Royalty, supply chain finance and Hollywood-esque mystique

With a name that sounds like it was lifted from the screenplay of Casino Royale, Lex Greensill, the London based, Australian entrepreneur betting big on supply chain finance, has scored a strong indication his bet might play out, with news this week his company Greensill had cashed in a $800 million equity injection from Softbank.

The
unassuming boy from Bundaberg (a town more famous for rum than financing) was appointed a
Commander of the Order of the British Empire in 2017, rubbing shoulders with king-in-waiting
Prince Charles, and is still involved with the family farm back in Queensland,
Australia.

So how
exactly does Greensill work, and what is the opportunity Softbank are
especially keen to get in on?

Launched in
2011, the business has experienced phenomenal growth, helping over 1.3 million
small businesses get paid sooner. It uses the credit-worthiness of their big-name
customers as part of the risk assessment model, freeing capital up to those who
are most under pressure, and thus ensuring the survival of businesses in places
as remote as Bundaberg itself.

The
Greensill model relies on the purchase of invoices or trade receivables from
small companies seeking early repayment. It packages these into short-term
bonds and sells them on to investors. Approximately 47 bonds are issued per business
day, supported by the banking arm in
Germany
and other fund managers.

Greensill
estimates approximately $55
trillion of cash
is locked up through inefficient payment terms and
structures.  Servicing this, and making a
tidy profit in the process, is no doubt part of the attraction for Softbank.
That and the fact that according to Greensill’s white paper, no investment-grade
corporate has defaulted on its payment obligations in the past 20 years. High
demand, low risk and few alternatives makes for an attractive ‘Golidlocks’
asset class

Competitors in the space include Taulia, Citi, Orbian (our interview with CEO here) and PrimeRevenue, with more eyeing off the space each year. It is certainly a fascinating space to watch, and an emerging asset class to consider, so long as the big boys keep paying their bills.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business and the Gig Economy and is the CEO and Co-Founder of Zuper, a new superannuation startup in Australia.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post. I was a previous employee at Tyro.

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Iwoca storms ahead in SME lending game

They say the night is darkest before the dawn – which is certainly how it can feel in fintech startup land. You’re always $1 away from disaster, or $1 of leverage away from disaster if you’re a fintech lender. Small books can be painful beasts to manage.

Which is why it is all the more impressive to see Iwoca steam ahead of some big lenders with deep pockets in the UK market. The SME lender now has claim to 12% of all new business overdrafts, beating Santander at 9% and HSBC at 11% according to Forbes, who sourced the data from UK Finance. They aren’t far behind Barclays at 15% and Lloyds at 20%.

While overdrafts are falling out of favour with businesses in lieu of the more attractive benefits business credit cards offer, they still represent an ‘understood’ cash funding entry point into the SME lending space.

According to additional data from UK Finance, the average % acceptance rates for overdrafts is 82.6%, compared to 69.1% for business loans.

Being a funding type that is ‘understood’ is half the challenge for new SME lenders, especially given hardly any businesses understand the types of financing they can access now.

Not knowing what you don’t know is a problem in SME lending land, and could potentially be a large factor behind the estimated £3 billion to £9 billion funding gap SMEs face in the UK. SME owners rarely seek advice before seeking funding and UK Finance reports, ‘the time spent investigating options is woeful.’

With companies like Iwoca forming multi-million-dollar lending chests, along with other fintechs, the real opportunity isn’t necessarily in more Iwocas – most are probably nowhere near capacity – but in developing more pre-lending advisory services that can help SMEs navigate the plethora of choices.

In 2017 it was reported that less than 1 in 5 SMEs sought advice on lending options, despite 45% of SMEs planning growth. This is a huge disparity, and one that someone with a smart, simple and cost-effective solution could solve. Traditional business brokers are probably not the answer, especially given their advice often comes coloured with the commission they earn in the background.

