Tradeplus24 CHF100m Fintech raise in Switzerland signals Insurance move into SME Lending 


Note: the deal was done in CHF which is about parity with USD, so you can read that as $100m.

When I first started looking at the Swiss Fintech scene in 2014, my post was called: Zurich Fintech fans look jealously to London (I did point out that while London might have more VC, the Swiss trains and mountains were better).

A lot has changed in that time. A more updated view of a much more vibrant Swiss Fintech scene was captured here two years later:

In the two years between those two posts, four things happened:

  1. Swiss regulators drafted perhaps the most progressive Fintech License anywhere. That took almost everybody surprise. A prediction along these lines would have got only cynical laughter in 2014.
  2. Bitcoin became respectable because it is legal tender and can be bought at any train station and used to pay taxes and other government bills. The legality was known for a long time thanks to the strange history of the WIR (as we reported in March 2015) and that legality led to respectability and both are prerequisites for mainstream adoption.
  3. London suffered Brexit (what soccer fans call an “own goal”) making other places in geographic Europe more attractive.
  4. Some potentially great ventures are starting to emerge from Crypto Valley. Lykke is one to watch in our view – a proven entrepreneur using disruptive technology to execute on an ambitious vision.

A $100m Fintech raise in Switzerland in 2014 would have been inconceivable. In 2017 it is noteworthy as another sign of a rapidly maturing Fintech community in Switzerland.

The Tradeplus24 news has a big number to get our attention. However, it is the innovation behind that number which gets our scrutiny today.

I could only find the Tradeplus24 news on German language sites, so if that is an issue for you, here are the key facts:

– they raised CHF100m debt

– The debt is for lending to Swiss SME (note: they refer to KMU which translates to SME). This makes them a balance sheet lender, like Avant, not a marketplace lender like Lending Club. This means they have assured capital to offer rather than simply matching on a best efforts basis (our take is the latter is the better model long term but that you need balance sheet based lending to get a market going).

– The lender is a boutique investment firm called OceanoOne that connects lenders to what they describe as “sourcing engines” (which is how they categorize Tradeplus24). Lending platforms consistently tell us that the demand from lenders far outstrips the supply of good quality borrowers. Lenders are hungry for high quality debt with a good interest rate. OceanoOne’s proposition is having relationships with the sourcing engines that deliver that high quality debt (what OceanoOne calls “short duration, secured working capital finance”).

– Kessler & Co AG, a Swiss Insurance broker, is listed as a partner

– AIG, the global Insurance carrier that got into trouble in the Global Financial Crisis is also listed as a partner.

It is the role of the last two that is interesting. This is Insurance getting into SME Lending and that could be game-changing.

A Credit Rating for SME?

Classic Supply Chain Finance (see this interview with Orbian for an example) works very well if the buyer is a credit agency rated corporate. That gets something like 150 bp spread over LIBOR.

That is great for an SME who is at the final stage in the supply chain that supplies to a credit agency rated corporate. What about an SME that is further down the supply chain or that only sells to other SMEs?

The rest of the SMEs currently rely on one of two types of solution:

–      Receivables Financing, Factoring, Invoice Discounting. Whatever you call it, the credit rating is based on the seller not the buyer and the APR % compared to Supply Chain Finance is massive.

–      Credit approval based on bank processes. Lots of ventures have made this process more efficient by digitizing it, but it still relies on the data that banks have traditionally asked for such as tax returns and audited financial statements which are at best one input to a credit model. That can work in America and Europe where that data is easily accessible in digital format, but it is not game changing. It is far harder in the Rest of the world.

All of this goes away if SMEs can get a credit rating as easily as a corporate.

In the interview with Dianrong, we see an approach to this problem in China.

The Tradeplus24 approach is different. It brings Insurance into the mix. AsOceanoOne put it “An insurance or equal protection of investment grade quality against credit loss and fraud is in place for all pre-financed receivables. The purchase of the receivables occurs only when a credit insurance or an equal protection is in place and confirmed by the relevant protection provider.”

The role of AIG is critical. We cannot see the details yet, but credit market work with Insurance. Think of the Credit Default Swaps (CDS) that are credited with the Global Financial Crisis and in which AIG played a much criticized role. A cynical knee jerk reaction might be “here we go again, this must end badly”. Our take is that there is nothing wrong per se with securitization or the insurance of securitized debt. Both can lead to more efficiency and lower cost financing. The issue is data transparency and now, nearly 10 years after the GFC, we have had the Big Data revolution and that transparency is now possible. If that makes financing cheaper for millions of SMEs we can all cheer.

