Additional reporting by Kylee McIntyre
All businesses need to balance their books. While small and medium enterprises (SMEs) are known to be innovative and agile, they are not spared from traditional accounting challenges, particularly with cash flow and resource management. Moreover, for businesses with limited means, poor management of resources can result in loss of efficiency.
Why help SMEs? What they may lack in muscle or size, they more than make up for it with numbers and impact. SMEs can power economic growth, especially when they constitute most of a country’s businesses. In Singapore, for example, they account for 99 percent of total enterprises.
To help SMEs manage their resources and cash flow, two Singapore-based startups are working with payments giant Visa. Validus is an online lending marketplace that caters to SMEs while iPaymy for Business enables small businesses to pay large, recurring expenses using a credit card.
Here’s the story of how this collaboration came about.
Step 1: Start the conversation
Option 1: A continuous process of talking
Nikhilesh Goel, chief operating officer at Validus, believes in working with industry leaders, especially when his startup builds innovative solutions in the fintech space.
Validus provides SMEs with short- and medium-term financing from accredited individuals and institutional lenders. SMEs can apply through the online platform 24/7, and get funding within 48 hours. What they lack in muscle or size, they more than make up with numbers and impact.
“Don’t grow in isolation – grow with a large partner,” Goel advises. “When you look at financial services, a lot of what we do has existed forever. Fintechs are either enabling services through technology or extending them to those who have missed out. To truly scale up, fintechs need to partner with major players.”
According to Goel, Validus had long been eager to work with Visa. “We’ve always been in touch with them at an informal level, updating them about what we do,” says Goel. Validus initiated discussions with Visa in January 2017 about potential partnerships, he adds.
The opportunity to collaborate finally came when a large bank approached Visa to sound out a cash flow challenge they were facing with their client. “This particular bank’s client is one of Singapore’s largest food suppliers. First, they needed money to fund their business. Second, they needed to reconcile their invoices to their customers,” Goel said.
Invoice reconciliation involves matching incoming money with invoices to make sure that customers have paid for their orders.
Even before Validus had an invoice reconciliation system, Visa had expressed confidence in its unique value proposition. Indeed, Validus had solid startup chops: it had institutional investors on its platform, access to data from the National University of Singapore’s credit rating bureau, and credible investors as backers, including Vertex Ventures. Its CEO, Ajit Raikar, had relevant market credentials, given his background in SME lending at Citibank, DBS Bank, and Danamon.
The solution went live with the first F&B customer on May 8, 2017.
“It’s really a new product that served a new segment for us. We went to Visa with an initial idea, and we sat down to think about how we could take our product to fit in with the larger scheme of things,” Goel recalls.
“Startups should just reach out to Visa and share their briefs,” he says.
Option 2: Taking the initiative to reach out
For iPaymy, reaching out was exactly what it did.
“We met with Visa for the first time, and it was a standard meeting to show them what we did and our progress,” says iPaymy’s CEO and co-founder, Ethan Dobson.
iPaymy secured seed funding in November 2017, and Dobson thinks its partnership with Visa – now in its sixth month – helped spur investor confidence. iPaymy enables small businesses to pay large, recurring expenses on a credit card. Those costs include necessities, such as rent and salaries, as well as business invoices that wouldn’t normally be put on credit because the respective beneficiaries don’t accept cards.
From the get-go, it was a partnership driven by gut feel. “We felt pretty positive but didn’t have any guarantee,” Dobson says.
Still, he was encouraged by how passionate the Visa team was and committed to serving the SME space.
Step 2: Sit down and identify problems
The first thing both startups did after securing a partnership with Visa was to think about the key challenges of running a business.
On its part, Visa offered insights by leveraging its massive amount of data.
“From our research in multiple markets, a key need for small businesses is to access higher levels of working capital to grow their business,” explains Vikram Kshettry, who heads B2B partnerships, small business, and Visa B2B Connect in Asia Pacific.
Problem 1: Invoice reconciliation affects resource management.
“We sat down [with Visa] and identified existing gaps in SME financing. The consensus was that SMEs need immediate access to cash and don’t have the luxury of waiting 60 to 90 days to get paid,” Goel says.
For example, business owners and managers in the F&B distribution industry may deal with up to 50,000 invoices. Processing them takes a team of accountants. This is costly and takes up precious man-hours for SMEs.
Invoices also usually come in various formats, which further complicates accounting. “There is no global standard on how invoices are raised. How one company settles an invoice will be different from another,” Goel says.
