Factoring: Market Research& Asia Market Overview

Factoring
Market Research&
Asia Market Overview
May 2018
What is Factoring Market Overview Target Markets Segmentation Competitive Analysis Lack of Liquidity Advantages of Blockchain Strategy
Factoring is a range of services rendered to suppliers of goods trading on credit terms and based on
financing them against assignment of the underlying trade receivables.
The services usually also include the receivables ledgering, customers’ (buyers’)
payments collection and may include supplier protection against buyers’ non-payments. The main Advantages of Factoring
Improve Cash Flow
Standard Interaction Factoring Process. Stages
With the help of factoring, cash cycle can be
Scheme significantly shortened. This makes it possible
Goods delivered or services to operate faster and more efficient.
1 rendered and invoice
generated by Business
Protection against bad debts
Receivables presented to For non-recourse factoring, the factor
5
3 Factor
2 Factor for funding takes on the risk of unpaid invoices. This
offers a protection against any bad debts
2 4 Most part of invoice face value

3 is given by Factor to business Lower overhead costs
(70-90% of initial value) The factor takes over the management
of business’ invoices. They handle
1
Customer pays to an account customer payments and debt collections.
4 in Business’s name
Business Customer Off-balance sheet treatment
The remaining 10-30% of value Factoring advances may be reflected in
5 released back into Business’ supplier’s balance sheet as proceeds from
bank account minus small fee. sales rather than an attracted loan what
improves the balance sheet
Factoring volume during the last two years remained stable and the growth trend is practically flat. Despite
this stability, there is an opportunity of capturing a part of almost $10 trillion market of receivables.
Total Global Factoring Volume Global Volume of Trade Market Specifics
(US billions of Dollar) Receivables, 2017
2 792 2 816 2 826 2 853 $9700 bln

2 537 2 653 $12 000 bln Volume of trade receivables that are
market not invested (Market Opportunity)
19 % 81 %
100 000s
of various-size companies are using
trade receivables as a mean of
obtaining liquidity
2012 2013 2014 2015 2016 2017
1-5%
An average factoring fee a company pays
Global Factoring Volume Breakdown by Types of Transactions
to a factor for the services provided
(US billions of Dollar)
Source: FCI Annual Review 2017, Costowl Research,
International $856 bln per year
Basic Business Model
Domestic $1997 bln per year
Factoring companies earn revenue by charging a
Invoice Discounting daily/weekly fee for the client to be able to get
Recourse Fct. liquidity in time. 70-90% of the debt is given to
Non-recourse Fct. the seller in a short time after a transaction.
Another part – as soon as the buyer pays for the
0 550 1100 1650 2200 goods after the credit term.
Source: FCI Annual Review 2017, World Bank
The biggest regional factoring market is Europe accounting for more than half of the total world volume.
However, developing markets of Asia and Latin America demonstrate a great potential and significant growth.
$1911 bln
North
$114 bln
America Europe
*USA have low market Asia-Pacific
share due to the
popularity of other
instruments of receivables
financing and law specifics $668 bln
$23 bln
Latin Africa
$125 bln
America
Source: FCI Annual Review 2017

The most perspective markets for capturing trade receivables market are Latin America and Asia due to the
significant growth of trade operations and general developing of regions’ economies.
Shares of Invoice Factoring Asia
Market by Regions, 2016 The largest Asia factoring markets,
2016 (US billions of Dollar)
China 367,3
Despite a slight decline in
Asia market is the most China in 2016, many countries Hong Kong 50,4
innovative one in terms of demonstrate astonishing
implementation of new Japan 59,3
growth of factoring
24 % technologies such as AI
and Blockchain
operations. Malaysia - 363%, Singapore 48,2
Hong Kong - 27%
66 % Taiwan 55,9
! Asia is the fastest growing and the second largest market

5 % Latin America
4 % The largest LA factoring markets,
2016 (US billions of Dollar)
1 %
The increasing effectiveness Cross-border factoring is Brazil 53,9
Africa of the electronic invoice, still lagging behind due to
high risks of LA Banks and a
Europe has facilitated the Chile 29,8
consolidation of domestic shallow culture in financing
Asia-Pacific factoring open-account international Mexico 26,8
sales
Latin America
!
Colombia 9,0
North America There is a strong opportunity to develop a
cross-border factoring services in LA
Source: FCI Annual Review 2017
Malaysia Market Overview. Malaysia has a developing factoring market with low entrance barriers and great
potential for domestic receivables financing.
Dynamics of Export and Import Volumes in Only 3% of market receivables is captured
Malaysia (Billions of $US) by factoring industry in Malaysia
240
*For United
180 Kingdom, 61%
120
3%
60 Import
0 Export
2014 2015 2016
Construction Manufacturing Transporting