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Bernard Lunn is a Fintech thought-leader, investor and deal-maker. 

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.


Interview with Soul Htite of Dianrong to understand the intersection  of Supply Chain Finance and Blockchain



Both subjects, Supply Chain Finance and Blockchain, get a lot of attention on Daily Fintech. So when we saw a solution combining them (called Chained Finance) we were intrigued. When we saw that the venture behind this initiative (Dianrong) is in China and that the Founder & CEO (Soul Htite) was a co-founder of Lending Club, we reached out to him to understand more.

I asked the questions that occurred to me. What questions should we have asked Soul? (tell us in comments).

 Soul please tell us about your professional journey and what Dianrong does?

As a technologist and entrepreneur, I’m constantly looking out for new opportunities to harness the potential of fintech to solve every day financial challenges.  This is what led me to co-found, firstly, Lending Club in the US and, more recently, Dianrong in China.

Dianrong has quickly grown into a leader in online marketplace lending in China, originating more than $300 million in monthly assets for 3.7 million retail lenders. We offer individuals and small and medium sized enterprises a comprehensive, one-stop financial platform supported by industry-leading technology, compliance and transparency.

We developed a sophisticated and flexible infrastructure that enables us to design and customize lending and borrowing products and services, based on industry-specific data and insights, all supported by online risk-management and operation tools.  Dianrong’s specific offerings include loan originations, investment products and marketplace lending solutions.

 As I understand it, Chained Finance is designed to provide financing to the vendors who are further down the supply chain. Supply Chain Finance works well today for the vendors who supply to the corporates who are investment grade. As I understand it, Chained Finance will get financing to the vendors who sell to that vendor. Can you give us an illustration about how this will work?

The complexity and scale of supply chain finance has posed major challenges in ensuring adequate funding and efficient operations.  Chained Finance creates a unique ecosystem that will provide supply chains with easier access to funding at competitive rates. In return, supply chain operators will gain greater visibility of their suppliers and the many layers of finance embedded in the process.

 Is it only one link in the chain (i.e. vendor to vendor of investment grade corporate borrower) or multiple links in the chain?

Chained Finance’s ecosystem provides a better link between supply chain operators and their vast network of suppliers.  Additionally, new loan assets generated by Chained Finance will be available to Dianrong’s 3.7 million investors, expanding the company’s portfolio of diversified investment options.

How is the credit priced? Is it based on the buyer’s credit rating (as in traditional Supply Chain Finance)? Or is it based on the seller’s credit rating as in Factoring, Receivables Financing and other SME lending?

The Chained Finance pricing model is proprietary.

 What stage is Chained Finance? Have transactions already been completed. Can you share what sort of APR % the SME companies are getting and how this compares with other SME lending?

 Chained Finance successfully completed a successful six-month pilot with FnConn, which originated US$6.5 million (RMB45 million) in high-quality loans for supply chain operators, many of whom were unable to secure needed financing in the past.

The pilot was only recently completed, so it is premature to disclose representative APR data.

Please tell us why you use blockchain technology as opposed to some other distributed database technology and a bit about the technology?

 Blockchain technology allows both lenders and borrowers to gain unprecedented control and transparency of their records.

Lenders gain greater transparency of the financial history of borrowers, enabling them to make better lending decisions. This capability enables financial institutions to lower the risk of potential bad debts and problematic financial sources.

For borrowers, the technology provides a comprehensive track record of their financial history, which increases their creditability when applying for a loan. Borrowers also have greater control over who has access to their records, because borrower data can only be obtained with their approval.  That efficiently avoids borrowers’ personal information being abused by third parties, e.g. lead generation companies.

The primary benefit of blockchain is the transparency, and thus security, of the data transacted within the system.  At Dianrong, compliance and transparency are part of our DNA. This is why we are integrating blockchain technology across our entire platform.

Is this a permissioned or permissionless system?


What blockchain technology do you use (e.g. Ethereum, Hyperledger). Please tell us why you chose this technology

Chained Finance was designed to be technologically (and geographically) agnostic.  That said, Dianrong is an active participant in the Hyperledger project.

 Soul, please give us your vision of where Chained Finance could go in the future.

