March 27, 2025
A year ago, management consultancy PwC surveyed 750 UK businesses on the impact of high energy costs, driven by global tensions. Four-fifths of respondents said they expected product prices to increase in two years. And more than two thirds of companies felt they would be less competitive over the same time period. These findings underscore how market volatility linked to events thousands of kilometres away can impact commerce at home.
Such market volatility also presents a challenge for financial institutions, for example, in the form of heightened credit risk and loan defaults, and reduced investment appetite and pressure on margins. Again, data bears this out. In July last year, Fitch Ratings revised its US leveraged loan default rate estimate for 2024 to between 5.0 percent and 5.5 percent, up from 3.5 percent and 4.0 percent. The agency said “cash flow pressures from slowing GDP growth and high interest rates” were challenging highly levered issuers’ liquidity positions and their ability to service debt.
In addition, the Trump presidency has brought additional and significant uncertainty to investors and businesses across the world.
Yet despite this economic backdrop, it’s essential that banks and other lenders are empowered to keep funds flowing to the wealth creators – and in the process protect billions of livelihoods. But what measures can financial institutions take to build the levels of resilience needed to ride out this age of volatility?
Tech to the rescue: how innovation is helping financial institutions to mitigate volatility
While part of the answer lies in central bank policy and government intervention, technological innovation also has an important role to play. For instance, when it comes to credit scoring, artificial intelligence and machine learning are proving increasingly invaluable to financial institutions.
Banks are calling on a wide range of data points, including real-time transactions, supply chain data and social media sentiment to gain a holistic picture of a business’ creditworthiness. This not only paves the way for more positive decision making, but it also allows banks to offer tailored finance solutions to their customers. On top of this, AI-powered credit scoring can accelerate approvals.
Another area where technology is supporting B2B lending is through modern supply chain finance platforms. By digitising invoices and automating payment processes, new systems are speeding up payment cycles and improving cash flow.
Finally, open banking is drawing on the power of APIs to streamline lending processes, removing many manual steps in loan applications and approvals. Open banking is also playing a useful role in credit scoring by enabling financial institutions to tap into diverse data sets.
Beyond traditional lending: the rise of short-term B2B finance
In addition to advancements in data processing, a new generation of short-term lending solutions is helping financial institutions overcome the limitations of traditional products – limitations that are sorely exposed by economic volatility.
Innovations include revenue-based financing, in which corporate borrowers repay a percentage of their revenue until a predetermined amount is reached, and embedded finance, where loans and credit are incorporated into platforms and processes that businesses use, such as accounting systems.
Invoice financing and factoring and supply chain finance are also becoming more accessible thanks to technology. A point underpinned by market data. Global supply chain finance volumes rose by 21 percent year-on-year to $2,184bn, with funds in use up by 20 percent to US$858bn, according to BCR Publishing’s World Supply Chain Report 2023. Growth in Europe and the Americas experienced a spike of between 15 percent and 30 percent, while Africa and Asia saw volumes expand by 39 percent and 28 percent.
Experts say this trend is in large part due to new entrants, enhanced regulations and greater collaboration between fintechs and banks in this area.
Similarly, invoice financing and factoring is enjoying sustained growth. According to Valuates Reports, the market globally was valued at $1946.5bn in 2021, and is projected to reach $4618.9 Billion by 2031, growing at a CAGR of 9.4 percent between 2022 and 2031.
Aronova: unlocking liquidity and empowering growth in volatile times
Aronova is at the forefront of innovation in B2B finance, allowing banks and asset managers to offer dynamic short-term borrowing solutions to clients with confidence. One way we’re doing this is through our AronovaLive! platform, which offers real-time control of working capital finance.
Using this system, financial institutions can make an immediate assessment of invoice and supplier eligibility, give instant decisions on acceptance into funding programmes and process seller/buyer invoice data in real time.
AronovaLive! does this by creating a secure API connection between data sources to facilitate near-instant communication of changes to accounts receivable and payable, and credit collection information. Lenders are then able to make a real-time calculation of global debtor credit limits, assess invoice eligibility and process invoice purchases.
Corporate borrowers derive two important benefits from the platform. These are improved cash flow and an optimised working capital position, both of which help to boost resilience in an age where market volatility weighs heavily on businesses.
To learn more about AronovaLive! and how it’s proving to be an essential tool for financial institutions grappling with a turbulent world, contact us today.
Sources:
US Leveraged Loan Default Rate for 2024 Revised Up Amid Deterioration
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