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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Well, I have a few thoughts about that.

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

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

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

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

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

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

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

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

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

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

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

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

No surprises there.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Is a license really worth it?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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