institutions.
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