By harnessing the power of blockchain, the Chained Finance platform is geographically agnostic. So, while Dianrong’s initial focus is on China, where 85% of SMEs have no effective access to funding, the potential for the platform goes far beyond China’s borders.

Blockchain for supply chain finance extends to any large company that has a complex supply chain and, as such, is enormous.  The electronics, garment and auto industries are a natural fit.

Chained Finance offers large multinational manufacturers unprecedented transparency and risk control capabilities for their supply chain finance ecosystems.

Thank you, Soul

What questions should we have asked Soul? (please tell us in comments).

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Bernard Lunn is a Fintech thought-leader and deal-maker. 

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.


Interview with Tom Dunn of Orbian about the past present and future of Supply Chain Finance



There are some people who do more than they tell. Tom Dunn, the Chairman of Orbian, is one of them. He has quietly built a big and profitable Fintech business that is delivering low interest finance to SMEs and better risk adjusted returns to investors. I have witnessed Tom building this business for many years, having first met him in 2013, before I started Daily Fintech. It was great to sit down with him and get his take on this interesting but often misunderstood segment of Fintech.

Fintech before it was called Fintech.

Orbian is no overnight sensation. Orbian began as a joint venture between SAP and Citibank in 1999. In short, Orbian is the offspring of Fin and Tech parents. In 2003, Orbian became an independent company through a buyout led by a group of private investors. Between 2003 and 2006, Orbian focused on being a white label provider to Citibank. In 2007, just as the financial crisis was getting started, Orbian started developing its own financing capabilities and separated itself from Citibank.

Sumitomo Bank bought a 15% stake in 2014 and offers services based on Orbian on a white label basis.

Growth as an independent business got going after the Global Financial Crisis. Orbian is another example of businesses that get their major traction in tough times.

Orbian currently operates in 60 countries (while keeping operating overheads very low because they are not having to assess credit risk) and has 73 buyer programs. Orbian targets investment grade or other corporates with high quality financials. This is not a business that aims to get financing for troubled companies.

Orbian provides supply chain finance (SCF) working capital services. They focus on the largest corporate buyers and their most important strategic vendors – what Tom calls the big intersections. They focus on a wide range from $50k pa in spend to their largest to date at around $1.1 billion pa in spend. The financing model is bank agnostic (ie anybody can be a lender).

SCF works on a simple and elegant principal. The credit is based on the Payable (not the Receivable) of the Corporate buyer (not the SME seller). Let’s say the Buyer is a AAA rated Corporate (Orbian will go as far as BBB) and an approved invoice from a Seller is being financed for 3 months. What is the risk that a AAA to BBB rated Corporate will not pay an invoice that they have approved? The risk is comparable to developed country sovereign debt, but with a much better risk-adjusted return on capital. So it works for investors, particularly in a world starved for yield for investors who don’t want to pile on the risk in the hunt for yield.

Tom pegs the SCF market today as about $50 to $70 billion pa of assets.

The results, for SMEs who have corporate customers, speak for themselves. They get an APR that is LIBOR + 1.5% for a BBB rated buyer (about 2.5% with LIBOR at 1%). Contrast that with alternatives such as Receivables Financing, or term loans through Banks or AltFi. Even better for the SME is that the lender has no recourse on the SME. That is because the investor is NOT lending to an SME. Also the seller/borrower gets 99% of the receivable amount (vs around 70-80% for factoring).

To understand how that works, one needs to dive a bit deeper into how Orbian does it. They buy the confirmed Receivable (aka Approved Payable as seen from the Buyer side) on a “true sale” basis. Orbian is not a marketplace that matches on a best efforts basis. Yet Orbian is not taking credit risk. Orbian buys the confirmed Receivable asset and send the money; financing is assured. Orbian then sells Notes secured against that payable into the Capital Markets. Investors never have to look at the SME. Investors simply look at the credit rating of the Corporate Buyer and the length of the loan and price it accordingly.

Investors can be anybody who wants high credit quality, short term self-liquidating assets priced at LIBOR Plus. Typical investors are Banks and Corporates. Orbian does not run auction processes. They experimented with that but found that it was better to manage it on a relationship basis so that investors can be confident of getting enough volume on a consistent basis. This is a market where the supply of borrowers is more of a constraint than the supply of capital.

Orbian view themselves as a financing company enabled by technology rather than a technology company with application in finance. It is a subtle difference as both models tend to converge on the same end result.

