Welcome to our delayed report from our tech talk with Stijn Pieper. Stijn has almost 10 years of experience in the European Fintech space. He had co-founded Advanon (Invoice financing startup operating in Switzerland and Germany) and later worked at Revolut as Lead Product Manager, and recently worked at Uncapped - a UK revenue based financing provider, as Head of Product. Let's jump to it!
Could you tell us what Uncapped does?
Uncapped provides founder friendly capital. The key value proposition lies in the fact that you don't need to take a personal guarantee. We really are able to provide flexible repayment terms on your business and it's quite an alternative towards traditional bank loan and venture capital.
Of course you need to give away part of your business and what our founders realized when they were working in the venture capital that a lot of e-commerce businesses that actually used money for inventory to buy new goods as well as on online marketing were raising money and most of the money they raised they were putting back into marketing. Just to raise just to basically grow the company and at the end of the road losing over half of your company just to grow it without really changing the direction is a bit of a shame.
We fill that market gap in terms of revenue based financing. We look at the revenue that these companies make and finance them on flexible terms. That's where it started. We realized that RBF (revenue-based financing) is one type of a loan, but customers demand more. If you look at loan providers, I mean you guys probably know best, but this is interchangeable. If you get capital for a certain deal, then you probably want to take the best terms and if you look at that, the larger game that's being played, it's basically a race to the bottom. Everybody just has to provide better terms, lower interest rates. We realized that customers choose a certain loan because of the service around it as well. So we started working also in the banking space.
When you take a loan with Uncapped now, there are also tools that help you scale your business and at the same time, we provide digital cards - virtual cards, but also a physical card to really run and be able to make your payments so the whole tool set helps you run your business, scale it and then scale it even further with the capital that we provide you. That's what we do in a nutshell.
If I understand it correctly, the core value proposition that you have is still the revenue based funding and then you have started to add additional services around that such as the card that you can pay with, and so on.
Looking at your core offering to start with - you offer a loan which has a flat fee for financing. It's not interest, it's a flat fee. This is what you're going to pay over the period of the duration and then as I understand it, the repayment plan is flexible and is based on what you're paying. How does that work?
Exactly. There are multiple types of loans under the hood that we now offer and the core proposition is that you would pay back with your revenue. We would look at your revenue, agree on a certain percentage and that would give you the flexibility that if you use that money and put it into marketing, then depending on how effective that marketing is, that will determine your payback period.
When you're doing that, there is a certain flat fee, but we do incentivize quick repayment terms. If we give you a loan that can be repaid quicker because you invest the money in marketing rather than hiring people and then building new products which might give ROI, but is not increasing your revenue today. We incentivize you with an additional fee structure to invest in short term growth at sight, so you pay your loan back quicker.
Do you also take into consideration how effective the marketing is, so if you have better return on every marketing dollar being spent you can have a longer repayment period or how does it work?
Exactly. That's the reason why we connect to to the revenue sources. We ask you if you have Shopify account, an Amazon account. You connect those, but we also ask you to connect your Facebook and Google Analytics tool. We have an overall view of what would the $1 that we would give you right now or 1 pound mean in terms of revenue for your business and that's what the fee structure will be based on. It depends on the company, what your fee structure will look like.
For pure revenue based financing that is one of the key things we look at - how effective your marketing is because that's the lowest cost loan that we give you. But for other types of businesses, maybe potentially, more SaaS businesses, they might be online, but they might be less ecommerce focused. We also offer fixed repayment terms. We agree on a date on when the money is being repaid and that's also offered. It's really a mixture. The website is simplified, but once you talk to one of our account executives, we get into the details and we have the infrastructure built in such a way that we have multiple ways of offering.
If I understand it correctly, you want to present it simply on the website, but it can be customized depending on each business?
Depending on which business we are having. Yeah, exactly. But the loan offering is always very simple. You're always in the platform, you get a very simple offer where you can literally just say yes or no. And we give you free predetermined offer. You can choose on a longer repayment date with a higher fee or a shorter repayment date with a lower fee. That's quite simple for the customer, so it's presented always simple, but in the background is more complicated.
