Counting down the final days until 2017, we wanted to take a brief moment to reflect back on 2016, and wish all of our clients, partners, and friends a very happy holiday season from the Rocketeers. It's been an incredible year for TradeRocket, a time that has seen tremendous momentum and excitement about what we're collectively doing to bring more working capital and operational efficiency to the marketplace. It's never lost on us that this wouldn't be possible without the broader TradeRocket community. We hope the holidays provide a time for you to recharge, relax, and spend time with family and friends. We look forward to continuing our journey together in the new year and beyond.
At TradeRocket, we remain as bullish about the future as we have since our inception in 2013. And as we prepare to look ahead with great anticipation to the new year, it’s worth thinking about some of the themes that are sure to shape our industry in 2017. Below are just a few worth considering:
Federal Interest Rate Increases
The Federal Reserve raised its benchmark interest rate this past Wednesday, which was widely expected. As we wrote about nearly a year ago after the last increase, it’s hard to tell what impact this will have on the middle market, or supply chain finance in general. That said, speculation is rampant on the impact it will have on many sectors of the economy, including home mortgages and the costs of U.S. exports abroad. Time will tell how many additional rate hikes may be in store for 2017, and how they may shape the near-term economic outlook.
The CFO’s Role is Rapidly Changing
As we’ve covered multiple times in our Twitter feed, it’s clear the role of the CFO as chief bean counter has become outdated. Today’s modern CFO is a true partner to the CEO, and has to balance a challenging range of responsibilities including technology, operational efficiency, team building, along with obviously the traditional financial leadership that has always accompanied the role. We are acutely aware of these changes, which drives much of our thinking in developing our platform to be the working capital marketplace of the future.
The Working Capital Needs of the Mid-Market and SMBs Are Being Heard
While awareness of a problem is never a guarantee of its solution, it’s at least a good place to start. And 2016 certainly sounded the alarm bells for SMBs needing more working capital, and being under-represented in trade finance deals overall. Late this year, the International Chamber of Commerce put some data behind these assertions, including a report that SMBs accounted for nearly 60% of all trade finance rejections. Other global issues were identified in this report, including major trade finance shortages in Africa, in particular. In the U.S., clearly there is a need to get more working capital in the hands of companies whose revenues fall between $50MM and $1B annually, a segment that we think about every day as we continue enhancing our platform.
Blockchain Looms as a Potential Game-Changer
While you could argue there’s still a great deal of hype surrounding blockchain, you also can’t argue there’s also a lot of promise there as well, particularly for supply chain finance at a global level. When companies like IBM are saying blockchain is poised to revolutionize business the way the Internet did, it’s time to stand-up and take notice. Trade finance has also been singled out as an application for blockchain by the likes of PwC, who see projects there moving from prototype to pilot. In the coming year we’ll be watching for evidence of blockchain moving past the promise phase, and how it can be leveraged in a successful working capital marketplace.
Earlier this year, new research compiled by American Express and Dun & Bradstreet looked specifically at the middle market, and its collective impact on the U.S. economy. While definitions vary on what constitutes a “mid-market” company (in this case, anything between $10MM - $1B), what is consistent is the fact this segment is a major driver of jobs and revenue. Some figures from the Middle Market Power Index:
The mid-market employs nearly 53 million workers in the U.S., more than double its numbers just five years ago (2011), leading national job growth for that period.
Mid-market companies contribute $9.3 trillion to the U.S. economy.
Middle market firms drive just over one of every four dollars generated in the economy, and comparatively, more than one in every four employees.
States with a higher concentration of middle market companies include the Rust Belt states of Michigan, Ohio, Wisconsin, Indiana and Illinois, as well as the east coast population centers of New York and Massachusetts.
