Every June FCI publishes its Annual Review giving an overview of progress made by the world's biggest and most important factoring network. The Annual Review also presents FCI's annual figures as well as global factoring statistics. In this extract, we explore America's Regional Updates, presented by Mr Alberto Wyderka, FCI Regional Director Americas.
The Americas rank third globally in terms of total factoring volume, accounting for a 6% share. North America, comprising approximately 3% of the global volume at EUR 97 billion, rebounded from a decline and recorded remarkable growth of 45.7% since 2020. This similar share percentage applies to the Latin American & Caribbean (LA&C) countries as well. Domestic factoring volumes witnessed significant growth across most LA&C nations, with all countries achieving percentages above 7.5% in 2022 despite the pandemic. Notably, the Americas region saw the highest relative growth of 77.3% in the ‘two-factor system’, increasing from EUR 3.26 billion to EUR 5.78 billion annually, representing 19.8% of the total volume. Import Factoring experienced remarkable growth, with LA&C displaying a 73% increase in export and import volumes from EUR 856 million to EUR 1.48 billion, surpassing the billion-euro mark for the first time in FCI history, with exports outweighing imports. Additionally, invoice trading volume in the region grew by 10.3%, surpassing the global growth rate of 4.4%. Overall, the region experienced positive growth across all analysed ratios, which is encouraging.
Legal, Regulatory and Advocacy
Following last year’s report, international factoring is firmly consolidating in LA&C, evident from the substantial increase in factoring volumes. While direct international factoring is crucial, banks increasingly seek protection through correspondent coverage, which FCI contributed to. Collaboration with associations and government entities in establishing policies, regulatory frameworks, and best practices is vital for sustainable industry development. Domestic factoring also experienced significant growth, driven by factors such as e-invoicing and favourable laws in countries like Chile, where factoring accounts for approximately 10% of GDP; Peru and Colombia have followed suit, adopting similar laws, and the economic power of Mexico and Brazil, are the reason for this growth.
Promotion and Awareness
The most critical event is the FELABAN Assembly (Latin American Banking Federation) which boosts FCI's brand awareness, brings new potential members and strengthens ties with current members. I attend this and hold meetings with banks, Government Financing Agencies, and some Regulators. I also actively participated in major gatherings like the IFA Congress in Boston and the FELAFAC Congress in Lima, where I delivered presentations on FCI’s mission and role and industry progress. I visited 11 countries, 15 cities, and 45 banks. With Monica Martin Blanco, FCI SCF Consultant, we visited multiple countries and banks, showcasing FCIreverse as an alternative solution and conducting platform demonstrations with Demica. The region leads in promoting FCIreverse. Education remains a top priority, with over 500 participants joining our September webinar. FCI Academy provided tailored virtual and in-person training sessions to banks on the mechanics of our two-factor system solutions, risks, and legal and commercial training.
Five new members joined our community: two as ‘associates’, one ‘affiliate’, and two as ‘sponsors’. Also, as reported last year, the Interbank reactivated the business in Peru, adding to the current members. This was undoubtedly good news. Only three companies ceased to be members, so the balance is positive. It is to highlight that of the 43 members that the region has, 86% are trade members (Associates), and 25% (11) are ‘full members’. The Regional network is completed with three Affiliate members and three Sponsors. This structure also partly explains the significant volume growth of the ‘two-factor system’ mentioned previously.
Following the Covid-19 pandemic, our region has had negative and positive changes. Changes are occurring due to growing economies, consolidation of legislation, and expansion of electronic invoicing, which enhances transparency and combats fraud. FCI is committed to supporting its members through education, dissemination of the business, expanding the network and collaborating with associations and end users. The political movement of changing governments in 2023 poses a challenge, impacting the country’s risk and overall economic activity. We must improve our understanding of our services among potential users, banks, and NBFIs. Strengthening legal and regulatory frameworks in the region is crucial, considering existing legislations like Chile’s ‘Invoice Law’ and leveraging UNCITRAL’s Factoring Model Law. Adaptation becomes necessary as alternative financing options such as fintech gain popularity. Changes in operations and payments require innovation and flexibility. Within these challenges, international factoring between correspondents must continue to grow as a lower-risk option for export financing and an affordable purchasing tool for importers.
Despite the challenges, the accounts receivable financing industry holds a promising outlook and will continue to expand. The temptation is to predict how they will be financed, and which vehicles will be used, whether it be banks, NBFI, fintech, other platforms, or ‘finders’. Each segment offers distinct advantages and risk considerations. Instances of complex fraud, such as Greensill and the recent Lojas Americanas case in Brazil, highlight the need for vigilance. It is essential to note that individuals perpetrate fraud and not the instruments. Those who take undue advantage of finance through factoring at sky-high rates are companies with a dubious reputation often due to overconfidence by Management and the lack of monitoring and auditing. Blockchain technology, while associated with incidents like the liquidation of ‘we-trade’ or the insolvency of Marco Polo, undoubtedly increases transparency and eliminates fraud risks often resulting from flawed business models. Legal uncertainties will hopefully find clarification with the upcoming Factoring Model Law from UNCITRAL. Our flagship solution, trade factoring between correspondents, will continue its growth in the region with the active participation of members.
(Photo: © Sadik Boujaida)