Research

Have a Good Grasp of Cash Flow Operating Information, a New Trend of Innovative Financing Model for SMEs

Many international SMEs innovative financing model cases are based on the Internet of Things to grasp the relevant cash flow information. And combined with the application of big data analysis, to make up for the lack of information about the traditional 5Ps (People, Purpose, Payment, Protection, and Perspective) credit model of banks in small and medium-sized enterprises.

1.Square Capital (business loans for SMEs) Offered by Square (an American payment company)

Square was originally a mobile payment service provider. One of its impressive products was an external card reader plugged in smartphones to make payment by traditional debit card and credit card. However, to face fierce competition in the payment market, Square adopts a diversified business strategy, setting small and medium-sized businesses as one of its important customer groups. They launched services of Tablet Computer Collection System and Collection Services for Small and Medium Businesses and Enterprise Salary Payment Services and Small and Medium Enterprise Loans, Square Capital. Square Capital started in 2014 and cooperated with Celtic Bank, Utah. In the beginning, they provided SME loans and cash lending services. In 2016, they further expanded the loan target customers and cooperated with Upserve, a restaurant management payment service and software company, to provide lending services to small and medium-sized catering businesses not included in Square's payment processing ecosystem. Square Capital has the advantage of being able to grasp customer's receipts and payments, marketing data. It also understands customer sales history, receivable accounts and peaks and troughs of order. It dramatically helps to reduce loan defaults. Today Square Capital is a major source of profit for Square. Square Capital provided more than 50,000 commercial loans in the first quarter of 2018, amounting to about US$339 million, up 35% from the same period last year. 

2.TRADESHIFT, an American Electronic Invoicing Company, Represents Supply Chain Financing Services

TRADESHIFT is an electronic invoicing company in the United States. The TRADESHIFT platform provides a dynamic invoicing system whereby it tracks exchange rates, and make the transactions and transfers when the rates are most advantageous. An electronic invoice tracking tool and a database for historical data are also available, allowing users to find previous invoices within 5 seconds. TRADESHIFT is committed to connecting buyers and sellers worldwide. Today, it has developed into a global platform for the electronic invoice, supply chain, and B2B business, with millions of users, covering more than 190 countries and regions around the world. For small and medium enterprises, TRADESHIF provides free services for online exchange rate, invoices management system.  It also helps to set up the showcase websites to link the procurement opportunities of large enterprises on the platform. TRADESHIFT utilizes the online platform information of supply chain procurement and electronic invoice to cooperate, in succession, with financial institutions such as C2FO, the world's first online working capital trading platform matching suppliers and buyers, HSBC Bank, the world's largest commercial bank, and CreditEase's 'Wing Qirong' in China to provide customers with online supply chain financing services.

3.Funding Circle, UK's First and Largest P2P Financing Platform for Small Businesses

Funding Circle was founded in August 2010. By the end of 2017, the platform had generated a net profit of £177 million for 79,231 investors with a yield of more than 7%, providing £3.4 billion in loans to 356.23 million small businesses and creating 45,000 jobs. With advanced technology, Funding Circle uses thousands of data records for credit evaluation, screening borrowers, and establishing a fast and simple loan process. The loan review will be completed within 5 hours. If approved, you will have 24 hours to consider whether to accept the loaning terms (fixed-rate, as low as 1.9%). And the assentient will receive the loan amount within one day. Funding Circle also received policy support from the British government, including investment funds and tax exemptions for investors. British Business Bank, the UK government-owned bank, financed £100 million for small and medium-sized enterprises through the platform. The investors can choose to open tax-free Individual Savings Accounts (ISA) for investment, thereby entitled to an investment tax exemption of £20,000.

4.Internet-only Bank in China, E-commerce Financing of MYbank

MYbank, an Internet-only bank in China, its main sponsor is Alibaba Group's related enterprise, Ant Financial Services Group('Ant Financial'), holds a 30% stake. MYbank is a member of Alibaba Group's e-commerce ecosystem. With massive of data and data models of the Group e-commerce ecosystem, it can effectively grasp the supply chain and sales situation of enterprises upstream and downstream, and provide the most significant niche for the development of e-commerce financing via an Internet-only bank. Relying on big data technology, MYbank achieves financing service of the 3-minute loan application, 1-second loan making, and zero manual intervention. Its main lending targets are e-commerce business owners on the e-commerce platforms, such as Taobao, Tmall, B2B and 1688, as well as related logistics partners.

