Fintech
Ireland is Funding Fintech Through Government Investment
November 2, 2021
The Irish government has taken a serious liking to fintech. With a broad history of being active in financial services, the nation believes they can attract companies from around the world to reap the benefits of employing Irish citizens, while also tapping a major source of export revenue through an up-and-coming industry.
With access to capital for small businesses just as difficult here as it is in the US, a new fintech company looking for start-up cash may be able to turn to Dublin to get a major investment, rather than dealing with a retail investor or a venture capital firm here in the states. Enterprise Ireland, the organzation that runs these programs, is trying to tempt fintech companies looking for a fresh start or an international expansion to start that process in Ireland.
“Enterprise Ireland is the trade development and venture capital arm of the Irish Government,” said Claire Verville, Senior Vice President of Fintech and Financial Services at Enterprise Ireland. “We are a semi state agency and our mandate is to help support indigenous Irish enterprise to grow and expand in global markets.”
Just like in the United States, it is extremely difficult for an Irish business to walk into a big bank and get a loan. It’s in these situations where the Irish government has decided to make a direct investment themselves. Through Enterprise Ireland, according to Verville, the Irish government can provide capital to startups across a range of areas, in exchange for things like loan repayment or government equity in the company.
“In addition to the kind of more traditional trade development stuff that you would see from any government promoting their indigenous businesses abroad, we do invest directly in companies through equity and participate directly as a [limited partner] in funds to funds.”
Verville spoke about how the Irish government has been looking to extend funding to fintech startups for some time. “Our fintech portfolio is over 200 companies now, we have been one of the most active investors in Europe in a long time. We are one of the most active global investors across all sectors, and we’re really focused on early stage capital for fintech.”
When asked about the decision making process that goes into Irish investments, Verville portrayed it the same as if it was a private firm making the same move. “We will vet like any other investment, make sure we’re comfortable with it, make sure that the business is verifiable, and that we understand the track record of the team,” she said.
Through investing in fintech, Enterprise Ireland appears to believe they will give their small business owners better access to capital. If the industry can create a Euro-American hub in Ireland, the latest tech and funding innovations will develop there, giving access to that technology to Irish businesses first. If Irish small business lenders can use Irish technology to help an Irish merchant, everyone wins.
With financial innovation in Europe being leaps ahead of the US, Verville believes the Irish employees working in finance would be better suited to deal with some of these new innovations over Americans because of their familiarity with these systems that are already in place. She hinted at things like EMV cards being around in Ireland for years at the consumer level before they ever made it to the United States.
As far as incentive for profit, Enterprise Ireland isn’t concerned with the success of their investment from a financial perspective as other investment groups are. They instead focus on things like employment numbers and longterm sustainability for those jobs acquired through their efforts in investing in industries like fintech.
“Because we are attached to the government, we aren’t a money-making mission as far as venture capitalists go. We are focused on employment in Ireland, which is partly why it’s so important that the companies are founded in Ireland and that they are building their employee base in Ireland, and on export revenue.”
Verville spoke about how only when businesses in Ireland do well, Enterprise Ireland only does well, too. “We do make money off some of our investments, and that’s government money. We get our budget set by the government department every year, just like any other government agency.”
To be eligible for funding from Enterprise Ireland, a business needs to be based in Ireland, have an Irish LLC, and must have a significant amount of Irish employees. According to Verville, the Irish market is ripe for American small businesses, especially alternative finance.
Five Takeaways from Money 20/20
November 1, 2021
I attended Money 20/20 in Las Vegas last week and spoke directly with the people trying to push innovation through the financial world. Whether it’s payment processing, cryptocurrency, cyber security, data entry software, credit card issuing, or lending processes, millennials with impressive resumes are looking to trim the fat from the financial world with their beloved software.
Below are five takeaways I got from attending Money 20/20.
Crypto is Legit- If you’re still thinking crypto has no value, you’re being naive. The crypto space at Money 20/20 was dominated by international transaction companies, crypto conversion companies, crypto investment companies, and even some doing business lending with crypto. These booths had the most energy around them, and there seems to be general excitement from all the groups about the industry. The crypto community is no longer young kids with big ideas, but legitimate investors and money-people that have an unprecedented amount of interest in investing outside of the US dollar.
