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Thought Leadership
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August 17, 2020
Reboot 1.0: How financial services technology can enable the supply chain to support a post-lockdown boom
Shuvo G Roy - Vice President & Head - Banking Solutions (EMEA) at Mphasis

Ground control and Captain Tom

When veteran Captain Tom Moore decided to walk one hundred laps of his garden before his 100th birthday to raise funds to support NHS heroes battling COVID-19 from the frontline, he never imagined that he would raise a whopping £32 million plus. It’s one of the most heart-warming stories of modern times. It also highlights that not even a lockdown can stem the global financial system or prevent people from spending on what is important to them. As suddenly as we plunged into doom and gloom, we’ll see a revival.

It might be a V or a Tick, but a recovery is coming our way. That is why we must question whether supply chains are prepared to feed consumers’ desire to spend once the wheels of industry start turning again.

While the crisis cast a huge dampener on global economies, trade and consumer spending, there’s already encouraging movement as retail, hospitality, leisure and tourism are opening up gradually across much of Europe. Meanwhile, early reports indicate that the shipping industry is emerging from hibernation, with growing demand from Asia, increasing shipments of goods from China and ongoing commitment in Europe to keep ports open. Looking at these tentative signs of recovery, a consumption boom seems the inevitable next phase.


Consumer appetite is alive and kicking

The Office for National Statistics shows that, despite all sectors seeing a decline in consumer volume sales as a result of the pandemic, online spending reached a record-breaking 30.7% in April as retailers shifted online. People are still spending and that won’t stop. Over in the U.S., Amazon announced its intention to make 100,000 new hires for its warehouses and delivery network to help with the massive upswing in demand.

In the physical retail space, many who were forced to shut in March have had to hang on to the stock from then that remained unsold in storage. With non-essential retail allowed to re-open throughout June, it’s likely that we will see mass sales on an unprecedented scale to clear the way for new stock. That means that inventories must be managed quickly and accurately, to ensure that supply chains are ready for action imminently. How?

The shut-down highlighted the weaknesses in the existing supply chain and one of the dominant takeaways is that there is a gaping need to close the digital divide that further stymied the full potential of financing, trade and commerce through delays, inaccuracies and lack of transparency. Technology can really add value. Cognitive and cloud-based tools, for example, are able to connect disjointed data from multiple sources to facilitate that much-needed visibility and seamless interaction between parties.

Another significant factor in the equation is keeping up the flow of global financial markets to facilitate the commercial health that forms the backbone of revitalization. In the UK, the Budget deficit rose to £62 billion in April alone, so apart from the obvious priority of public health, the next is re-opening an economy battered by unemployment, financial constraints, and a substantial drop in business activity. World trade is projected to suffer a fall by as much as a third, and while recovery in 2021 is currently forecast to be positive, it depends entirely on the decisions made now.


Galvanising the flow of finance

To offset the threat of recession, the government unveiled an unprecedented £330 billion coronavirus package to support households and businesses alike. However, faced with a deluge of applications, headlines pointed out banks’ shortcomings in processing loans fast enough. I would argue that this is due to most providers holding onto their usual lending practices and processes without amending them for these unusual times. With two thirds of companies reporting that their need for credit had grown as a result of the pandemic, this set the stage for the FinTechs and ‘challengers’ to step in and fill the gap. Almost 70 went on to receive accreditation to offer the Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS).

Take Starling Bank, for instance – the Neobank was able to lend £90 million via the BBLS in the first day of being permitted to take part in the scheme. Consequently, the bank attracted around 1,900 new business accounts in a day. Agile enough to adapt quickly, it also used its digital know-how to create and roll out new app-based tools to support customers in identifying the most suitable financial options and coronavirus relief based on their unique needs.

FinTechs can process applications and get money moving quicker, and by embracing digital technology, they are scalable and can handle sudden surges in demand. Legacy players are still held back by a reliance on manual effort and inefficient IT systems that do not allow them to analyze the same vast number of data points that Neo lenders can do effortlessly. Cloud-based challengers tap into data pools including historical data and can take advantage of open banking APIs by using advanced AI and deep learning solutions. Thus, they reach more accurate decisions and, through the insights afforded by data and predictive analytics, can see how viable a business is and how likely an applicant is to make repayments. This opens up access to credit to a much larger pool of applicants.


Optimizing supply chains through innovation

According to the World Economic Forum, the pandemic has exposed the fragility of modern supply chains and, together with a sound fiscal policy, “diverse sourcing and digitization will be the key to building stronger, smarter supply chains and ensuring a lasting recovery”. Adopting digitalization includes eschewing the cumbersome, paper-based operations that still exist between buyers and suppliers. Through combining technologies such as AI, blockchain and the cloud, businesses can rid themselves of silos and be nimble enough to diversify risk and transfer to an alternative supplier to enable continuity in times of crisis.

On the road to modernization, some banks are already collaborating with next-generation technology partners, to provide access to deep-tier financing for suppliers. Developing economies form the backbone of the supply chain and are often plagued with problems of easy availability of capital. In these times of heightened stress to financial systems, flight of capital to mature markets and safe assets is just an expected outcome. As such, it is important to keep the manufacturer solvent and financed, so as to be able to keep the supply chain active. If ‘deep-tier’ financing doesn’t happen now, there will be no inventory to put in stores the day that suppliers lift their shutters – consider the fact that shipping from China to Europe usually takes 25 days, and over 30 from the U.S.

Technologies such as blockchain can help build that ecosystem quickly for a fully traceable, transparent and immutable supply chain, with tokenized international payments transferred almost instantaneously– and securely. Such solutions create operational and cost efficiencies for the lenders too, reducing manual effort, scope for human error, and automating previously convoluted processes.

As the world gets going again, supply chains across the board will face unprecedented pressure and many are at risk of buckling under the strain. Proper access to financing, in tandem with the technology that can accelerate financial processes, must be the nexus of strong supply chain dynamics and readiness for a fresh wave of business.

This article was originally published in Financial IT, authored by SHUVO G. ROY, Vice President & Head – Banking Solutions (EMEA) at Mphasis. Financial IT is the online and print resource for FinTech market analysis. They provide a unique and valuable forum for people involved in the change process to learn and exchange ideas and knowledge – as technology cements its pivotal role in supporting the financial markets.

Click here for the article on Financial IT.