What will drive future growth?

SCF clearly works. It has been around since 1999. What I wanted to know was what will drive future growth? Tom uses one word to describe this, which is “execution”. The SCF concept is simple to understand and the technology is no longer leading edge. There are almost no barriers to entry. That has brought in many market entrants who have confused the market. What matters is:

  • Confidence from Buyers, Sellers and Lenders that they will be paid correctly.
  • Ability to onboard new Buyers quickly (a few man days max).
  • Ability to onboard new Sellers quickly (software as a service via a secure portal).

The last two points are why a third party such as Orbian does well. Many banks offer SCF and the payment part can be licensed on a white label basis. However, the last two points are about customer service and that is where banks have usually struggled. Customer service is that intricate balance of people, process and technology that Tom sums up as “execution”. It is easy to say, but hard to do.

That is why growth is now coming from corporates who have long understood the conceptual value of SCF but have struggled to realize the benefits due to weak execution.

What about Blockchain and SCF?

Tom’s team at Orbian has spent time and resources looking at Blockchain and how it could apply to SCF. There are some interesting similarities on an abstract level.  SCF and especially Orbian’s offering rely on a collaborative effort between the participants of every SCF programme they offer.  In a similar way, distributed ledger technologies rely on collaboration between participants to reach a mutually beneficial result.

Tom understands how Blockchain works and what it could do. He can see the potential application to physical supply chain and therefore to Trade Finance. However for Orbian’s business, Blockchain is not a game-changer. The SCF model does not rely on knowledge of where something is in the supply chain. The Corporate Buyer needs to worry about that, but Orbian gets involved at the point in time when Corporate Buyer has approved an invoice. By that time the Corporate Buyer must know where goods are in the supply chain.

It is theoretically possible to envisage a decentralized market without any intermediary, however there are more obviously broken markets to go after. The relative efficiency of SCF evidenced by the 150 bp spread over LIBOR means it fails the Jeff Bezos test (“your fat margin is my opportunity”).The main parties of the SCF model (the buyer, the supplier and the funders) need  Orbian to play an intermediary role. Without it, the efficient aggregation and dissemination of necessary receivable information would be impossible.

Distributed ledgers, irrespective of their permission type, rely on a network effect to both be able to reach transaction validation consensus, secure the immutability of the platform and protect it against malicious attackers.  Although some new organisation can very well develop the next Blockchain platform, if social consensus does not enable it to be adopted by the intended users, it will not succeed.

Some parts of the capital markets are hyper efficient but rely on certain constraints – such as regulation, legal jurisdiction. It is unclear that Blockchain brings a lot of value in return for all that risk.  Code-is law is an interesting concept but big hyper efficient markets don’t like experimenting with interesting concepts (translation = “unknown outcome”).

Or, as Tom Dunn puts it, execution matters.

Orbian is not following the Bank’s lead in spending $ millions on Proof Of Concept projects. They prefer to analyse the risk/reward on a fundamental basis and for them today Blockchain falls into the watch and wait category.

What markets have been early adopters of SCF?

Markets that are active include:

  • Industrial Manufacturing
  • Transportation
  • Food
  • Renewable Energy

Markets that are less active than anticipated are Services and Government Sectors.

What global corridors are the most active in SCF?

The biggest market today is US domestic i.e. US to US trade. While there is a lot of attention on cross border trade, the market today is primarily domestic and follows GDP – so after America come markets such as Germany, UK and China. While supply chains are global, the last link to an investment grade corporate buyer, is more often domestic.

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Market Place Lending is simply automated Asset Liability Management and that is a big deal. 


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Eons ago I managed a sales team that sold core banking systems to global banks. One sales guy was consistently the best performer. I decided to find out his secret to teach it to the rest of the sales team. 

He had found a report that senior managers really wanted and that was easy to create in our system and that was hard to create for our competitors. He had senior management attention and a moat against competition – simple and brilliant.

The report related to Asset Liability Management. So I took a crash course to understand the rather dry subject of Asset Liability Management (ALM). Despite being a dry (read boring) subject, it is key to banking. In short, a bank with good ALM has very low risk and makes good profit and vice versa. 