The Payments Pool is Overflowing- There are hundreds of companies that are competing to carry your dollars from your wallet to a merchant while taking micro-transactions off the top. These companies are competing heavily, and at Money 20/20, there was no end in sight to them. After a while it got exhausting trying to figure out how one differentiated from another. Is there really any room for MORE innovation or have all the bases been covered already?
Innovation is Blind- A massive amount of innovation is being pitched at these events for types of tasks regarding data collection and entry. The thing is, some software writers themselves have no idea how the industries they are innovating currently work. Software developers from major companies told me they had never heard of a loan broker, as they were pitching software that allows merchants to go directly to the lender for an approval on a business loan. How can something be innovated without the innovator knowing what they’re innovating?
Cybersecurity Seems Light- Cybersecurity had a smaller presence than some of the other major categories. One would think that every fintech company would also need strong cybersecurity. Either cybersecurity is going to be dominated by a small group of players or there is a huge opportunity here that is still untapped.
Networking’s Value is Priceless- After doing virtual business for almost two years, the value of a face-to-face meeting with a potential business partner is well worth the price of admission for the attendees. The people I spoke with said that just to have the ability to get thirty minutes at a table with someone was why they were attending. The connections lounge was the most populated place at the event all three days, as companies from across the globe were finally able to converse without a video camera. Believe it or not, people across the financial world have really gotten sick of Zoom.
Ohio Sends State Reps to Vegas to Pitch Fintech Companies
October 28, 2021
As brokers, lenders, and fintech companies look into having offices outside of New York or California now more than ever before, the state of Ohio used Money 20/20 to pitch their state as the best home for any company dealing with money or the innovations surrounding it.
With Ohio’s lack of a state-level corporate income tax, relatively low rent, and modest wages compared to places like New York, headquartering in the state is a business decision that Terry Gore, Senior Director of Financial Services in Fintech for Jobs Ohio, referred to as a “no brainer.”
“I’ve been coming to this event for the last four years, the organization probably the last five or six years, and we think we have a very unique value proposition for the audience this year,” said Gore. That [proposition] is fintech, insurtech, in terms of the ecosystem that we have in Ohio, and using that to support their continued growth and expansion.”
Gore broke the pitch down into three main components about why Ohio is the most economically sensible state to headquarter a company in.
“We’re ranked in the top three in terms of headquartered banks and insurance companies, and we’re the fifth largest final services sector in the US market, so from a potential partner standpoint, I think we’ve checked that box.”
He went on to stress the access to higher education that Ohioans have, arguing that their talent pool is right up there with that of New York and California.
“Most people don’t know, just from a number of citizens’ perspective, we’ve got just under twelve million, we have talent,” said Gore. “We’ve got over 200 colleges and universities, from a talent pool perspective, those companies could tap into that.”
The final component Gore stressed was Ohio’s geography. Nestled in between New York and Chicago, he described it as the perfect place for a company that does a wide array of business across the heartland and the coasts to call home.
“We’re in the eastern standard time zone, we’re just a short two hour flight from three quarters of the financial centers in North America. So you know it’s one of those things where you don’t have to be located in New York to be able to drum up business in New York, you can just literally have a day trip and work that market.”
Ohio has already become a home for major players in the fintech world with companies like Klarna and AllianceData already hosting their headquarters in the state.
“We’ve been able to attract California based companies like Upstart, who moved into central Ohio and opened up their second headquarters, which is now larger than their California based location,” Gore said.
In the midst of their efforts to express all the benefits their state offers, Gore admitted that perception of his state to the rest of the country has a major influence on the decision making that goes into doing business there.
“We want to be viewed more traditionally than what the state has been viewed as, and that’s pretty much focused on manufacturing or a fly-over state. If you’re going to complain about the weather, I can’t help you.”