Market Specifics
(As of 2017)
Market Size
($US)
42 bln 66 bln 53 bln Low costs of business
operations and ease of
Fast developing market
with need for
Annual grounding a company receivables financing
growth rate 7,4% 4,5% 5,8% Source: FRED Economic Research, Focus Economic Research, World Bank, Business Wire
Indonesia Market Overview. Being the largest economy of the region, Indonesia has underdeveloped factoring
market with low competition and is also perspective in terms of domestic factoring.
Dynamics of Export and Import Volumes in Only 1,7% of market receivables is captured
Indonesia (Billions of $US) by factoring industry in Indonesia
180
135
90
1,7%
45 Import
0 Export
2014 2015 2016

Market Specifics
(As of 2017)
Market Size
($US)
81 bln 191 bln 192 bln
The region’s largest
economy with
Low market
competition in
Large domestic
consumption and
significant growth factoring market of trade
Annual
Singapore Market The main advantage of Singapore market is a favourable conditions for developing
technological solutions in factoring. The market is developed but it still has substantial growth prospects.
Dynamics of Export and Import Volumes in 34% of market receivables is captured by

Singapore (Billions of $US) factoring industry in Singapore
460
345
230
34%
115 Import
0 Export
2014 2015 2016

Market Specifics
(As of 2017)
Attractive tax Adoption of pro-
Market Size
($US)
37 bln 54 bln 41 bln The best country
in the World for
system and growth and
avoidance of double innovation friendly
Annual doing business
growth rate 3,7% 3,6% 6,2% taxation policies
Source: FRED Economic Research, Focus Economic Research, World Bank, Business Wire
Hong Kong Market Overview. Hong Kong is the most mature market among presented with a considerably
high level of competition.
Dynamics of Export and Import Volumes in 63% of market receivables is captured by

Hong Kong (Billions of $US) factoring industry in Hong Kong
600
450
300
63%
150 Import
0 Export
2014 2015 2016

Market Specifics
(As of 2017)
The World's most
Asia's second- Fifth-easiest place
Market Size
($US)
24 bln 5,3 bln 9,6 bln services-oriented
largest private in the world to do
economy (90% of
equity centre business
Annual GDP)
South East Asia countries have a great potential to grow in factoring since the level of credit provided to the
financial sector is not sufficient for the robust markets.
Domestic Credit Provided by Financial Sector. Singapore and Hong Kong are the biggest
Target Countries, 2016 (% of GDP) markets in South-East Asia
Factoring Volume (Millions of US$)
Hong Kong 50 000
World Avg 37 500
Malaysia
25 000
Singapore
12 500
Philippines
Indonesia
2013 2014 2015 2016
0 75 150 225 300
Hong Kong Indonesia Singapore Malaysia
Relatively high lending-deposit spread indicates under-financing of businesses in the economy

creating demand for new financial services (compared to developed financial markets of Japan and UK)
Lending-Deposit Spread (difference between lending rate and deposit rate)
2,7% 4,4% 4,7% 5,1%

0,8% 1,5% 3,8%
Japan UK Malaysia Philippines Hong Kong Indonesia Singapore

Source: Nikkei Asian Review, FCI Annual Review 2017, World Bank
There is a big opportunity to bring together emerging markets with low factoring volume and the lack of
sources of financing, and developed markets given their excessive investment capital
Countries that would provide an Countries that would mainly invest in
inflow of receivables to the receivables generated by emerging
international market markets
Invoices Investments
Receivables Trading
Platform
Although businesses of all sizes use factoring in order to obtain stable Cash Flows, industries that have the
longest debts tend to employ it more often.
Top 6 Industries that Benefit the Most Industries that take the longest to get paid
from Factoring
Average Accounts Receivables Days
MGMT of Companies&Enterprises 125
Oil and Gas Extraction 110
Real Estate HR and Recruiting Transporting Technical and Trade Schools 109
Equipment Rental and Leasing 104
Helthcare Centers 99
Support Activities for Mining 91
Professional
Manufacturing Construction Architecture, Engineering 74
Services
Factoring is a tool used by all sizes of companies to increase cash

flow without increasing debt burden
Why do SMEs use factoring? Why does Big Business use factoring?
High risk of running out of Broad opportunities to diversify
liquidity, which is critical for risks without increasing the debt
small enterprise and providing working capital
Source: IMF: inc.com, SageWorks research

Factoring Market is tightly correlated to Volume of international trade, which demonstrates stable growth.
85% of Invoice Factoring is being captured by banks serving mostly corporates.
Roughly 85% of global factoring volume is captured by
International Factoring operations are highly banks’ Factoring Divisions that render big corporates
correlated to the volume of trade
*Global Market of
85% Trade Receivables
$16 000 bln 7%