Asset Liability Management 101

ALM is simply matching the Bank’s Deposits (aka what a bank borrowers from Consumers aka a Liability as seen on the Bank’s balance sheet) with with their Loans (aka what a Bank Lends to a consumer or other entity aka an Asset as seen on the Bank’s balance sheet). If Assets and Liabilities get out of alignment, the Bank has high risk. For example if a Bank gets Deposits on a 3 Month Term and Lends them on a 3 Year Term, something could go badly wrong. 

Of course, if Banks can borrow on a 3 Month Term and Lend on a 3 Year Term, everything is peachy until too many Consumers ask for their money back at the same time. When that happens it is called a “run on the bank” or systemic risk; Governments and their taxpayers are signaling that they don’t like spending taxpayers money to bail out banks when that happens.

A bank with good ALM poses no systemic risk. 

Which brings us to Market Place Lending. People have pointed out that Market Place Lenders don’t pose systemic risk. If a borrower has a 3 year term then the Lender has to have a 3 year term; they have to match or the transaction does not close.

Market Place Lending has perfect ALM.

When you look at Market Place Lending in those terms you can see how powerful it is. In the original P2P Lending model Consumer A Borrows and Consumer B Lends. The marketplace simply matches them. There cannot be any ALM mismatch. If the Borrower wants a 3 Year Term, the Lender has to accept a 3 Year Term or decline the transaction. 

As the Market Place Lending market grew, intermediaries such as Banks and Hedge Funds jumped into the Transaction. Now the value chain is Consumer A Lends to a Bank or Hedge Fund who then lends to Consumer B. Of course in our complex Financial System that chain can be longer – Consumer A Lends to Insurance or Pension Fund who lends to Bank or Hedge Fund who then lends to Consumer B. However, as long and complex as that value chain gets, it is still Consumer A lending to Consumer B.

The problem for all the intermediaries in that value chain is when Consumer A and Consumer B figure that out at scale. 

“My excess cash flow goes straight to my deposit account”

That is an actual comment from a Pensioner who is living well within his means. He has an old fashioned Defined Benefits Pension that is inflation adjusted. He earns more than he needs to spend.  

 This is enabled by a  Sweep Account – well known to anybody who uses Banks prudently. That Pensioner has his bank automatically transfer money from his “Current Account” to his Deposit Account. (The Pensioner was British, if he was American he would have referred to his “Checking Account”). He knew he was getting a lousy deal on that Deposit Account, but did not fancy the hard work of figuring out how to make good risk adjusted loans via a Market Place Lending platform.

Post PSD2, a Fintech startup could sweep that into a Lending Account based on risk/return profile. That is is the sort of “take something complex and make it easy and intuitive with some UX magic” that digital startups excel at. The prize is big. It could be one of the Deposit Innovators that we profiled back in July who seizes this prize. Or an existing Market Place Lender. This is still a nascent wide open opportunity.

Sweep Accounts into Market Place Lending could eliminate the cost of funds advantage that banks have today and that is a really big deal.

To see the real spread enjoyed by Banks, look at this analysis on Nerd Wallet of the best term deposit rates and then contrast that with the Average Net Annualized Returns on Lending Club.

Dear Mr Treasurer, how much do you love your ZIRP and NIRP?

The first to break the dam might be Corporate Treasurers. Like the Pensioner, they know that they are getting a lousy deal on Bank Deposits. Unlike the Pensioner, they have the resources to do something about it. Corporate Treasurers are already doing something about it by lending to their vendors through Supply Chain Finance (SCF). When SCF connects with MPL, the change will come very fast.

Today Corporate Treasurers use sweep accounts to get excess cash into Money Market investments, such as repurchase agreements or commercial paper. SCF is another short-duration investment. However Corporates have excess cash that they don’t need for longer durations so could easily Lend to Consumers or Small Biz for a 1,2, or 3 year terms. 

That is why we believe that Market Place Lending is still in its infancy and will fundamentally change the world and why Lending Club could the Priceline of Fintech. (Disclosure I was fortunate enough to buy Lending Club stock at 3.51).

 Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge platform.