Fintech Happy Hour Discussion Prioritizes Data, Innovation, and Potential
October 22, 2021
In celebration of New York Fintech week, Ocrolus and Codat hosted Thursday’s happy hour with a panel discussion on “the power of combined data”. Pete Lord, CEO of Codat and David Snitkof, Head of Analytics at Ocrolus, discussed how their respective companies are working to innovate the fintech space by harnessing how to most productively make use of their most valuable commodity—data.
The event was open to those in the fintech space, but primarily served as a mixer and networking event. The panel had discussion topics, moderator questions, and an audience question-and-answer session.
After the event, Snitkof spoke about how the choices available to potential borrowers are so vast, that this vastness of funding sources may be creating a knowledge gap between borrowers and funders. Through fintech, Snitkof appears to believe this knowledge gap can be bridged.
“I think awareness is a really big deal where in many cases people think the only place they can go get a loan is their bank,” said Snitkof. “In fact, there are more lenders out there and they’re all different, which is the important thing. They all use different data, they all use different technology, they all might offer different types of products, and if you’re a borrower, it pays to do some learning.”
When speaking about fintech companies themselves, Snitkof stressed the need for a company to find their niche. “I think what fintech companies can do is really try to make clear how they’re different. The most successful fintech companies that I know of, at least the most exciting ones right now, are ones that don’t try to be everything to everyone.”
Codat, the main showcaser of the event, have people that are equally as excited about both their company and industry’s potential outlook.“I think fintech is just getting started,” said Lord, when asked about Codat’s role in innovating the fintech space. “[Our] role is in connecting the different systems that are used by small businesses that enable them to thrive and to be able to do more business.”
Lord spoke about the increase in speed of the logistical processes that his company creates by innovating antiquated data entry systems via the Codat platform. “[We] provide a layer of intelligence on top of the data that we make available to clients to allow them to get more value faster, and then provide a better experience using that to their small business customers.”
Codat employees also spoke about the state of fintech, along with their direct involvement in changing the way financial transactions occur across a vast array of industries and institutions.
“I think small business owners and people who work at large corporations or medium sized businesses are now expecting similar experiences [like] the financial services they use to power their everyday activities,” said Nick Codron, Codat’s Strategic Account Manager of North America. “All of these software companies are moving into financial services, there is a big play for being the [top] platform and the central business operating system.”
Other employees believe that it is not just a desire for business owners to integrate technology into the financial services space, but a game of catchup; hinting that fintech, as a community, is behind the eight-ball when it comes to the pace of innovation.
“I think there’s a lot of catching up the world needs to do in terms of digitizing financial services not just for small businesses, but for consumers and large corporations,” said Andrew Rho, who recently just transitioned to a Strategy Management position at Codat. “If you can have easy access to those products, services and design concepts and materials that help your dreams come true, that’s an e-commerce business right there.”
“In that sense, you see fintech touch everything,” said Rho.
Pandemic-Induced Pivot Results in Innovative Lending Software
October 15, 2021
“What the hell are we going to do now?”
Kunal Bhasin, CEO of 1West, saw the light at the end of the tunnel for his business in March of 2020. Instead of closing his doors and pursuing other options in finance, Bhasin held strong and began developing a product that was merely an idea prior to his business’s abrupt halt.
“I made the decision at that point when everyone was running, I hired two full time engineers. I said hey, I’ve had this idea for a long time, the whole company has had this idea for a long time, we just never had the time to implement, and then all we had is time because we [weren’t] closing that many deals.”
The idea, a software called ABLE (Automated Business Lending Engine) is a platform that minimizes the lapsed time that occurs in the funding process. “There were deals all over the place in different people’s inboxes. And then those people would have to put those deals into our processors, which created huge gaps of time,” said Bhasin.
“We needed to centralize the deal flow. Whether the deal is coming from a partner, or the deal is coming from a customer, [we needed] a centralized place where a customer could land and start completing the process.”
With the help of his former college roommate, engineers, and staff, Bhasin put his idea to fruition— and ABLE took off. “We rolled up our sleeves and spent the better part of the last 16 months building it, and now the largest percentage of my time devoted to running 1West is on the software and the platform.”
