Factoring Market to Grow by USD 2.2 Trillion (2024-2028) Driven by MSMEs’ Need for Alternative Financing, AI’s Role in Market Trends – Technavio Report

NEW YORK, Aug. 23, 2024 /PRNewswire/ — The global factoring market size is estimated to grow by USD 2.19 trillion from 2024-2028, according to Technavio. The market is estimated to grow at a CAGR of 8.8% during the forecast period. Growing need for alternative sources of financing for msmes is driving market growth, with a trend towards advent of blockchain in factoring services. However, fluctuations in global economic conditions poses a challenge. Key market players include ABS Global Factoring AG, American Receivable, Bluevine Inc., CapitalPlus Construction Services, CG24 Group AG, Charter Capital Holdings LP, Deutsche Leasing AG, eCapital Corp., Factor Funding Co., HSBC Holdings Plc, Mizuho Financial Group Inc., New Century Financial Inc., Pincap., PMFBancorp, Riviera Finance of Texas Inc., Societe Generale SA, The Southern Banc Co. Inc., Triumph Business Capital, Universal Funding Corp., and Worldline SA.

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Market Driver

The blockchain technology underpinning Bitcoin is revolutionizing various industries, including factoring. This technology’s potential to transform exchanges, such as the stock market and patent awarding, is evident with NASDAQ’s implementation. The global blockchain technology market’s growth in the BFSI sector is driven by increasing investments from governments like the UK, Canada, Russia, and China. In the future, blockchain will significantly impact trade finance, with developed nations testing its affordability. Compliance with anti-money laundering and KYC regulations will be challenges, but continuous innovation will reduce setup costs and positively affect the global factoring market. This technology will digitize the process, offer better recording technology for trade transactions, and provide easy access to information about factors, buyers, and sellers, reducing risks for all stakeholders. 

The factoring market is experiencing significant trends in the international fintech sector, with licensed e-money institutions and payment service providers offering automated solutions for businesses. Banks and third-party insurers collaborate to provide secure factoring services, utilizing data-driven decision-making and invoice factoring. Companies like FundBox and Unicsoft offer innovative solutions using blockchain technology, ensuring secure transaction processes and credit risk mitigation. Businesses can benefit from growth opportunities in domestic, international, cross-border, export factoring, and open account terms. Information technology plays a crucial role, with smart contracts on Ethereum, NEO, Hyperledger, and R3CORDA streamlining the factoring process. Loans are provided in a secure manner, supporting businesses’ financial needs and improving liquidity. Exporters and importers can mitigate bankruptcy risks and increase sales volume with factoring services. Financial frauds are minimized using centralized and encrypted approaches. Crypto-solutions are also emerging as a new trend in the factoring market. 

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Market Challenges

• Economic uncertainty poses significant challenges to the global factoring market. Fluctuations in economic conditions, such as recessions or currency devaluations, increase the risk of client defaults. This volatility makes it difficult for factoring companies to accurately assess creditworthiness and manage risks, threatening the predictability of cash flows and the reliability of collateral. Moreover, economic uncertainty complicates revenue and profitability forecasting, leading to hesitancy among investors and lenders. Factoring firms must adapt to market conditions, navigate risks, and maintain liquidity. Robust risk mitigation measures are essential to address the complexities of decision-making and external shocks, ensuring the resilience and growth of the global factoring market.
• The Factoring Market encompasses various industries like laboratory services, ambulatory services, health centers & hospitals, home health agencies, rehabilitation centers, and more. Sellers, mainly small and medium-sized enterprises (SMEs), face challenges in managing their accounts receivables, especially when dealing with unpaid bills from buyers in the healthcare sector. Factors offer flexible financing alternatives by purchasing invoices at a discounted rate, providing sellers with immediate funds. However, factors charge discount rates, interest, and commission fees. Financial service providers, including banks, play a crucial role in the factoring market. They facilitate the transfer of funds between the seller and the factor. The globalization of commerce and economic swings pose challenges, necessitating regulatory changes and industry trends. Fintech solutions, such as digital money transfer and payments, have increased adoption rates, improving budgeting, financial planning, borrowing, saving, investment, and insurance for small business owners. Despite these benefits, factors must navigate economic swings, regulatory changes, and industry trends to maintain liquidity and operational activity.