Getting into the background a bit, this is where I think it gets really juicy. You mentioned that you get a lot of data from marketing tools, sales tool, accounting or banking software. Is all of this to analyze how well the customer is, how efficient their sales are or are you collecting this data to see if they're profitable or if they're losing a lot of money on the bottom line?
It's really to give a 360 overview of the company and one of the tools that I just talked about that we are offering now is also the insights tool. When you're connecting, we provide you with the dashboard on how much revenue you made last week. If you ask any commercial employee for example, how much revenue you made last week, they would have to log into their Stripe account, their Shopify account, their Amazon account to tell you that answer. They don't know there's a clear way of knowing that and at the same time they don't know when it's going to be paid out. Simple things like that - like “how is your business structured” is basically what we derive from that data.
On one hand, we look at P&L to understand how is this business doing in general terms. On the other, [we’re analyzing] how do we believe if we give this person now X amount of loan what will the impact be on the P&L. These two key factors is what we derive from this. What is more important to underwriting, what's less, I can't really tell you, but that's basically what we look at. The point is to make it very simple for the customer to connect as much as possible, so we have the best view on what the business exactly does.
What data are customers more willing to share and what kind of data is more valuable in your assessment of the business?
It depends very much on the market. We are live in the US, the UK and in Europe. Philip, you and I, we had a business in Switzerland and Germany. That's where you can get accounting data, but it's bad quality. Banking data now with GDPR in Europe is very easy to give access to.
It's very simple to share your bank statements from which we can get a lot of data in Europe while in the US that's a little bit different. You have some connectors there as well, but other types of data in US is much more accessible. It's much more common to share your e-commerce data in the US than it is in Europe. It really depends on the market. I think the US and UK are very similar. But that's what we also look at the in particular markets - what customers [can] share and based on that the underwriting models are adjusted as well.
Now when we're getting into sharing banking data here because we're facing similar type of projects, one more question from my side, what tools do you use to collect banking data?
There is a huge amount of aggregators. When we started our business, this was all popping up. Right now we have aggregators focused on more accounting data like Codat, but at the same time for banking data, you can think about Saltedge and Plaid as the main dominators in the market. We use both actually for different markets for the banking data.
There are cheaper alternatives as well, but for example, in the US, Plaid is the number one offer, so there's almost no way around them. In Europe with open banking, it doesn't really matter. I did open banking, I owned all the APIs and one of my teams was the API team in Revolut as well. So I've been working with all of those guys and I can tell you they all do the same [thing]. Some of them are just a bit further in the road map and have more banks connected than the others. That's really what you want to look at. How much do we really need? What is the overlap of my current customer base with the banks’ that they provide? What's the cheapest rate? If I would need to give advice on that, that's what I would say.
We actually have had one of these open banking companies as a client of ours at Codepole. So now we're gonna do a bit of gambling - which one was doing the best out of these and which one was doing the worst, so we can see if our client was one? :)
At Revolut, I really had very positive experiences with Truelayer because of the communication style. I think that most of the market leaders are professional companies and they were quick to response, but in this case I was more the provider to them. We had to create the APIs to comply with regulation and they were asking me to build other API endpoints in case they weren't ready, so it was an interesting dynamic.
You've spent a lot of time working in SME financing in Europe in many different countries, and now also with Uncapped you work in the US. You have quite a lot of experience working with innovative solutions for SME financing. Do you see any trends in the SME financing space that are exciting or that are gonna be booming in the coming years? There's a lot of things happening - move of financing to the Internet, invoice financing, lending and brokers such as KOMPAR or more innovative lenders like Uncapped. It always seems that there is no space for new players, but still there is always some new solution coming up and it's changing the market. Where do you think the market is going or do you see any interesting trends that are exciting?