While we’ve recently discussed what impact the mid-market has on trade finance, a broader question is what impact they have on the U.S. economy. Many private, family-run companies fall under the mid-market label, as do many suppliers to the Fortune 1000, which themselves are clustered in more traditional population centers such as New York, San Francisco, Chicago, Houston, etc. Evidence of the latter can be found by looking at industry vertical data; 18% of middle market firms can be found in the manufacturing segment, while that vertical represents just 3% of firms overall. Geographically speaking, for areas with a dearth of Fortune 1000 organizations, middle market companies often fill the void in offering consistent, stable employment that can have a significant impact on a local economy and future job prospects for its residents.
Looking ahead to 2017, how might the mid-market continue its rapid pace of growth? The Power Index survey reports there are roughly one million firms that generate between $1 - $9.9MM in annual revenues, representing the next group of companies to “graduate” to the mid-market. It is worth noting that 16% of this group is made up of women and minority-owned firms, helping to drive ownership diversity in the overall economy. Furthermore, a collective 60% of all middle market firms can be found in either manufacturing, wholesale trade, retail trade, educational services, and health services. While manufacturing growth can often be tied to macroeconomic factors affecting the broader economy, the latter four segments in particular represent areas with much growth potential. In any event, regardless of what 2017 may hold, getting working capital to this critical segment of the economy remains our mission.
Over the past few weeks, I have discussed working capital finance with people across a wide array of forums-- from Silicon Valley Innovation Center’s Banking Disrupted to Global Trade Review’s Mexico Conference, Money20/20’s annual pilgrimage, and conference rooms all over the U.S. and Mexico. As I reflect back on those miles, there were some recurring themes that rang clear.
When we think about working capital finance, there are issues that will arise in every jurisdiction-- compliance, regulation, the REAL cost of capital. These issues all obfuscate the real goal of any business owner (small, medium-sized, or large): When am I going to get paid? Alternatively, people think about, “When do I have to pay?” In combination, those two questions belie the desire for working capital certainty.
As we focus on the construct of working capital finance, whether it falls under the guise of dynamic discounting, supply chain finance, or trade finance, those two questions are at the root of the business owner’s working capital issues.
While there has been a fair amount of fintech discovery in working capital finance over the past year, the concepts are age-old financing mechanisms. As we and other financial technologists seek ways of making the process of working capital finance more efficient, we should keep one question in mind. Are we creating the means by which businesses can pay and get paid on their terms?
Chief Revenue Officer
In its annual trade finance survey for 2016, the International Chamber of Commerce identified several areas of concern related to the state of the industry. Specifically, small-to-medium sized businesses (SMBs) have a particularly difficult time finding capital for growth, as do organizations in certain geographic locations, like Africa. As noted in the survey, there was a 9% decline in the number of banks reporting an increase in trade finance activity for 2016, suggesting a slowing of trade finance at a time when the opposite is needed. Furthermore, smaller businesses were nearly twice as likely to get rejected for trade finance (58%) as were their large company counterparts (33%). As we look ahead to 2017, what lessons can we apply?
Allowing smaller enterprises to release capital trapped in their supply chain is key. Mid-market companies with revenues ranging from $50M to $1B, which includes many family-owned and private enterprises, often have difficulty accessing capital due to not being large enough to have an established track record, yet are too large for traditional small business loans. In many ways it is these companies really feeling the squeeze, as it’s often harder for them to obtain trade finance than those who are either larger or smaller, yet they are critical to growing the overall economy and the local communities where they’re based. TradeRocket’s primary mission is to help companies who find themselves in this position.
Increasingly, CFOs are being asked to grapple with technology and change management, demands to further reduce overhead, and strengthening their company’s capital position. These pressures, coupled with balancing day-to-day priorities related to managing teams, has made the position tougher than ever. TradeRocket’s working capital marketplace aims to help CFOs unlock their supply chain, while the platform can also bring much needed digitization to the finance function with features like AP automation and electronic invoicing. With everything in the cloud, all of this can be accomplished with minimal client-side IT support required.