5.Emerging Financing Model in 2018-Credit Card/Debit Card+APP for Cash Flow Management

According to Global Fintech Report Q2 2018 - CB Insights, there is a trend of credit card combined with cash flow management app services in SMEs' innovative financing model recently. Payment companies issue business credit cards/debit cards. On the one hand, they will make receipt and payment classification automatically, invoice issuance, invoice authenticity verification, and reducing the burden on accounting to improve customers' credit cards/debit cards stickiness. On the other hand, they provide enterprise financing services by granting credit card lines. Brex, located in San Francisco, USA, is the first startup to issue business credit cards for startups. Working with Visa & Sutton Bank to issue credit cards, it provides account management, and conducts KYC services. Divvy is a cash flow tracking software company based in Utah, USA. They specialize in small and medium-sized enterprises and provide them with B2B payment services. Partner with Mastercard to issue physical credit cards to track, master, and classify marketing transactions and automatically form expense breakdown reports. Furthermore, it helps enterprises to manage expenditure and customer relationship, build strategic budgets, and credit line loan service of the credit card.

Innovative Financing Models for SMEs in Taiwan Are Springing Up

At present, the operation model of innovative financing for domestic SMEs is similar to that of the developing global trend. Based on the Internet of Things and the innovative application of big data analytics, it grasps the information related to cash flow, evaluates the borrowing ability of SMEs rapidly, grasps the repayment risk instantly. Reducing the credit cost and default risk of SMEs, it improves the financing willingness to SMEs. To Provide fast, convenient, and flexible financing services to SMEs through P2P crowdfunding platforms or working with banks.

1.Electronic Invoice Financing Platform, 'P2B Happy Enterprise Loans'

'GateWeb' launched 'P2B Happy Enterprise Loans' in July 2018. It is one of the few domestic P2P lending platforms that provide financing for SMEs. The development niche of 'P2B Happy Enterprise Loans' lies in the mastery of electronic invoice information, and the application of electronic invoice data for credit control. 'P2B Happy Enterprise Loan' requires that borrowers must use the company's products as 'GateWeb' e-invoice customers for at least six months. With enterprise information, such as electronic invoice information, Joint Credit Information Center's records, and corporate tax return information, we conduct credit review and scoring on borrowers, and give one of six credit ratings of A+, A, B, C, D, and E to them. Short-term micro-loans will be provided to enterprises with interest rate granted according to their credit grade. According to the status of borrower's electronic invoice, we can monitor and control the operation of borrowing enterprises immediately to prevent and reduce the risk of default in advance.

2.Accounts Receivable Financing Platform 'BZNK - Solution to Pending Bill'

'BZNK - Solution to Pending Bill' is a domestic P2P accounting receivable matching platform, which started in February 2017, providing early cash-out services for small and medium-sized enterprises. The platform has two major features: First, it uses accounts receivable as an important source of repayment in credit lending. Secondly, based on blockchain smart contract model, it manages allocation and payment of investor's funds. For the borrower's accounts receivable, the platform evaluates the case risk and calculates the discount rate through the analysis of big data system and manual credit from multiple aspects, including transaction reasonableness, authenticity, payment schedule, buyer's credit status, and seller's credit status. After careful examination of the creditor's obligatory rights, the platform will record it as a blockchain ledger and put it on the matching platform for investors to subscribe. After that, the investor's distribution of investment funds, the distributed repayment after checks collection and cashing, and the notification mechanism in case of default of contract are automatically executed all based on the spirit of the smart contract.