How blockchain technology could integrate financial & physical supply chains and revolutionize small business finance


Small business finance is a window of opportunity big enough to drive a truck through. Yet despite years of effort by many smart ventures, there has not yet been a breakthrough to mass scale. Many digital loan processing ventures, such as Ondeck and Kabbage have reached significant scale. Yet we are also seeing high Customer Acquisition Costs for these companies and no fundamental barrier to entry against the banks (who can acquire/build/license digital loan processing technology quite easily) and there are issues with some borrowers using the systems to borrow from one lender to pay back another lender. In another area of the market, Merchant Cash Advance ventures figured out a scalable way to loan against future credit card receipts. This works in B2C (i.e for Mom & Pop retailers) but has such high interest rates that many retailers who get hooked on this will not survive. Over in B2B, the niche that we call Invoice Finance (but which is also known as Approved Payables Finance, Receivables Finance, Supply Chain Finance and occasionally Reverse Factoring) has proven the proposition to both Lender (short dated, self liquidating assets) and Borrower (low APR %) and yet despite about 15 years, none of these have reached mass scale yet. Today’s research note looks at the thesis that Blockchain technology could be the breakthrough that makes  Approved Payables Finance go mainstream.

Why Invoice Finance works for both Lenders and Borrowers

Marketplace Lending ventures have the tricky job of keeping two parties – Lenders and Borrowers – equally happy. The recent turmoil at Lending Club and Prosper shows how hard this is to do. Approved Payables Finance has the even trickier job of keeping three parties happy – buyer & seller & lender. That is why we call this niche Invoice Finance rather than Supply Chain Finance because the latter name looks at it too much from the perspective of the big company buyer (as opposed to the small company seller) but both buyers and sellers agree on the concept of an invoice.

Invoice Finance is a generic term that describes it from the point of view of the buyer, seller or lender. Generically it is cash flow secured lending as opposed to collateral secured lending and it works in B2B which uses invoices (vs B2C which uses cash or cards). Receivables Finance works on the credit assessment of the Seller (which is hard), whereas Approved Payables Finance works on the credit assessment of the Buyer (which is easy if the Buyer is big enough to have an existing credit rating).  So both buyer and seller are happy with the term Approved Payables Finance which works like this:

  • Seller sends invoice with agreed payment terms to Buyer and requests early payment.
  • Once the invoice has been approved for payment (typically because the goods have arrived), Seller requests payment quicker than the agreed terms.
  • Once the goods or service are delivered as per the agreed terms, Buyer approves the Invoice (which is now an Approved Payable).
  • A Lender agrees to finance the difference between the payment terms (say 60 days) and the requested terms (say 30 days). If the buyer is a big company with a credit rating, the credit risk calculation is simple.  For example, the risk of a AAA rated buyer reneging on a contractual commitment to pay on an already approved invoice is minimal.

The Seller/Borrower gets a low APR % because the Lender users the credit rating of the Buyer not the Seller (which is why this is sometimes called Reverse Factoring).

Lenders get what is highly prized in an age of ZIRP and NIRP, which is high credit quality, short dated, self liquidating assets. Lenders look at the arbitrage with Short Term Treasury Bonds and Corporate Bonds and back up the truck for as much as they can possibly get. That is the problem. Lender demand massively exceeds asset supply. Anybody operating in this market confirms that if they offer $10m of these assets, the Lender asks for $100m and if they offer $100m of these assets, the Lender asks for $1 billion.

What is holding Approved Payables Finance back from mass scale?

In other words, if Lenders are backing up the truck, why cannot Approved Payables Finance ventures deliver the scale they want? We see three structural impediments:

  • # 1 The long slow death of paper. The delays in paper invoice processing make Invoice Financing too difficult.E-invoicing is an obvious benefit for both buyer and seller, but paper invoices (and paper payments aka checks) refuse to die. When e-invoicing gets to something like 90%, the buyer simply tells the other sellers to switch to digital invoices. Then the Buyer gets massive savings in their Accounts Payable (AP) department. The trend lines on this are clear, but inertia is a powerful force. This is an “inevitable but not imminent” change.
  • # 2 Closed networks. The ventures that have been at this the longest, such as Prime Revenue, Orbian and Taulia operate closed networks of buyers and sellers. There is no single standard for e-invoicing, so it is based on the clout of the buyer (if a big buyer tells a Seller to use their standard in order to reduces their AP cost, the Seller may agree despite the fact that using multiple standards increases their Accounts Receivable (AR) costs. Some big buyers tie in their suppliers by offering low cost Invoice Finance (ie they become the Lender) and this gives them a more robust supply chain, but this is clearly a closed network.
  • # 3 No Secondary Market. Short dated assets such as Sovereign or Corporate Bonds that reached massive scale all have a secondary market.

# 3 will only happen when #1 and 2 happen. #1 is already happening and is inevitable. So the key is having an open network for Invoice Finance. This is where the integration of the physical and financial supply chain via a blockchain could be the game changer.

