LIBOR Phase Out: Considerations for Supply Chain Finance

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DAVID GUSTIN, Chief Strategy Officer, The Interface Financial Group September 19, 2019     LIBOR has been the default benchmark interest rate for supply chain finance since this technique was developed approximately 20 years ago. By year-end 2021, LIBOR will be phased out.   So how does this impact supply chain finance? For a market […]

What Happens When Machine Learning Finance Models Fail

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DAVID GUSTIN, Chief Strategy Officer, The Interface Financial Group September 3, 2019 These are some strange times. Look, we have $16 trillion of negative-yielding bonds, that’s T, for trillion. I’m asked by non-financial people why anyone would want to buy negative yields (you pay to hold them, btw) and I reply, it’s not about income, […]

Large Companies Lack Cash to Fund Their Supply Chains

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DAVID GUSTIN, Chief Strategy Officer, The Interface Financial Group August 13, 2019     The popular opinion has been that many large American companies are flush with cash. In fact, surveys from some reputable institutions support this view. The AFP’s corporate cash survey found during the second quarter of 2019, U.S. businesses continued to build their cash […]

Can Source-to-Pay Networks Go Beyond The Approved Invoice?

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DAVID GUSTIN, Chief Strategy Officer, The Interface Financial Group  June 11, 2019 “The phrase ‘it’s better to be lucky than good’ must be one of the most ridiculous homilies ever uttered. In nearly any competitive endeavor, you have to be damned good before luck can be of any use to you at all.” ― Garry Kasparov, “Deep Thinking: […]

Blockchain and Digital Invoice Finance — What’s Missing?

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DAVID GUSTIN, Chief Strategy Officer, The Interface Financial Group July 2, 2019 What is the most resilient parasite? Bacteria? A virus? An intestinal worm? An idea. Resilient … highly contagious. Once an idea has taken hold of the brain it’s almost impossible to eradicate. — “Inception” (2010) Similar to an idea in the movie “Inception,” […]

PPC: On Late Payment — Regulate, Shame or Just Deal with It?

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DAVID GUSTIN, Chief Strategy Officer, The Interface Financial Group May 21, 2019 There was some recent shaming of some very large companies by the UK government that did not comply with the Prompt Payment Code (PPC). Seventeen large companies, including heavyweights such as Vodafone, Rolls Royce, SSE and British Sugar, were suspended pending promises to […]

Is There a Tech Solution for Supplier Portal Proliferation?

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DAVID GUSTIN, Chief Strategy Officer, The Interface Financial Group May 14, 2019  When we look at source-to-pay solutions, we tend to look at it from one side, that is, how this is going to improve the accounts payable department, reduce cost, be more efficient and improve supplier collaboration. But then I hear quotes like this […]

Is Supply Chain Finance Pricing Mispriced?

DAVIDGUSTIN,ChiefStrategyOfficer,TheInterfaceFinancialGroup April,:AM| Fundinghasgrownmoresophisticatedwithsupplychainfinanceprogramstolargecompanies,drivingmarginsdowninmanycases.Thereareseveralinterestingissuesaroundpricing:Platformprovidersmakemoneyontransactionsnotexplicitchargesfortheirsales,marketingandonboardingefforts.Howareplatformcostsembeddedinpricing?Whataboutthirdpartyplatforms?Managedservices?IfSyndicationmodelsarebeingusedtocreatemorecapacityforbuyers,howdoesthatmodelimpactpricing?Forexample,thewaymanylargebankoriginatorsmakemoneyisbydistributingmostprogramstootherbanks. Iftheyhavea$bnoutstandingprogram–theymaykeep$mandsell$.billionwithadistributionmarginofbpsbetweenwhattheyoriginateandwhattheysell.Iftheyhavealeverageratioofor:,theycanmaketheirreturnmodelswork.Ifnewfundingplayersareparticipatinginthemarket,HedgeFunds,InsuranceCompanies,andEuropeanandAsianBanks,isthatmoneygoingtobethereifcreditcyclestakeaturnfortheworse?IsExpectedLossPricedAppropriatelyforSupplyChainFinance?Pricingtosuppliersisbeingpricedclosertothebuyerriskandthebuyer’sshorttermborrowing.FundingistypicallybenchmarkedoffofUSDorEuroPrimeorLiborandwillfluctuatemonthlybasedonincreasesordecreasesofthoseindexes. Isriskmispriced?Ifyoureallypriceriskyouputacapitallossonexpectedlossanditsapremiumtothattiedtoyourcostoffundingandoperationscost.IfabankbuysaAAAgovernmentbond,itscapitalcostiszero. U.S.treasuriesarenotreallyriskfreebutthatiswhathowtheyaretreatedfromaregulatorystandpoint. ForSCFprograms,thekeyquestionisiftheexpectedloss(“EL”)forthecontractforthatpartyisassessedproperly.  ExpectedLossistiedtothecovenantsoftheprogramaswell. YoucanlookatCreditDefaultSwapdataonthecounterpartiesasaproxy toEL,butCDSwasnotdesignedforthispurpose. Becauseoftightpricing,moresolutionsarebeingtargetedattheMiddleMarket(AIG PrimeRevenue asanexample).Butamiddlemarketcompanyof$Mondaytermswithsuppliers,andCOGSis$,evenifyougot every supplieronboarded,itsonly$Mprogram.That’sthechallengethere. SoarewepricingExpectedLossproperlyintheseprograms? Iwouldbeinterestedinhearingfromyou.

DAVID GUSTIN, Chief Strategy Officer, The Interface Financial Group April 5, 2016   Funding has grown more sophisticated with supply chain finance programs to large companies, driving margins down in many cases. There are several interesting issues around pricing: Platform providers make money on transactions not explicit charges for their sales, marketing and onboarding efforts. […]

Why Payment Companies are Missing an Opportunity with Early Pay (Part 2)

Why Payment Companies are Missing an Opportunity with Early Pay

DAVID GUSTIN, Chief Strategy Officer, The Interface Financial Group April 9, 2019 As we pointed out in our last post, payment companies are looking to convert paper checks to cards, and this is drawing interest from many firms, from private equity investing into payment companies to acquisitions (e.g., Fleetcor acquiring Nvoicepay, Visa buying Earthport). The […]

Pricing Power and Playing with Payment Terms

Pricing Power and Playing with Payment Terms

DAVID GUSTIN, Chief Strategy Officer, The Interface Financial Group March 12, 2019   David Gustin is the chief strategy officer for The Interface Financial Group responsible for digital supply chain finance and is a contributing author to Trade Financing Matters.     “When an inflation regime shifts, there’s only one question that really matters for […]