It’s always tempting to solve the simple problem in front of your nose – market the product more – but the smart entrepreneurs in SME lending land need to be looking far-further up the funnel, for the marketing and sales arbitrage opportunities that exist in tangential digitised advice businesses. I’ve always considered a ‘get-finance-ready’ platform a great plug in to any SME, provided it could be done smartly and digitally.

If you come across any in your travels – let me know!

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business and the Gig Economy and is the CEO and Co-Founder of Zuper, a new superannuation startup in Australia.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post. I was a previous employee at Tyro.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research)

Divvy mines gold in employee expense management

In late 2017 I had the fortune of interviewing Divvy founder Blake Murray, which I published on Daily Fintech – have a read here.

At the time, the Utah based employee expenses management fintech had recently raised US$7M. The business has gone from strength to strength since, with news out this week that they had raised a further $200M after banking close to $45M in funding in 2018 alone.

Why is employee expense management so hot, you might ask?

Well, I have a few thoughts about that.

Firstly, it’s one of those boring processes that gets no love internally in a business, and no compelling solution currently exists. This means you’re not displacing something existing, but providing a cure for an awful job that literally no one loves. And if you can automate it out of everyone’s hands, no one is going to be complaining or blocking that sale/implementation.

It also provides line managers, who are often in charge of managing or overseeing employee expense budgets insight and control into how they manage team spend. It’s scary handing over a credit card to an employee, no matter how much you trust them, and Big Brother Divvy takes that fear away.

And subscriptions? What. A. Nightmare. Keeping track of business subscriptions, managing trial periods and that leaky financial tap the SaaS economy creates (but conveniently neglects to mention in their sales pitch) is a business admin hell hole. Divvy allows you to create virtual cards for each of your subscription services, and provides a way to manage and see all of them from your dashboard. I actually want that for my personal life…but that’s another story.

Solving problems that don’t already have any solutions is where the gold is to be found for sure. And Divvy seems to have struck more than $200M of it.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business and the Gig Economy and is the CEO and Co-Founder of Zuper, a new superannuation startup in Australia.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post. I was a previous employee at Tyro.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research)

Australia’s Judo ‘NAB’s’ banking licence to service SMEs

Judo Capital is the second fintech to be issued an Australian banking license this week, following Volt’s line honours in early 2019.

Xinja is another in the race to the licensing finishing line, with a longer tail of startups following up the rear.

Judo Bank (as they can now claim title to) will be listed as an authorised deposit taking institution (ADI) without restriction. It marks just under a year in processing time for the new bank, who lodged their application with the regulator in May 2018.

Founded and staffed by a number of ex-NAB (National Australia Bank) bankers, the bank focuses exclusively on small business banking, redesigning the banker/business relationship for the modern, digitally enabled world.

According to a report published by Judo, Australian SMEs face a $80 (2h 47m) (2h 47m) billion funding shortfall, with 9/10 claiming to have no meaningful relationship with their bank. The two biggest issues faced by SMEs include banks’ insistence the family home be used as collateral, and the turnaround time for credit approval.

No surprises there.

So what will Judo’s secret sauce be? The human touch and bucket loads of capital to execute on their vision.

Late last year the bank raised $140 (4h 52m) (4h 52m) million, which was claimed to be the largest pre-revenue funding round done to date in Australia.

It’s heady stuff, and SME’s will be saying about time. To date the only other player in the SME banking space exclusively is Tyro, who’s lending product is suited to small businesses who accept EFTPOS payments as their predominant revenue collection model.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business and the Gig Economy and is the CEO and Co-Founder of Zuper, a new superannuation startup in Australia.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post. I was a previous employee at Tyro.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research)

Fintech for fintech’s sake

When global funding for an industry like fintech reaches $111 (3h 51m) (3h 51m) billion, like it did in 2018, it should come as no surprise that financial businesses are emerging to service fintechs themselves.

As most founders can attest to, accessing the full spectrum of personal banking services without a steady salary, or negotiating access to a business line of credit without a consistent revenue stream, are both difficult. Ironically they are two problems founders themselves often set out to solve for other businesses. Until their products are in market however, they are in the same painful banking boat as everyone else.