The vision of Digital Trade Finance

Banks make a lot of money on Trade Finance (as I recall from years of selling Trade Finance workflow software to big banks). They make money on three transactions – short term lending & payments & foreign exchange. Invoice Finance could be the unbundling of Trade Finance aka Digital Trade Finance.

In ye olden days of Analog Trade Finance, it felt like a throwback to Victorian days with terms like Bills Of Lading and Demurrage (for a full glossary go here). A lot of the workfkow and process complexity was because tracking the physical supply chain is so hard. This is where the arrival of Internet Of Things and Blockchain could be the game-changer.

Cracking the provenance issue and tracking shipments

Flexport is a Silicon Valley venture that raised $20m Series A in August 2015 that aims to bring freight forwarding into the Internet age (out of the Victorian age of analog Trade Finance).  TechCrunch memorably described them as the unsexiest trillion dollar startup.

We recently described how an immutable shared database (aka Blockchain) could create a better supply chain by cracking the provenance issue. This matters to consumers who want to know what they are buying. It is also matters in the B2B world where invoice approval gets held up by real world issues where the buyer wants confirmation of exactly where the goods came from and how they travelled to the buyer.

The physical supply chain now has a digital overlay. Everything can be tracked and verified from a computer. This is where the physical supply chain can now intersects with the financial supply chain.

How Fluent is tokenising the invoice

Fluent is a Lexington, KY based venture that recently closed a $1.65m Seed round. They are tokenizing invoices so that they can be tracked and approved on a blockchain. This is a critical innovation because it prevents the invoice from being refinanced (aka “double-spent” in Blockchain lingo).

It is a small step from there to a smart contract on a DAO that ensures that the right people automatically get paid the right amount. Sellers can get paid. Lenders can get paid. Intermediaries (such as a DAO) can get paid.

The key is that both the physical and the financial supply chain can be tracked on the same networks. Buyers can approve invoices on the Fluent Network once they receive the physical goods.

This is a game-changer for global supply chains and small business financing.

A Blockchain on Top of Banking

The Fluent Network’s blockchain is largely based on Bitcoin’s architecture, but purpose-built for global supply chains with specific focus on invoicing and payments. It is perhaps best described as a blockchain layer on top of the existing banking infrastructure.

Despite using a blockchain, the Fluent Network typically uses U.S. dollars and funds remain in custody of banks at all times. So this is practical and aims to coopt banks rather than being a rant against banks.

Fluent is a permissioned network of financial institutions and global enterprises that have an extended supply chain. It uses a hybrid consensus model, with both a federated system as well as proof-of-work security. The proof-of-work security – SHA-256 – works similar to the way it does in Bitcoin, but with one great difference: mining is not an open process anyone can participate in, but a closed circuit where participants are permissioned by Fluent.

As one of the founders explains it “Think of giving permission to your neighbors to come to an open house but locking up the good china for extra security. Also, because we know who the miners are, we don’t need nearly as much hashing power as you would on a permissionless blockchain.”

This is an example of a permissioned network that makes sense. At some point, a permissionless network that includes consumers may evolve and interact with this network. However right now, this is a game-changer for global trade and small business financing.

Daily Fintech Advisers provide strategic consulting to organizations with business and investment interests in Fintech. Bernard Lunn is a Fintech thought-leader

How Lending Marketplace hyper-growth is changing Supply Chain Finance



By Bernard Lunn

Supply Chain Finance is one tool within Working Capital Finance. Yesterday we looked at how Banks are losing out in this massive market.

Today’s research note explores how the hyper-growth phase of Lending Marketplaces (which we describe here) is fundamentally changing Supply Chain Finance.

Innovation keeps on coming in the working capital finance market. We are in the Cambrian explosion phase, not the consolidation phase. We are seeing new startups, new entrants coming from adjacent markets, early stage players globalizing and strategic moves by established players.

  • The latest startup in this space is Advanon, an invoice marketplace based in Zurich.
  • The adjacent market entry move is from Kyriba, a leader in cloud based Treasury Management Systems (TMS). Kyriba is moving into Supply Chain Finance (SCF) by appointing a senior manager to lead that initiative. This adjacent market move makes sense because the people who make a TMS decision also influence and execute an SCF decision.
  • There have been two leaders in Supply Chain Finance that have been building for over a decade – Orbian and Prime Revenue. The latter made a big strategic move by partnering with AIG to move beyond the Global 2000 (which already have a credit rating) into the mid market using statistical modeling based Insurance as a proxy for an individual credit rating.

