Factoring is on the rise, with forecasts pointing to global growth of between 6.1% and 8.4%. This expansion is also attracting the interest of many new players and renowned technology giants. In addition, innovations such as distributed ledger technology could also have an impact on the factoring landscape. How do you as a factoring solution provider take advantage of these opportunities? Is there a factoring solution that can meet these future demands?
The growing demand for a factoring solution
In 2021, the global factoring market was worth €3.10 billion, according to IMARC Group. Researchers expect it to reach €4.36 billion by 2027, with a CAGR of 6.1% in 2022–27. Grand View Research thinks the future looks even brighter and has forecast annual growth of 8.4% between 2021 and 2028. The researchers consider the increasing need for alternative sources of finance for small and medium-sized enterprises (SMEs) and the rapid development of factoring services in the European region as some of the key drivers.
These solid growth figures point to further diversification within the factoring ecosystem. The banking sector had the largest market share in 2020 at approximately 80%. However, they don’t often call upon fintechs to further develop and update their factoring services. Today, more and more specialized factoring companies are also looking at the market. Open APIs allow different providers, such as credit rating companies, to integrate their offerings with other solutions.
Will big tech target the factoring market?
Major tech players will likely enter the factoring market in the future. Meta, Facebook’s parent company, launched Meta Invoice Fast Track in October 2021, taking over invoices from the creditor for a fee of 1% of the value. This service is currently available only to US companies led by women or members of minorities. However, it does show that factoring is on the tech giants’ agendas.
This diverse spectrum of providers also presents new regulatory questions and challenges. In February 2021, The Bank of International Settlements (BIS) released a paper on how regulation should evolve to encourage fair competition between traditional banks and new fintech and big tech players. The study pointed out that the existing regulatory framework in major jurisdictions tends to impose comparable rules for consumer protection and anti-money laundering/combating the financing of terrorism (AML/CFT) on all financial services providers, yet supervision and enforcement may differ across different types of entities that provide the same services. BIS also pointed out that the current framework could be complemented with specific requirements for big techs that would address the risks that arise from the different activities they perform.
Distributed ledger technology and factoring
Another possible game-changer is the potential of distributed ledger technology (DLT) within the domain of factoring. It offers more opportunities to register factoring agreements and avoid double factoring. Other pluses are the transparency and security that DLT offers. Although several studies support the potential, the current lack of a suitable protocol is still a stumbling block to bringing factoring with DLT to maturity.
Threat or opportunity for factoring solution providers?
The question is, of course, how you, as a factoring solution provider, deal with these different trends and developments. We mainly see opportunities, for both established companies and new entrants to the market. If you want to adequately respond to the increasing demand and changing landscape, a shorter time-to-market can give you a useful competitive advantage. In addition, by setting up your factoring in an agile way, you’re always ready to take advantage of new innovations.
Do you need a factoring solution that is future-proof?
The Aptic SaaS platform CLVR is flexible, scalable, and adaptable to your business. It can handle all types of factoring products, recourse, and non-recourse, invoice discounting, supply chain finance, sales ledger administration, in brief – everything from order to cash!
As a user, you adapt CLVR to your business. This way you can get exactly the support you need to become more efficient. That way you’re always ready to develop and expand your factoring activities.