FCI organised the first webinar on FCIreverse, the just launched SCF projectFriday 11 January 2019
On 10 January 2019, FCI organised the first webinar on the history of Supply Chain Finance (SCF) and an introduction on the benefits of FCIreverse, FCI’s new payables finance buyer centric solution, based on reverse factoring.
It is intended for anchor buyer companies that have several suppliers who could benefit from early discount programs. The benefit to the supplier stems from the provision of lower cost of funds, due to the leveraging of the balance sheet of the buyer based on their confirmation to pay the invoice “date certain, amount certain”, creating an arbitrage. For the buyers themselves, it can improve supplier management, create the opportunity to negotiate better payment terms, ultimately allowing for better cash flow forecasting and a stronger, more resilient supply chain. The product is offered in collaboration with Demica who owns and operates the technology platform powering FCIreverse.
The platform is now ready to be used, several potential test users are in discussion to pilot the platform but many questions were still raised by FCI members. Therefore, the webinar was organised to present to the interested members the project, its history, the reason why it was developed, the costs, the legal framework and the operations. The webinar was presented by Peter Mulroy, FCI Secretary General and the SCF Committee: Josep Selles (Chairman), Philippe Gresta and Monica Martin Blanco.
Josep Selles explained the background of the project, starting with the initial creation of SCF/confirming in Spain in the early 1990s, stemming from the economic crisis at the time, the increase of risk and the decrease in the use of factoring. Santander came with the idea to offer the suppliers an interesting advanced payment proposal without recourse. Today confirming accounts for 50% of the total Spanish factoring market.
Peter Mulroy explained how FCI decided to expand its core offering from traditional factoring to payables finance/reverse factoring. He noted several barriers to entry for the FCI membership, coming from the legal and regulatory environment, cost of technology/platforms, the rapid change in technological evolution with Blockchain, as well as issues relating to KYC/AML. The FCI membership confirmed on several occasions their willingness to have access to such kind of platform from FCI. It was confirmed by a members survey launched in 2016 where 76% showed their interested in the platform. After an RFP and interviewing finalists, the platform chosen was from Demica.
The costs to use the platform were also detailed by the Secretary General, it includes an annual fee of EUR 5,000, the costs of implementation by Demica and an ongoing revenue share (pay as you go formula).
Philippe Gresta presented the operations and demonstrated the flexibility of FCIreverse. The project has 2 types of operations: 3-corner and 4-corner. The 3-corner model is used for domestic transactions and/or cross-border one when the member doesn’t need a counterparty in the other country. An additional declination of the 3-corner is the 3+ -corner model where the factor needs the help of another FCI member to onboard the supplier due to for example language issues or KYC documentation gathering. Once the onboarding process is completed, the correspondent factor disappears from the relationship and a standard 3-corner model is carried out.
For the 4-corner model as explained by Gresta, there is an import factor and an export factor during the entire transaction as exemplified in traditional FCI two-factor operations.
Monica Martin Blanco continued the presentation and highlighted the legal framework. She highlighted the need to sign different agreements with Demica to be able to on-board transacts on the platform. The factor member, the anchor buyer and the supplier must also each individually sign an agreement with Demica. In addition, other agreements are necessary between the parties but are not done on the platform. For the 3-corner model it means a commercial agreement between buyer and supplier, a bilateral reverse factoring agreement between the factor and the buyer and a bilateral Receivables Purchase Agreement (RPA) between the factor and the supplier. For the 4-corner model, in addition, there is a need for an interfactor agreement for FCIreverse between the Import Factor and the Export Factor. All parties would be subject to the Rules of FCIreverse.
Peter Mulroy concluded the seminar by highlighting the advantages for pilots to join the project. In summary he said “it’s a great opportunity for the market as it’s the first network approach for a reverse factoring solution based on global network, a robust legal framework, state-of-the-art technology, and a cross border element, all to increase revenues for all parties concerned. And the initial pilot members will have first mover advantage, as much publicity will follow them as a result.
FCI intends to repeat the webinar again in the coming months, so keep an eye on the FCI website to register as places are limited.
Following the webinar, a few participants sent their feedback, let’s discover some of them:
"General impression is quite positive. The topic that was the subject of the webinar was clearly structured and presented. Presenters were well prepared and excellent. Timings were respected. Really appreciated the chat feature. Beside the questions function it was also very nice to have the private chat option to talk to the colleagues attending the webinar. Nice networking element to it. Before the webinar the topics that were not quite clear, at least to me, were the full legal scheme and pricing. Both topics were covered and well explained during the webinar. Overall, it was very useful and gave me better understanding of the subject." Anita Josipovic, Latam Trade Capital