In February, Wells Fargo Capital Finance released two announcements detailing the particulars of programs established with Dell Financial Services and AT&T Partner Exchange. Both programs were launched through Wells Fargo Capital Finance's Supply Chain Finance group. In the following conversation with Steve Elson and Robert Wagner, ABL Advisor gets down to the nuts and bolts of the intricate world of supply chain finance.
Elson, who joined Wells Fargo in 2008 to essentially build the Supply Chain Finance group from the ground up, notes his professional background is firmly rooted in trade finance. Today, Elson is a managing director and team leader within Supply Chain Finance. Wagner joined Castle Pines Capital in 2010, which was acquired by Wells Fargo Bank, N.A. the following year. Wagner is currently a managing director in business development in the Supply Chain Finance group.
Through their professional experience, both executives bear witness to the evolution of the inner workings of supply chain finance. In this business, success depends on sophisticated technological platforms and at the same time, demands a highly competent professional staff.
ABL Advisor: To begin at the simplest level, how does Wells Fargo Capital Finance define the realm of supply chain finance and the products offered within this specialized form of financing?
Steve Elson: Essentially, at Wells Fargo Capital Finance, we view supply chain financing as a way that corporations and their trading partners can improve working capital. We are facilitating working capital in supplier networks in bound to what we call our anchor clients and we are also facilitating working capital on the sales side, or what we refer to as the downstream side. We help to improve working capital through three types of supply chain financing programs: supplier finance, key accounts purchase, and channel financing. We serve clients across many industries, including technology, retail, consumer products, manufacturing and distribution, and healthcare to name a few.
Each client has a unique objective. And, depending on the client, some of the products are centered on managing payables outstanding through supplier finance programs, or receivables outstanding because we are providing key accounts purchase programs. In channel finance, we may well be accomplishing the same Days Sale Oustandings (DSO) management for those vendor clients and also facilitating terms extensions and payables for resellers. Those programs offer an additional dynamic of helping with top line revenue of vendors because our working capital increases the purchasing power of the reseller.
Robert Wagner: From the sell side, many of these anchor clients are large technology OEMs and to Steve’s point, we offer a number of value propositions on the sales side out for those clients through the technology channel. Our value proposition is DSO reduction, outsourcing credit administration and reducing errors embedded in their businesses. As Steve said, the biggest value proposition is providing more capital to that channel so they can increase top line sales.
It’s worth adding that technology plays a key role in our product offerings. We provide the tools for working capital management and we increase capital in the channel. But in all of our products, there’s an underlying transactional platform that adds significant value. For the multiple partners we work with, an important component of that value proposition lies in the availability and timeliness of invoice information and the ability to mine and use that information.
ABL Advisor: This sounds like a relatively complex set of offerings. How competitive is this market when you consider other institutions that offer supply chain financing?
Wagner: From the standpoint of channel finance, competition is rather limited and there are a couple of reasons for this. This is a niche product that is supported, at least in most cases, by the vendor that is either the distributor or an OEM anchor client. These OEMs and distributors really don’t have an abundance of lenders that they support, so there are only two or three primary competitors in the channel finance space. The other reason is the technology component presents a sort of barrier to entry. It’s highly customized and in our case, we built our platform from the ground up.
Elson: With the broader-based supplier finance programs, technology is extremely important because these relationships require the ability to process hundreds of thousands of invoices. We receive an approved invoice file from the buyer and we then have to parse that out to the different suppliers signed up to participate in those programs. We have a proprietary in-house platform for these programs and that’s a key aspect of the offering. In terms of the competitive landscape, supplier finance programs have entered into the mainstream and most of the major banks are offering some type of these programs. Some have their own in-house platforms while some use third-party platforms more or less as a back office. There are some other standalone platform companies that are basically originating with the buyer client and then bring in financial institutions to fund their programs. In that regard, there are both bank and platform competitors.
ABL Advisor: Other than the sheer size of your institution and the technological components required, what makes Wells Fargo a leading provider of supply chain finance capabilities?
Wagner: It’s really about everything Wells Fargo Bank has to offer, especially when I compare this to our time at Castle Pines Capital (which was acquired by Wells Fargo in 2011). We were small and privately held and while we offered comprehensive channel finance facilities including working capital revolvers, capital was at a premium and we were conscientious about where to deploy it. Joining Wells Fargo has opened up the number of products and services we can offer clients within this industry segment. In this space, we are the only bank player that can offer the broad depth of products and that has put us in the leadership role.
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