Bhasin claims that his product gives his company a huge competitive advantage, as he is able to use AI to evaluate, process, and determine the type of funding and through which lender is best on an individual basis.
“[ABLE] really shrinks that entire gap time so when the lenders get in early morning, when the funders get in early morning, our stuff is always in queue, and it’s created really nice returns on the amount of customers we’re getting and the amount of deals we’re funding.”
The automation of the application process has allowed potential borrowers to not only find the ideal package for their needs, but allows them to apply for different types of capital streams, something that would take tons of manpower and time without the ABLE software.
“Greater than 90% of the customers who come into ABLE apply for more than one product,” said Bhasin.
When asked about if there were any plans to license the product in the future, Bhasin was hesitant to give a definite answer for the future of his creation. ABLE is already white labeled by 1West for brokers.
“Maybe,” he said, I want 1West to reap the benefits of it for 6-12 months and fix all the tweaks we have to make. We have a lot going on.”
Fintech Helps Small Businesses More Than Banks, says US Rep
October 14, 2021
At the Bipartisan Policy Center’s summit on small business recovery on Thursday, Rep. Bill Foster (D-IL) of the US House of representatives credited fintech for helping small businesses survive pandemic-influenced hardships. “I was very struck recently, if you look at the PPP program, some of the most effective providers were fintech. There is some evidence that says fintech providers were more effective than banks” said Foster.
Fintech beat the banks not only in the allocation and distribution of PPP money, but providing unprecedented help to small businesses owned by individuals from underserved communities, according to Foster. “I think that is something that we have to make sure that [the government] is doing everything we can to support the use of technology by small businesses.”
With quick access to capital, innovative ways to pull data and store information, flexible lending and repayment options, and a mass array of competition, non-bank finance alongside fintech allowed small businesses across America the chance to survive when the odds were stacked against them. Traditional banks, tied up by regulations and bureaucratic processes, would have never been able to provide the capital needed to the countless businesses who relied on PPP loans to stay alive.
Foster has used fintech’s performance as a way to make his case for the necessity of the industry’s role in the everyday life of all Americans. “We’re trying to do a better job in getting a secure digital ID in the hands of all Americans” he said. “Providing a guarantee for all Americans, regardless of what their financial situation is, that they will have access to at least a basic internet connection, basic broadband connection, and a low end [mobile] device.”
Foster spoke about his plan to bundle these ideas with a mindset of fraud prevention, using fintech to provide a digital suite of government issued documents in an effort to counter identity theft. With this, according to Foster, fintech can provide a system in which an individual can prove who they are online, subsequently preventing fraud.
“Small businesses are one of the real victims of identity fraud,” he said. Arizona, Louisiana, and Oklahoma have taken the lead in incorporating fintech into their efforts of fighting small business identity fraud in their states, Foster claimed. He also touched on fintech’s role in the collaboration of digital medical records between healthcare companies and individual practices to enhance the innovation of healthcare processes.
With the government acknowledging fintech’s future nationwide impact on a bipartisan level, the integration of this technology in small businesses and consumers alike at an unprecedented level is just a matter of time.
Plaid Report Hypes Fintech’s Progress, Potential
October 13, 2021
In their 2021 annual report, fintech giant Plaid claims that more people use fintech products than social media or streaming services in the U.S. Over the past two years, the number of Americans using fintech rose from 58% to 88% – a 52% increase.
“In terms of consumer technology penetration, fintech has entered the stratosphere of video streaming subscriptions (78%), and social media (72%) and is nearing par with the internet (93%). We’ve reached an era in which financial technology is no longer a corner of the financial system, but approaching its center,” reads the report.
The pandemic is credited as the catalyst for the large consumer engagement, but the report claims that the numbers are here to stay. According to Plaid, consumers have discovered that fintech products save them time and money, boosts fiscal confidence, and helps them make better financial decisions.
The report also found that baby boomers were the fastest-growing sect of fintech users, with boomer consumers doubling fintech engagement over from last year to 79%.