Businesses like Brex have now emerged to solve that problem. The fintech, backed by ex-PayPal founders Thiel and Levchin, helps startups get credit cards, without personal guarantees or a traditional approach to credit risk assessment. Instead, the card issuer looks at the quality of the investors and VCs who have backed the company and the amount of money raised.

This week Brex announced a deal with Barclays Investment Bank, raising a $100 (3h 28m) (3h 28m) million debt facility backed by Brex’s corporate charge card receivables.  The funds will be used to scale its offering into different verticals.

And the story could well end there, but it doesn’t, as Brex isn’t only about disrupting credit cards and startup banking. It’s also having a crack at co-working, launching a members’ only lounge, the Oval Room. It’s a weird mash-up between an airline lounge, bar, WeWork and bank branch, and it’s kind of cool.

Meaningful non-tech connections with other humans is what the next generation wants. If Brex can be part of achieving this, and fuel dreams and enable entrepreneurship along the way by oiling the wheels of startup finance, it could be on to a winner.

What Brex I think gets, and what banks and incumbents cannot authentically deliver, is that new experience. There is far too much baggage and business case hurdles that need to be met to stand-up these sorts of alternative offerings inside mainstream financial businesses.

Community is the most powerful vehicle to grow a business, and community in it’s truest and stickiest sense, isn’t found online.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business and the Gig Economy and is the CEO and Co-Founder of Zuper, a new superannuation startup in Australia.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research)

SME lender financial engineers should look to Africa for inspiration

Credit models can be the live or die, make or break moment for a start-up lender.

Get one assumption wrong (or a number of them), and suddenly you have a serious arrears problem. One that can tip you into a death spiral, no matter what size your book is.

It’s something many fintech business lenders, despite the jazzy websites, and flash looking marketing, don’t implement well, from an infrastructure perspective. Instead many simply base their pricing on market forces. Of course, not many would tell you that to your face. Or their investors, for that matter.

Financial engineers are the sought after holy grail hire for a fintech lending startup. Not to mention founders than understand the importance of them. And while many of these engineers in the western world know their way around a balance sheet and P&L blindfolded, they would struggle in other markets, where the credit indicators of a business are significantly different. For someone with global ambitions, this local level of credit decision nuances makes this a serious challenge.

This week African lender Branch International raised $170 (5h 54m) million from big name funders Foundation Capital, Visa, B Capital, Andreessen Horowitz, Formation 8 and Trinity Ventures.

$100 (3h 28m)M goes to finance the growing book, and $70 (2h 26m)M is equity.

What makes Branch International interesting is something that makes all developing economy lenders interesting – their approach to assessing risk via what we in the west would consider ‘non traditional’ means. That is smartphone data, text messages, GPS information, who you call and who’s in your contact list, plus many more. It’s all a bit Black Mirror, but potentially significantly more powerful and insightful than any other rudimentary financial data point, like a consumer credit score. If it increases access to credit, surely that’s a good thing?

These data points don’t translate as elegantly into small business, but there is surely some room for experimentation here. Assessing credit risk in SME land is infinitely difficult, and continues to make it a risky play for new entrants, and a costly one for borrowers.

The financial engineers of the future, and founders looking for an edge should be closely watching this space with interest.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business and the Gig Economy and is the CEO and Co-Founder of Zuper, a new superannuation startup in Australia.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research)

M&A on the rise as Visa & Mastercard go for the Trillion $ Cross Border Payments

The Cross border payments market was at $22 Trillion three years ago as per a research by the Boston Consulting Group. Certainly a market to go after, and Visa and Mastercard do not seem to be shy of throwing punches at each other in the process. So who got their nose ahead?