Approximate percentage
Volume of World Exports
of corporates using
in 2016
factoring products
Banks
Growth of international trade exceeds World
GDP growth with approximate rate of 3% a year 15%
10 %
8 % Factoring
Companies
6 %
4 % Independent factoring companies capture about 15% of
2 % factoring market volume and mostly serve SMEs
0 % Main distinguishes from bank divisions:
-2 % Less funds available Easier compliance
2009 2010 2011 2012 2013 2014 2015 2016 for operations procedures
Trade Growth % World GDP Growth %
Source: Oliver Wyman Transaction Banking Trade Finance
Despite most factoring market volume is generated by banks, main innovative solutions are implemented by
startups. The most technologically advanced players of the Asia financing market are presented.
Indonesia Hong Kong
Singapore
Malaysia
Invoice
Interchange
A significant amount of excessive liquidity in developed countries can be invested on a short-term basis in
emerging economies.
Corporate debt of emerging countries shows stable Data from developed countries says about excessive
annual growth showing demand for higher liquidity liquidity in financial systems of the EU and the US
Aggregate Corporate Debt Ratio of Emerging Countries (Percent of GDP) EU:

Aggregate Corporate Debt of Emerging Countries (Billions of U.S. dollars)
Concentration of excess liquidity at institution level in EU
80 % 22 000 (Total Excess Liquidity EUR blns)
1 600
72 % 17 600
1 200
64 % 13 200
800
56 % 8 800
400
48 % 4 400
2012 2013 2014 2015 2016 2017
40 %
2010 2011 2012 2013 2014 2015 2016
USA:
Firm-Level Data: Average Liabilities-to-Equity Ratio (Percent). Emerging Countries
66 %
62 %
There is an opportunity for
Banks in the United States
58 % banks to use their liquid assets
currently hold $2.4 trillion
more effectively by investing
54 % in excess reserves
them in emerging markets
2010 2011 2012 2013 2014 2015 2016
Source: ECB: The distribution of excess liquidity in the euro area,
Source: IMF: Emerging Market Corporate Leverage and Global Financial Conditions McKinsey: The Future of US Bank Liquidity and Funding
Implementation of distributed ledger in factoring will allow to dispose of intermediaries and bring more
transparency in trade receivables as well as reduce transaction fees.
Financial documents linked Invoices accessed on Banks facilitating trade Regulators are provided
Contract terms executed
and accessible through Blockchain provide a finance through
via Smart Contract with a real-time view of
Blockchain are reviewed real-time and Blockchain do not require
eliminate the need for essential documents to
and approved in real time, a trusted intermediary to
transparent view into correspondent banks and assist in enforcement
reducing the time it takes assume risk, eliminating
subsequent short-term additional transaction fees and AML activities
to initiate shipment the need for
financing correspondent banks
Automated settlement
and reduced
Regulatory
Real-time Review Transparent Factoring Disintermediation transparency
transaction fees
Use of Blockchain will twice increase the

Companies successfully implemented Blockchain into
accessibility of Factoring in emerging markets
their factoring operations
Share of firms having access to factoring services
87 %
13 %
Blockchain 33 %
67 %
Source: Deloitte
Based on research, the most perspective region for entering the market of invoice factoring is Asia with rapidly
developing digital markets. The most demanded technological solution is implementation of blockchain
Geography Technology
The most perspective region for entering the Invoice Implementation of blockchain and API in factoring
factoring market is Asian countries with high measures of business model will allow to decrease factoring fees
domestic and international trade and thus capture a bigger share.
Basic example of the business model based on
decentralized ledger
Favourable climate for implementation
of innovative business models based Liquidity Investment
on new technologies
Invoice Invoice+Fee
30% of GDP Invoice Seller Receivables Trading Invoice
generated by SMEs $668 bln market Platform Funder
SMEs account for a significant Asia region is fastest-growing

part of GDP and most of the invoice factoring market and the Blockchain technology has potential to unite
small and medium business second largest in the world together emerging markets lacking funding and
need factoring for operating developed countries with excessive liquidity

Factoring: Market Research& Asia Market Overview

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Factoring

2 4 Most part of invoice face value

2 792 2 816 2 826 2 853 $9700 bln

Source: FCI Annual Review 2017

! Asia is the fastest growing and the second largest market

Construction Manufacturing Transporting

Construction Manufacturing Transporting

Dynamics of Export and Import Volumes in 34% of market receivables is captured by

Construction Manufacturing Transporting

Dynamics of Export and Import Volumes in 63% of market receivables is captured by

Construction Manufacturing Transporting

Relatively high lending-deposit spread indicates under-financing of businesses in the economy

2,7% 4,4% 4,7% 5,1%

Japan UK Malaysia Philippines Hong Kong Indonesia Singapore

Factoring is a tool used by all sizes of companies to increase cash

Source: IMF: inc.com, SageWorks research

$16 000 bln 7%

Indonesia Hong Kong

Aggregate Corporate Debt Ratio of Emerging Countries (Percent of GDP) EU:

Use of Blockchain will twice increase the

SMEs account for a significant Asia region is fastest-growing

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