Factoring Market Exceeds Expectations in 2019, Fintechs Increase Impact

Factoring markets proved highly resilient in 2019 and often exceeded expectations, particularly in Europe, Asia and South America, according to the newly released World Factoring Yearbook 2020. Of the 39 countries profiled in the publication, 64% reported growth in their factoring market, and growth was most widespread in Europe, Asia and South America.

In Europe, 70% of the 20 countries profiled reported growth in factoring turnover. Of the 20 European countries profiled, 11 recorded growth of 10% or more, including five that reported a growth rate of more than 15%. Only six countries in Europe reported nil or reduced growth: the UK, Switzerland, Denmark, Romania, Croatia and Turkey.

Spain witnessed a growth of 11.52% from €166.39 billion ($193.7 billion) to €185.56 billion ($216.02 billion). In France the market grew by 9.1% from €320.4 billion ($372.99 billion) to €349.7 billion ($407.1 billion), while in Germany the market increased by 13.9% from €244 billion ($284.05 billion) to €275.6 billion ($320.83 billion), and in the Netherlands the market grew by 13.8% from €98.6 billion ($114.78 billion) to €112.15 billion ($130.56 billion).

The strongest market growth was in Eastern Europe. In Russia, for example, factoring volume rose by 26% from €42.34 billion ($49.29 billion) to €53.28 billion ($62.02 billion) and in Poland the market grew by 17.1% from €56.74 billion ($66.05 billion) to €66.14 billion ($77.00 billion), while in Serbia the factoring volume increased by 26.41% from €782 million ($910.35 million) to €988 million ($1.15 billion).

Laying behind the growth tended to be an increase in client numbers, especially from mid-cap companies, and higher lending requirements by larger corporates.

Reports from Asia were mixed, but most countries recorded sound growth. Factoring volume in India rose by 12% from €4.46 billion ($5.19 billion) to €5.09 billion ($5.93 billion), and in Taiwan the volume of factoring increased by 14.7% from €41.2 billion ($47.96 billion) to €47.3 billion ($55.06 billion), while in Vietnam factoring volume rose by 36% from $1.1 billion to $1.5 billion, largely as a result of a substantial increase in export factoring.

In South America, Columbia and Peru reported strong growth in their factoring markets. In Columbia, factoring volume rose by 12.9% from €13.03 billion ($15.17 billion) to €14.7 billion ($17.11 billion), while in Peru the factoring market recorded its fifth year of growth, increasing by 12.1% from $13.78 billion to $15.45 billion. Brazil, with a much larger factoring market, experienced a factoring volume increase of 0.4% from $52.1 billion to $52.31 billion. In Chile, factoring volume increased by 6.5% from $35.42 billion to $37.72 billion.

Digital Platform Acceleration

According to the World Factoring Yearbook 2020, digital platforms — especially those owned by fintech companies — are having an increasing impact on the development of factoring, particularly in South America and Asia. In Canada and in parts of Europe, advances have also been made in the factoring market.

Asian platforms have become more noticeable in Taiwan, India and Indonesia. In Taiwan, banks have been investing heavily in platforms as they face greater competition from a rise in the number of fintechs offering factoring finance. In Indonesia, the growth of fintechs has been massive, with an estimated 260% increase in lending in 2019 as total fintech lending reached $5.6 billion by the end of the year.

In India, fintechs are seen “as the emerging trend as more and more offshore operators are setting up in India.” However, there is some concern that fintechs and other offshore companies such as new supply chain finance platforms are not governed by India’s onshore financial regulations and that their financial models may not fit India’s “market dynamics.”

In South America, digital and fintech platforms have grown rapidly in number as a result of the widespread use of e-invoicing. In Peru, there are now 80 fintech platforms, 20 of which are offering factoring. In Columbia, where e-invoicing is set to be mandatory for tax collection and where the government is working on a unified electronic factoring registry, fintech companies “account for a large proportion of the market by enabling banks and private funds to deliver cash quickly, easily and safely for factoring users.” Similarly, in Chile, where e-invoicing is already mandatory for businesses, “the advent of digital platforms is steadily shifting factoring towards becoming a commodity-type business,” and thereby having a significant impact on the factoring industry.

In Canada, where the factoring market decreased by 8.74% in 2019 from CAD 8.92 billion ($6.65 billion) to CAD 8.14 billion ($6.07 billion), fintechs have made inroads at the smaller end of the market and “continue to grow their presence.”

Meanwhile in Europe, fintech companies have become more noticeable in the Netherlands, Greece and the UK. Both the Netherlands and the UK have seen “a proliferation of small factoring providers including fintechs,” in the last few years. However, a question in the minds of some insiders is how many of them will survive the much tougher market and higher number of defaults that probably lie ahead. Greece is an example of a country where fintechs sought to take market share from the mainstream bank-based factors in 2019, but they were not always successful. Therefore, 2020 is likely to be a testing time for fintechs in the more mature markets of Europe.

Fintechs appear to be expanding factoring markets still in a development stage, whereas they are more likely to be substituting for the traditional suppliers in the more mature markets.

The full World Factoring Yearbook 2020, published by BCR Publishing, is available here.

The yearbook includes further insights on the topics above as well as articles on:

• Risk mitigation following COVID-19

• Sustainable finance

• The importance of supply chain finance in times of crisis

• Technology in receivables and supply chain finance

• Technology and fraud in the ‘new normal’

• Blockchain challenges and opportunities

• Factoring as an alternative tool for financing SMEs in Africa