3.Exchanging Restaurant Data into Loan, 'iCHEF Restaurant Loan'

In October 2018, iCHEF, a smart catering technology startup company, announced its cooperation with KGI Bank to launch the 'iCHEF Restaurant Loan' service. iCHEF POS customers can apply for loans from banks through iCHEF platform. 'iCHEF Restaurant Loan' mainly uses the restaurant operation data collected by iCHEF POS machine. Combined the big data model with objective data, banks can know more about the catering industry, and improve the financing services for caterers. It changes the situation of restaurant operators in the past that were unable to get loans or obtained poor financing conditions because of the bankers' ignorance and information non-transparency. Through 'iCHEF Restaurant Loan,' the applicants can prepare 30% less loan information than usual. They can have financing service of obtaining fast audit, 5 seconds pre-approval, the loan will be allocated as soon as one week. It may take 2 to 3 weeks for a general bank to review a loan application.

4.E-commerce loan 'Fubon momo loan'

In February 2018, momo and Fubon Bank of Taipei announced the launch of 'Fubon momo Loan,' an online financing service for e-commerce supply chains. It provides online financing for 5,000 small micro-businesses. It is the first domestic corporate financing  that can apply for loan facility without providing sales documents or written application documents. Generally, when suppliers apply to banks for financing of purchase orders or receivables, they need to provide the bank with orders or invoices and other entity documents. And follow with the tedious transaction authenticity verification to obtain financing loan. However, the suppliers of Momo only need to complete the application procedure of 'Fubon Momo loan,' it does not need to provide substantive orders, invoices, and transfer documents. The bank will calculate the financing amount based on the suppliers' sales information provided by momo. After that, they can borrow and repay on 'Fubon Emerging Business Network.'

Conclusion

Through the developing global case, the innovative financing model of domestic SMEs is starting to catch up with the global development trend. Related businesses, such as developers of electronic invoices, e-commerce, and catering information systems, have begun to expand their business to financing services. By grasping the information of operation and cash flow, they can effectively grasp the credit risk of enterprises to improve the financing service opportunities of SMEs. However, the SMEs financing service model developed by financial technology companies to combine business credit card with cash flow management app has not yet appeared in the domestic market. It may be an emerging model that the startup teams can think about. Besides, the current domestic SMEs' innovative financing models are at the initial stage, with limited service objects and a focus market. How to expand the service objects in the future and let more diversified SMEs enjoy fast, convenient and flexible financing services still takes efforts of communication, coordination, cooperation and creativeness from the government, related businesses, financial institutions, financial technology companies, and SMEs.

Reference material

1.Anue, 'The First Financing Matching Platform for Small and Micro Enterprises in Taiwan --'P2B Good Enterprise Loan' uses electronic invoice data to conduct credit control', 2018.9.14. https://bit.ly/2NHPXfZ

2.'BZNK - Solution to Pending Bill' official website https://bit.ly/2QR4CXX

3.Businees Next, 'To solve the problem of borrowing money from restaurants, iCHEF teamed up with KGI Bank to launch a 'one-click loan'', 2018.10.03. https://bit.ly/2OqU5pF

4.Commercial Times, ''Fubon Momo Loan', Taiwan's First E-commerce Supply Chain Online Financing', 2018.02.26. https://bit.ly/2OWXrAm

5.Commercial Times, 'Square, Mobile Payment Company to Enter the Third Banking Licence Application', 2017.09.08. https://bit.ly/2RQHjyZ

6.Businees Next, 'Square, an American Mobile Payment Service Provider, Has Secretly Applied for Listing,' 2015.07.26. https://bit.ly/2CPx5dK

7.KKNews, 'Square in the United States, Payment Platform to Further Expand the Lending Service of Small and Medium-sized Catering Enterprises', 2016.9.14. https://bit.ly/2Cj45tW

8.36Kr, 'The Birth of The New Unicorn, 'Tradeshift' Completed the $250 Million E round of Financing, Focusing on The Digitalization of Supply Chain,' 2018.05.30. https://bit.ly/2AcOCdy

9.Gcoled, Tradeshift - Building Customer Relations Using Electronic Invoices on the Cloud, 2016.05.10. https://bit.ly/2IZh5pS

10.Taiho, CreditEase Co-operated Tradeshit to Launch Cross-Border Supply Chain Financing Services on the Whole Line, 2017.3.29. https://bit.ly/2Oup0By

11.Funding Circle official website https://www.fundingcircle.com/uk/

12.CB INSIGHTS, Global Fintech Report Q2 2018。