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Segment Overview

This factoring market report extensively covers market segmentation by

1. Type 

• 1.1 Domestic
• 1.2 International

Application 

• 2.1 SMEs
• 2.2 Large enterprise

Geography 

• 3.1 Europe
• 3.2 APAC
• 3.3 South America
• 3.4 North America
• 3.5 Middle East and Africa

1.1 Domestic- In the realm of business finance, domestic factoring refers to a transaction where all parties involved – the factor, buyer, and seller – are based in the same country. This arrangement offers several advantages, particularly for small and medium-sized enterprises (SMEs) that may struggle to secure traditional bank loans due to insufficient credit histories or collateral. Domestic factoring provides these businesses with a viable alternative to maintain cash flow and foster growth. Additionally, the surge in e-commerce and online businesses has heightened the need for quick financing solutions. Domestic factoring caters to this demand by offering short-term working capital against accounts receivables, enabling sellers to access cash for domestic sales. This financing method is popular in regions such as APAC, Africa, and South America, where the number of domestic businesses is on the rise. Consequently, the domestic segment of the global factoring market is anticipated to expand at a faster rate during the forecast period.

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Research Analysis

The Factoring Market is experiencing significant growth due to the increasing adoption of advanced technologies like Machine Learning (ML) and Artificial Intelligence (AI) in financial institutions’ accounts receivable processes. Traditional methods like cheques are being replaced by electronic alternatives, leading to automation and increased efficiency. On-premise deployment is giving way to cloud-based models and digital documentation, enabling real-time access to information. AI-based models are revolutionizing the factoring industry by providing accurate credit risk assessments and improving customer experience. The market is expanding beyond traditional industries to include sectors like international trade, medical insurance claims, laboratory services, ambulatory services, home health agencies, nurse staffing agencies, rehabilitation centers, financial services, debt, capital, and potential investors. Trade finance and supply chain finance are also benefiting from factoring solutions. Cryptocurrency is a new frontier in the factoring market, offering faster and more secure transactions. Overall, the factoring market is evolving to meet the changing needs of businesses and financial institutions, offering innovative solutions for debt financing and capital raising.

Market Research Overview

The Factoring Market is a dynamic and evolving sector that leverages Machine Learning (ML) and Artificial Intelligence (AI) to streamline financial transactions for businesses and financial institutions. Accounts receivable processes are being revolutionized through the use of cheques and electronic alternatives, with automation and digital documentation becoming increasingly popular. Cloud-based models and AI-based models are transforming the industry, enabling real-time processing and reducing operational activity. Cryptocurrency and international trade are also driving growth in the market, particularly in the bank segment. Factoring benefits include improved liquidity, faster payment processing, and risk management. The market is being shaped by economic swings, regulatory changes, and industry trends, with fintech solutions like FundBox and Accounting software offering flexible financing alternatives for small businesses. Financial service providers, including banks, are partnering with third-party insurers and payment service providers to offer automated solutions. The adoption rate of financial technology is increasing, enabling data-driven decision making, loans, budgeting, financial planning, borrowing, saving, and investment. Blockchain technology is also being explored for secure and transparent invoice factoring transactions. Despite the growth opportunities, the market faces challenges such as financial frauds and the need for secure data handling. The future of factoring lies in innovative solutions that leverage technology to provide efficient, cost-effective, and secure financing options for businesses.

Table of Contents:

1 Executive Summary

2 Market Landscape

3 Market Sizing

4 Historic Market Size

5 Five Forces Analysis

6 Market Segmentation

• Type
• Domestic
• International
• Application
• SMEs
• Large Enterprise
• Geography
• Europe
• APAC
• South America
• North America
• Middle East And Africa

7 Customer Landscape

8 Geographic Landscape

9 Drivers, Challenges, and Trends

10 Company Landscape

11 Company Analysis

12 Appendix

About Technavio

Technavio is a leading global technology research and advisory company. Their research and analysis focuses on emerging market trends and provides actionable insights to help businesses identify market opportunities and develop effective strategies to optimize their market positions.

With over 500 specialized analysts, Technavio’s report library consists of more than 17,000 reports and counting, covering 800 technologies, spanning across 50 countries. Their client base consists of enterprises of all sizes, including more than 100 Fortune 500 companies. This growing client base relies on Technavio’s comprehensive coverage, extensive research, and actionable market insights to identify opportunities in existing and potential markets and assess their competitive positions within changing market scenarios.

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