CASE STUDY

Bringing Down Debt Securities to 20% for a Fintech Company in the US by Performing Financial Risk Assessment

Aug 23, 2019

FinTech Sector Overview

With the US economy on an upswing and stock market trending near record highs, most companies in the financial services tend to assume that supplier financial strength is a trivial issue. However, the junk debt, including leveraged loans reached to record highs in 2018. The situation is expected to aggravate as the business cycle ages and eventually starts to contract. This case study is a classic example of how we helped a fintech company to identify and address financial risks that were increasing their debt securities by performing financial risk assessment.

Business Challenges Faced

The client, one of the fastest-growing fintech company in the US started showing deterioration in credit quality due to large issuances of debt and financial leveraging. By the last quarter of 2018, the total balance of non-financial corporate debt securities increased by 35% and the figure was expected to aggravate further as the business cycle ages. This compelled the client to identify different economic risks and address underlying debt situation. However, monitoring commercial counterparties, and specifically tracking critical suppliers to help ensure a resilient supply chain was not an easy job. The client, therefore, decided to leverage SpendEdge’s expertise in performing comprehensive financial risk assessment and mitigating them with the right strategies.

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Our Research Approach

To help the client efficiently identify potential threats to financial stability, the experts at SpendEdge carried out a detailed financial risk assessment. This helped the client to identify and categorize risks into micro- and macro-financial risks. The team then analyzed macro-financial risks such as maturity and liquidity mismatch, poor process control, and increased reliance on suppliers to facilitate better financial dealings. They also evaluated macro financial risks such as contagion and pro-cyclicality to help the client reduce excess provisioning of credit by banks during economic upswings.

With this timely identification of risks, the client developed an effective financial risk assessment template. This helped the client to calculate a financial risk score for existing suppliers and optimize exposure. Also, this helped the client to adjust contract terms, source alternative suppliers and take the process in house.

Engagement Outcome

The improved financial risk assessment process helped the client to bring down debt securities to 20% from 35% in three months. As a result, reducing the risk of insolvency. Also, the solution offered helped the client to identify and shortlist suppliers with low financial risk, regularly monitor the existing suppliers and foresee any potential risks and develop effective financial risk assessment models.

Conducting financial risk assessment is crucial for fintech companies to identify potential risks and reduce debt securities if any. Subscribe now to access SpendEdge’s web-based procurement platform for FREE to gain industry-specific insights.

Key Factors to Consider While Performing Financial Risk Assessment

Financial Risk Assessment (1)

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