I talked about some of these tools and more like banking type of tools. I see more and more banking fintechs working on their lending space, and I see lending guys working on their banking capabilities. It's interesting. So long term [...], it's probably going to consolidate a bit the whole market. [...] I think the way to win is really to be aware that not one type of financing is good for everyone, so being able to offer more types of financing and work with partners if you don't provide a certain type of financing.
If companies come to us and they loan with us, usually they also are venture capital backed if they're really successful. The question is how we can help them with our venture capital network to bring them into those circles and be able to be super tailored to that market.
The data is getting more and more fluid. You can connect to everything now. I can show you all my revenue sources, I can connect it back to where I spend my money on marketing and I think that will be generally the trend along all lending providers. It's going to be data-driven and I think traditional B&L loans will be less and less common.
So, yeah, I think these three things - the market is going to consolidate, it's going to be more tailored, and more data-driven.
In terms of extra services - which in your opinion are the key value-added services? You mentioned for instance data insights tools. What do you think about insurance? Is it something booming also as an extra service?
I set up the insurance department at Revolut. [...] That's very easy for fintechs to start offering. They have API providers that you can connect with and you can just embed an insurance quote inside your flow and that became very easy. For customer it's very useful if it's one place even if other insurance providers are linked into the experience. If you take Revolut Premium, you have insurance providers that you take that you don't even know about, but for you it's just the Revolut Insurance that you actually take.
So I definitely think that this will come. And also on the Uncapped roadmap, probably in a couple of years, not direct insurance. I think the direct ones are much more linked to lending and spending your money. So can you create a cart that gives you actually the cash back that you really need? Can you get rewards on things that you're actually need to have as a business? Can we tailor your financing tool?
We're looking now at one new financing offer aiming to help e-commerce businesses get their money instantly out of their Amazon accounts because Amazon is [...] holding their money for over 3 weeks in some cases. They are really having a tough time to get their inventory investment back. We’re trying to really tailor a multitude of loan products around that.
The long term gain for players like Revolut is to become this super app and that's really what I've been working a lot with at Revolut. I was head of the marketplace. So basically we said we have banking like payment core services which you can do you when you log in - you see your Revolut account, and there you have a button to make payments and then you have a button that is “the rest”. In that area now, on the retail side, you can even book a hotel in the UK. You can do anything really. It's like that whole experience of anything finance related in one place.
That's what some of these players tried to to achieve on the B2B side, though, the marketplace was built in such a way that we really work with partners, so it was much more integration focus. We were not building an accounting software. We were integrating with accounting software. That's where the difference lies between B2B and B2C. But I think finance is becoming more and more broad in that sense. Booking a hotel - I wouldn't consider that to be part of Revolut scope, but they have a whole department working on that to create something like booking.com inside your regular app. In that sense you can be very imaginary what you can add inside your service portfolio.
Looking a bit on the move to expand your services to your clients with going from the loan offering to adding things like cards now. What is the benefit of using cards through through Uncapped? I suppose that your clients already have credit cards.
We make sure that we're better in fees, we're better in experience and we're better in all the added value services. People don't like switching banks in general. In the US that type of sentiment exists even more than in Europe. I was surprised that fintech is less trusted in the US than in Europe. It's about providing whole suite of services.
In the US, people are very rewards focused - cash back focus, very commercial focus. If you give them cash back that's higher than competition, they might switch, but for them to stay with you, that's not really a service you offer, right? It's more like a gimmick or a marketing tool. You're taking interchange on the card and you're giving it back to them. It's a nice way to acquire customers, but how do you keep them with you?
That's really the long term game and that is how these added value services we talked about make sure that you get the whole experience - you get the capital, but actually it's a pleasurable experience to run your operating accounts as well. That would be the reason for you to use that card if that isn't integrated into your accounting software, even better, right?
So it's really about playing that game. At Revolut, we always said - if you want to do something, you need to be at least on par or better than the best in the market. You're looking at what the credit card offer players offer right now. You list all their features and you're building them all but better. And then you start talking about the next step.