Image Source

Earlier this year, Mastercard and Visa were fighting it out for the acquisition of Earthport. In Dec 2018, Visa had made an offer of $250 Million to acquire Earthport, a UK based payments firm. Mastercard came to the table with a $300 Million offer for Earthport. The deal was too important for Visa that they upped their offer to $320 Million and pretty much closed it. Pretty much closed – because the Competitions and Markets Authority (CMA) yesterday said that they were investigating if the acquisition would create a “substantial lessening of competition” in the UK.

No deal is done until it is sold, signed and then signed again. At this point, the deal looks far from signed – however, the acquisition could help Visa’s dwindling fortunes with the cross border payments segment. Visa’s Q1 results showed that the growth of the segment was at 7% and Mastercard’s growth was at 17%. So, clearly desperate times for Visa, and no wonder they are willing to pay a bigger amount.

Earthport were considered leaders in disintermediating the cross border B2B payments space. Historically, this process saw monies taking several hops before it reached the target bank. Through Earthport’s network, the process would be simplified with just one hop, and clearly Visa see the advantage. Having backed out of the deal, Mastercard focused on acquiring Transfast, another cross border payments firm. Transfast boast a network of about 125 countries and integration with over 300 banks.

We believe Transfast gives us the strongest platform to immediately enhance our cross-border capabilities and further deliver on our strategy.

Michael Miebach, Chief Product Office, Mastercard

Mastercard have been more aggressive in driving growth through acquisitions in recent times. In Q1 2019 alone, they were involved in several other payments deals. They committed $300 Million as a cornerstone investor in the IPO of Dubai-based Network International. Network International is the largest payments processor in the Middle East and Africa, and are planning their IPO in London with a target valuation of $3 Billion. The transaction would see them take a 9.99% stake in Network International.

Mastercard are beefing up their Africa presence through their investment into Jumia, an Africa focused payments firm. Jumia and Mastercard have been working together since 2016, and the latest round would take Mastercard’s total investment into Jumia to $56 Million. The ambition is to expand aggressively across the 14 African markets that Jumia are already present in, and also help entry into other African markets.

Having taken care of Africa and the Middle East markets, Mastercard have also set sights on Asia. They have now taken part in the current funding round of Singapore based Bill.com, who handled $60 Billion in payments in the region. Bill.com raised $88 Million from several investors including Fidelity investments, Franklin Templeton, Tamasek and Mastercard.


Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on Inclusion and a podcast host.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).


To license or not to license – are we asking the question?

In 2017, SME challenger bank OakNorth first came to the attention of Daily Fintech readers in a post from Bernard titled ‘Can challenger banks break the massive bank concentration in the UK?’.

Since then the bank has achieved some significant milestones, many of which have come to light in the press in the past few months. For starters, the bank has lent more than £2.5 billion to UK small businesses since 2015, and trebled its pre-tax profits in the past year, bringing in £33.9m in 2018.

Not bad going, and possibly why Softbank led a £440 million round into the fintech, which was announced back in February.

The company isn’t shy about expansion – who would be if you were making bank like they are. Oaknorth now plans to broaden its lending tentacles into the US. But rather than compete head to head with US banks, it wants to deploy its origination software, powered by its subsidiary OakNorth AI.

It’s very clever, and begs the question many of us in various corners of the world are thinking when it comes to challenger banking.

Is a license really worth it?

As more and more licensees for hire crop up to service the challenger banking space, and licensing is disconnected from platforms and technology, the value in owning the entire stack does need to be questioned. It’s counter to the way many investors and founders think – the ‘own it all’ mentality is strong and pervasive. In many instances it has been proven to work well and be a true value creator. But times are changing, and founders should continuously ask ‘why’ they are pursuing a certain product journey. In some instances, the vanity of being ‘full stack’ can be hard to shake.

In Australia, Up, a consumer facing digital banking brand born out of Ferocia, a financial software development business, has taken the front-end route. The interface leverages an existing banking license from Bendigo and Adelaide bank.

From a marketing and customer acquisition perspective, not having a license doesn’t seem to be preventing the company from acquiring customers. Many neobanks are hot on their footsteps, but most of them have had the added hurdle of overcoming licensing. Will it be worth it compared to time to market?

