This article is extracted from the speech of Mr. LIN Hui, Regional Director of North-East Asia, at a recent FCI Greater China Webinar.

Back to basics is one of the strategic goals set out in FCI’s five-year plan. After 30 years of development, factoring in Greater China has reached a critical point where we need to settle down from noises in the market, find our original intention and return to our roots. Here are some examples of noises in the current market.

Low-price competition. Banks are competing for their preferred big clients by lowering prices and lowering risk control requirements. At the end of the day, the factoring risk control measures are surrendered, and the factoring system is idle. Factoring and lending are mixed, and the boundaries between them are blurred. Once losses occur, factoring becomes the scapegoat.

Enclosure competition. Banks are keen on acquiring clients in bulk by capturing supply chain platforms or anchor companies to enclose the supply chain businesses within their private territories. In comparison, the large companies have also risen to establish their supply chain platforms or factoring companies, enclosing their territories, and building their kingdoms. With all the lords entering the field, it is hard to imagine that this will be the factoring or supply chain finance ecology we expect. This sense of enclosure is essentially the opposite of the cooperative philosophy of the two-factor mechanism.

Another noise is from those companies who siphon off funds under the name of factoring and speculating in the real estate and securities markets. They are much worse in nature than Greensill ever was.

It is particularly worrying that the younger generation, who grew up in such a noisy environment, could easily lose their way if they are unaware of where the industry has come from. That is why we have also invited the seniors who have made significant contributions to the foundation of factoring business in Greater China to review our beginnings and give us some guidelines today.

To me, back to basics means to find the beliefs and values of FCI. Sometimes, I feel there might be a misunderstanding among our members that people consciously or unconsciously treat their relationship with FCI as both parties over the table. But in fact, FCI would not have existed until the members created FCI. The beliefs and values of FCI should be the ones of each member of FCI.

So, what are FCI’s values? I suggest each of us think about and discuss this issue together. Let me share my views. I think FCI values are embodied in the following aspects at least. The first is to serve SMEs wholeheartedly. The noises of price competition come from the fact that we strayed from this core value and took big businesses as our priority.

We should learn something from Starbucks for their wholehearted customer service. Starbucks makes their customers expect more than coffee at each of their stores. Can we make our clients expect more than funding from each FCI member, creating a sense of belonging and values for clients?

Only if we can serve SMEs wholeheartedly we will not be like the dealers of coffee beans, selling factoring as commodities. We need to make every FCI member like every Starbucks store, providing standardized and comprehensive accounts receivable financing services to our customers so that companies can have a standard, efficient, simple but secured experience. The concept of the Whole turnover has rarely been applied in Greater China so far, and we need to figure it out.

The second one is to have member synergy. This corresponds to the current feverish competition of enclosure. The supply chain of enterprises is in all directions, which determines that the development path of factoring and supply chain finance must be based on the synergistic network of financial institutions. This synergy of financial institutions includes the compliance and implementation of international rules. It requires common values and behavioural norms among each other so that FCI members worldwide can indeed be under one roof.

Grasping the above two points, we can ensure that we are on the right track. However, to fly high, a rocket needs a strong driving force, and this driving force comes from people, from people who would like to think and think differently.

In Greater China, factoring is embedded directly in the banks, which is very different from the traditional model in the European and American markets. We can’t follow the logic of traditional banking business to do factoring well, nor can we fully copy the traditional European and American models. We need to adapt our organizational structure to adapt to the specialized nature of factoring truly. We need to realize the continuous optimization of products, risk control, collaboration, and customer experience through digitization and process reengineering, and others. All these issues are worthy of our consideration and solution.

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