Our market thesis in this research note is that the fundamental change driving this is the hypergrowth phase of Lending Marketplaces.  A Lending Marketplace serves an ecosystem on both sides of the transaction:

  • Lenders, via an ecosystem of Wealth/Asset/Fund Managers.
  • Borrowers, via an ecosystem of sales and origination specialists.

Some of the early players in Working Capital Finance tried to be a network. That game is over. The Lending Marketplace game is a winner takes most network effects game driven by liquidity. Lenders go where the borrowers are and borrowers go where the lenders are.

What we are seeing today is an explosion of innovation around the sales and origination side of the Lending Marketplaces. These sales and origination ventures don’t need to worry about finding Lenders. They are out there on the other side of the Lending Marketplaces, hungry for assets. All they need to think about is generating a flow of good quality borrowers (aka assets in lending speak).

Daily Fintech Advisers provide strategic consulting to organizations with business and investment interests in Fintech.

What the 70% decline in Tungsten Networks price teaches us about the future of working capital finance

By Bernard Lunn

When Tungsten Networks did their IPO on the London market in October 2013, I was involved with a project in working capital finance. Tungsten was the big story that got everybody’s attention.

The story was plausible and the entrepreneur telling the story was charismatic. So the IPO was a success. A few wise folks in this business whose opinion I respected cautioned me that it was not as good as it looked on the surface.

At listing, the share price was 225p. At time of writing it is below 60p, a decline of over 70%. Ouch. The market cap is about $120m, way below our $300m cut off to be part of our Daily Fintech Index.

Two years later with a share price down 70% since IPO, there are two possible explanations:

  • Either flawed execution
  • Or the basic thesis was flawed (strategic error).

(I don’t buy the “short sellers ruined my business” story. AFAIK, this was not naked short selling, which Patrick Byrne rightly complains about.

Strategic error or flawed execution?

The answer matters because working capital finance is such a huge market opportunity and one that matters to the broader economy (a healthy small business sector means a healthy economy). If this was simply about market share battles for a feature within ERP (e-invoicing) it would not be interesting.

The market thesis that got people excited by the Tungsten Networks IPO is that if invoices are sent digitally, it becomes possible to arrange financing for invoices using techniques variously described as Supply Chain Finance, Reverse Factoring or Approved Payables Finance. The logic is simple. If an invoice is approved, the financing APR % can be based on the credit rating of the buyer. This can dramatically reduce the financing cost.

Based on this insight, a hard-charging entrepreneur with a strong track record in the City of London called Edi Truell created an acquisition vehicle financed through a public listing and brought together:

  • OB10, a leading e-invoicing company
  • FIBI Bank, the UK division of First International Bank of Israel.

The combination of e-invoicing and a regulated bank seemed like a far sighted strategic play and the IPO was a success.

Two years later it looks more difficult. Tungsten Networks could still become a big success story. They do have some of the pieces to be a big winner in a huge market, but it looks like they faced three issues:

  • The 95% bar is tougher in practice than in theory. The 95% bar is the idea that to take big costs out of Accounts Payable, you need 95% of invoices to be digital. If you Google Tungsten Networks, you see an ad from a competitor (Taulia) saying

“Time to make 95% adoption a reality”.

I don’t know whether Taulia is achieving that 95% bar. It certainly indicates focus on the issue and confidence that they can deliver.

95% matters not only because the buyer can then take a lot of costs out of Accounts Payable. It also matters because then the buyer can offer lots of invoices up for financing. Whether the seller wants financing is their call and will be price (APR %) dependent. Which brings us onto the next point.

  • You don’t need to own the cow in order to get milk. Owning one bank simply gives you a regulated entity. However unless that bank can raise money very cheaply (because it has millions of low cost consumer deposits), you are still reliant on networks for financing. This is where the hyper growth phase of lending marketplaces (with Lending Club, Prosper and now SoFi competing head on) is so significant. The lenders are out there, at scale, and hungry for high quality assets at a reasonable price.

The biggest issue for Tungsten Networks may have simply been timing. With marketplace lending moving mainstream and America starting to move to digital invoices, the time may finally right but it is likely that a different company will seize the day.

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