E-Commerce and Supply Chain Finance
E-commerce is barely scratching the surface of its potential. China, the world’s e-commerce leader, nonetheless conducts only 23% of its retail sales online; the United States has a paltry 13% (75 percent of which is controlled by Amazon).
From 2014 to 2016, the number of internet buyers in India increased sevenfold, to between 80 and 90 million. By 202533, digitally influenced expenditure, which is presently valued at $45 billion to $50 billion per year, is expected to more than double, to between $500 billion and $550 billion, accounting for 30 percent to 35 percent of all retail sales. E-commerce has offered a platform for business model disruptions in nations with weak distribution and disorganized retail, leapfrogging traditional sales and distribution structures. Early instances, such as Alibaba’s and Flipkart’s early days in China and India, created a marketplace where independent practitioners, ranging from distribution businesses to a single person on a bicycle, could bid for employment to transport goods. Since then, these commerce platforms have expanded and invested extensively in their own distribution networks, going in the other direction to acquire physical retail networks to support both sales and distribution.
This means that in countries like China and India, where efficient retail networks are lacking, platforms exist that can more easily bring buyers, sellers, and financiers together, addressing multiple challenges such as SCF efficiency, management transparency, and new data sources for risk assessment. Furthermore, these platform providers are in a position to offer a greater range of managed services to help even the smallest enterprises improve their management practices and supply chain involvement, resulting in more qualified demand for supply chain finance.
Alibaba, China’s e-commerce platform, demonstrates an interesting way in which financial technology is being applied to supply chain finance. Traditional e-commerce platforms in emerging economies allowed for cash transfers, which is not the most frequent payment option for most large purchasers and B2B operators. To address this issue, a bill pooling service was established, which accepts bank acceptance invoices as payment.
Acceptance bills, also known as acceptance drafts, are similar to post-dated cheques in that they can be maintained by the receiver until maturity. Receivers searching for extra liquidity can also swap these drafts prior to maturity at a discounted rate. Platform member companies can make and receive payments using China Merchant Bank’s digital bank acceptance bills, or they can make cash transfers using Alipay, by submitting the acceptance drafts to Alibaba. This is the first time Alibaba has collaborated with a bank on a supply chain finance solution.
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