Plaid claims that the access to money managing apps has allowed debtors to save money and pay off debt. The report found that 53% of people who attempted to save money used a budgeting app in 2021, and 56% of people who made a goal to save or invest in the same year used some type of fintech app.
“The Internet has not really come for financial services before, and now it has,” John Pitts, Plaid’s global head of policy, told Fortune. Pitts said the “astonishing” year-on-year increase in consumer use “means that fintech is now one of the most adopted technologies by U.S. consumers.”
The report also evaluated race’s impact on fintech use. “While the vast majority of Americans have bank accounts (95%), minority groups tend to lag behind in access,” the report reads. “Only 87.8% of Hispanic people are banked, but 95% of those we surveyed report using technology to manage their finances. Similarly, while 86% of Black households are banked, 81% of those we surveyed report using technology to manage their finances.”
The report mentions that African Americans use fintech more than white individuals to combat financial problems. They also found that white account holders care less about fees than any other races.
“While the concept of managing your finances digitally has reached mass adoption, none of the individual types of tools has gotten more than 70% adoption,” Pitts said. “For individual types of products and services, there’s still a huge amount of product-level growth left in the market.”
Facebook is Buying Invoices, But is it Factoring?
October 8, 2021
After Facebook announced Facebook Invoice Fastrack, a program that would allow the company to enter the invoice factoring business effective October 1st, few knew what to expect.
“My gut tells me here that Facebook is not all of the sudden getting into the lending business,” said James Cretella, Partner at Ottoburg LLC and guest speaker at the IFA conference last Spring. “Big tech is seeing the information symmetries, especially in small business lending. It’s very fragmented, and [tech] is trying to exploit that to bring down the cost, and to consolidate that industry,” he said.
Cretella expressed a positive outlook on Facebook’s entrance into the factoring sphere. “I think it’ll be a very good thing for small businesses when big tech gets involved.”
Others believe that big tech is doing pseudo-funding in an effort to break into the space and improve their public image. “There’s always a question when big tech or similar big anything’s get into factoring,” said Robert Zadek, Of Counsel for Buchalter and CEO of Lender’s Funding. “They might call that factoring, but it’s not. It’s a fake factoring product. Fake in the sense that it’s only part of what factoring is,” Zadek said.
Since then Facebook has revealed its program partners, Supplier Success and Crowdz.
The major component here is whether or not Facebook is doing the standard operating procedures of a factoring company, or just purchasing invoices owed. “They’re probably not filing a financing statement a UCC-1, because that takes a long time, and [tech] likes fast,” Zadek said. “Filing is slow and almost manual.”
Without going through the processes of a factoring company, Facebook may just be banking on the good faith of borrowers to pay and eating the costs of those who don’t. “[Facebook] is left with an earned 1% fee with no work, which would be profitable if they get back. If they don’t it’s like a write off,” said Zadek.
According to a Facebook announcement, the company has already practiced factoring with a handful of small businesses, claiming that the program has successfully helped these select businesses grow, even giving some businesses opportunities to just keep their doors open.
We wanted to make a commitment to building tools that made information and inclusive funding partners easy to find and understand,” said Ronnie Cameron, Product Manager, Social Impact at Facebook. “We’ve been able to engage with some amazing [organizations]. The pandemic brought to light the gaps in access to funding that have always existed for underrepresented business owners.”
Facebook is positioning itself in a way that appears that the company is providing an exclusive service to a community who had already been underserved prior to the pandemic, and now, according to them, needs help more than ever before. As the company has had a tough time maintaining a positive image to the public, this could also just be a slightly profitable way to fix their public perception.
Zadek compared tech’s entrance into funding to when MCAs began competing with Factoring Companies. “Instead of whining about MCAs, why don’t you give the client more money?,” he asked his predominately factoring audience when they would complain to him about MCAs. “The MCAs don’t have a death wish,” he told his audience. “They are giving money because they believe they are going to be paid back.”
Sticking to the notion that Facebook’s take on factoring is different from what his industry does, Zadek summed up his take on Facebook’s announcement.“They’re not doing factoring, they’re doing something that has little pieces of factoring in it.”