Any hiccups and backlogs in processing will have a negative impact on cash flow. In turn, these will lead to problems with financing, such as blocked access to borrowed capital in the pipeline, effectively slowing down business growth.
Validus’ roots in lending means clients don’t have to wait 60 to 90 days to be paid. “We fund them immediately – that is where the lending comes in. When the money comes back, we settle it and do the reconciliation. That is where we value add rather than just doing lending,” Goel says.
On top of offering a virtual Visa card that delivers working capital benefits for SMEs, Validus also automates the invoice reconciliation process.
Validus helps gather invoice information, before standardizing and reconciling them for their SME clients. According to Goel, working with Visa also helps Validus provide a more comprehensive solution, which enables it to compete with other lenders on more than just price and speed.
“Visa knows the different formats of invoices, what the problems are with each format, and how to reconcile them. They sat down with us to think through different problems and how to address them,” he says.
Visa supported Validus by sharing some features, such as a reconciliation platform to help the startup build its new product. As Goel says, “Validus provided the risk algorithm and assessments, while Visa contributed its worldwide network, products, and international design thinking experience.”
Goel expects approximately 20 to 25 percent of business volume to come from the Visa network in 2018.
Problem 2: SMEs need healthy cash flow
Most businesses do not have access to credit cards. This means that SMEs may lose out on opportunities to expand their business because they need to pay their employees on time.
“We looked at the universe of expenses that an SME pays, and realized that the majority of what they spend each month falls into one of three categories: rent, salaries, and invoices. These types of expenses are critical and, typically, recurring in nature, meaning you need to pay rent and salaries each month if you want to keep your business running,” Dobson says.
For instance, SMEs can now pay their suppliers with credit immediately using Visa payment cards, and get up to 55 days before they have to make the payment.
Dobson says: “One of our customers produces signage. When they take on a new job, they need to order materials before they are paid. Now, they can go to their supplier using their credit card, deliver the product, and collect the payment, even before they have to pay for the supplies needed to do the job!”
The option to put those necessities on a Visa credit card via the iPaymy For Business platform, gives SMEs the ability to meet all their monthly payment obligations while keeping cash available to fuel growth and bridge receivable gaps.
Freed-up cash also means SMEs can make immediate investments in supplies, services, and the expertise needed to drive their business forward.
Step 3: Brand awareness
At media events
Goel says that teaming up with major players offers intangible benefits like visibility. “Visa is one of the largest payments companies in the world, and when it comes to showcasing solutions, they help.”
For instance, partnerships between startups, financial institutions, tech companies, and research institutions were showcased at last year’s Singapore Fintech Festival held from November 13 to 17 in 2017.
“Validus had one of the smallest booths and Visa had one of the largest booths. We had the opportunity to use their space [at Singapore Fintech Festival],” says Goel.
Last year, Validus was also featured on a Channel NewsAsia broadcast story about Visa’s innovations in the payments space.
Exposure on mainstream media outlets can be difficult to achieve for startups on a tight budget, so this is a big bonus. Moreover, it helps startups look more attractive to future investors or potential customers.
At talks with other big boys
Having Visa in talks was also in the startups’ favor, both in terms of having a reputational boost and helping them rethink the way they talk business with partners, such as banks.
Dobson says iPaymy was able to better align and get more favorable terms with Visa at the table. “If a fintech startup approaches a bank seeking a partnership and says, ‘This is the price and here are our terms,’ that’s not always an easy conversation, or one that will yield the best result for the startup.”
He explains further: “By having the conversation with Visa, and the issuing bank, both at the table, it becomes more about how we can all come up with the best deal for the SME, while still making it economically viable for all of us as partners.”
The secret sauce: Trust
What makes the Visa partnership work so well is trust. Goel says that many corporates are hesitant to work with startups because the risks seem high.
For instance, some corporations are public companies and are accountable to their shareholders. Integrating startups into their operations without doing due diligence would be an iffy gamble.
Yet Visa is happy to support startups like iPaymy and Validus and let them drive the process. One reason is that the collaboration helps the company enter under-served segments, such as SMEs.
“I know Visa values its partnerships and it’s a big company in this relationship,” Dobson says. “But Visa understands that its partners have options.” Overall, he says, iPaymy has had a good experience working with Visa.
Goel also stresses how Visa’s speed and flat hierarchy are plus factors. “It’s always discouraging when conversations start with: ‘Let me get clearance and get back to you,’” he says. “Being agile and having decisions made quickly, in order to deliver, is crucial to a startup, particularly in such a fast-moving, innovative space. Visa respects that and supports us in our planning and, most importantly, execution.”
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