That, of course, is the multimillion dollar question many investors will be wondering.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business and the Gig Economy and is the CEO and Co-Founder of Zuper, a new superannuation startup in Australia.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

If you can’t build it, acquire it

Pumped up valuations mean a growing number of fintechs will increasingly feel the pressure to show some serious revenue streams in 2019, not just user acquisition and hockey stick numbers growth.

For many the only route to achieve this will be through acquisitions.

Earlier this month Wave, an SME accounting platform announced they had acquired Every, a Toronto-based fintech company that provides business accounts and debit cards to small businesses.

Wave is a free accounting platform that targets freelancers and micro businesses, helping them generate professional looking invoices and manage their payments. I use it myself for the odd piece of contract work, and it works brilliantly – for free.

For an extra fee I could technically speed up invoice payments by allowing clients to pay me by credit card, however given I’m not generally too fussed about something taking an extra day or so, I don’t activate that feature, choosing instead to just list my bank account number in the invoice, and have them pay me ‘the old fashioned way’.

Which must be a bit annoying for Wave. I’m not really an ideal customer given I generate $0 revenue. In fact, I’m probably a cost for Wave, as would be the other thousands of free users on the platform who ‘platform squat’ but still demand to be supported.

So what’s to be done? How can they move me up the lifetime value ladder, and get something out of me?

Well, they could own more of my banking relationship – hence the tie up with Every.

It’s smart, and it follows a trend we’ve seen in the likes of Square and other SME neobanks. The difference with the neobanks is they are thinking banking first, then simple invoicing after, not the other way around like Wave.

Every hasn’t launched in its own right, so we’ll see its full functionality once the Wave + Every tie up gets going.

Either way, I think it’s a sign of things to come, as fintech’s realise the true value story isn’t in waiting for banks to acquire them, but generating a few quick wins by bolting on other fintechs to try and drive revenues. Got to feed the vulture capitalists with something new and tasty come board reporting time!

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business and the Gig Economy and is the CEO and Co-Founder of Zuper, a new superannuation startup in Australia.

Fame, feeling and fluency are the weapons to SME banking mass-market domination

According to an Adaptive Labs research report, 55% of SMEs would definitely pay more for banking services that were simple and easy enough to use, to free them up to get back to doing the bits they love, and a further 34% would consider it.

If backed up in the real world, those stats are good news for UK neobank startups Tide and Starling, both of whom are going after the coveted by highly intricate SME market, and hardly want to enter into a price war with the incumbents. There’s also Coconut, who is also having a crack.

The thing is, when you drill down to the features on offer from all of them, they all feel rather similar. So, what is it that would make a SME decide one particular tech startup is the must have ‘Nike of SME banking’?

This week I’ve been mulling over the importance of brand metrics. I was recently introduced to  System 1 Research, some of whose work has looked at the way consumers make decisions in markets where there is an abundance of ‘like for like’ products (banking, anyone?).

A key pillar of their thinking aligns around a concept they’ve coined as ‘Fame, Feeling and Fluency.’

  • If a brand comes readily to mind, it’s a good choice (Fame).
  • If a brand feels good, it’s a good choice (Feeling).
  • If a brand is recognisable, it’s a good choice (Fluency).

According to System 1, the brand’s current market share can be explained by looking at the three Fs together, but future market share is a function of ‘feeling’. The science is in – if you feel more, you’ll buy more. Emotional led sales people around the world can finally say ‘I told you so’.

CEOs and leadership teams at Coconut, Tide and Starling are after one thing – market share. There are a lot of programatic and paid acquisition driven strategies that could lead them up the garden path, away from that destination. Here’s hoping they’ve realised it’s not just about products, feature, comparison tables and fancy apps, but it’s about hitting those three Fs harder than their peers. Brand investments like that still takes a degree of faith for senior leadership teams. Lucky startups are risk takers.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business and the Gig Economy and is the CEO and Co-Founder of Zuper, a new superannuation startup in Australia.