Much of the first wave of financial technology, or “fintech”, really grew up in consumer-side finance after the financial crisis of 2008, as evidenced by the rapid growth of peer-to-peer entities such as Lending Club and Prosper in that time period. Commercial finance is the next frontier, leveraging technology to solve working capital problems, without being defined by the technology itself, or getting dragged into resource-crippling projects that have become the hallmark of many ERP implementations. Furthermore, newer technologies like blockchain can and should be exploited to further areas such as trade finance, again expanding its reach and scale to more and more companies that desperately need it.
Regardless of how each of the above plays out in 2017, now is an exciting time for trade finance. We look forward to addressing the many challenges head-on, and continuing to help companies critical to a global economy leverage technology to meet changing market conditions and growth demands. We hope you’ll come along for the ride.
Do you know how much it is costing you to process a supplier invoice? Would you like for that process to be less complex? I have the opportunity to speak to a lot of CFOs, Controllers and AP Managers. In these conversations there is a common theme: they are aware that their manual or semi-manual process is cumbersome, but they are not aware of how much it is costing them. Imagine, there’s the overwhelming piles of paper on top of the desks, the never-ending calls from suppliers asking when they’re getting paid, the slow review of invoices, etc. It seems impossible to run an efficient accounts payable department with all of these hurdles. However, it does not have to be that way. There are tools that can streamline these processes, and bring cost savings to boot. A solid AP automation program includes electronic invoicing, invoice matching, workflows, invoice and PO dashboards. All of these are designed to improve efficiencies, particularly in companies that process more than 3,000 invoices per month.
But don't just take my word for it. Experts like PayStream Advisors, Aberdeen Associates and others have estimated the cost to process an invoice manually falls between $10-20. Studies by AFP and Bank of America have estimated a cost of $3 per paper check issued, further highlighting the need for automation. Additionally, when speaking of time to approve, Aberdeen Group considers "best in class" AP performance to be an average of 4.1 days to process an invoice from receipt through approval for payment, with the bottom 30% taking more than four times that long. Aside from hard costs and inefficiencies, what else is driving CFOs and Controllers on the need for AP improvement?
1) Lack of visibility into invoices and AP documents. It can be frustrating to field calls from suppliers looking to get paid, and not being able to access their situation quickly.
2) Corporate directives to lower costs. CFOs are under tremendous pressures to eliminate unnecessary spending, and AP process is an easy place to find cost savings. Keeping manual records also creates an enormous amount of paper over time that needs to be stored and filed accordingly for safe record keeping, whereas digital record-keeping keeps this information stored safely and securely, and at your fingertips.
How can you resolve this? One solution is TradeRocket's AP Automation service. It offers solutions that can streamline the process and reduce cost without the hassle of lengthy implementation times. We take invoices submitted by vendors and process them through our platform, so all invoices look the same to you, and you have full visibility and control through our user-friendly dashboards. Once they are processed, invoices are matched with both purchase order and receiving documents for approval, and with our Workflows feature you even have the ability to create a process that allows the information to flow from one user to another. The best part? Typical implementation is only about 60-90 days – significantly less than the average 12-18 months. Plus, there’s little IT involvement since TradeRocket’s platform is in the cloud and very easy to use. All this allows us to lower your supplier invoices approval process costs to just a few dollars per invoice. Whether you’re looking to inject efficiency into your accounts payable, or need access to working capital from our marketplace of funders, our passion is helping companies modernize the finance department without changing your process.
Vice President of Business Development
Earlier this month, Global Trade Review hosted their 2016 Mexico Trade & Export Finance Conference. I was honored with the opportunity to speak on a panel that discussed creating greater value in Mexico’s supply chain.
With an estimated $378 billion of exports and $393 billion of imports in 2016, the Mexican economy relies on Trade Finance as an integral part of the business environment. A vibrant market of trade finance and trade credit exists to enable businesses of all sizes to thrive while serving the needs of their clients.
The 2008 financial crisis re-shaped the way global trade finance participants think and operate. Like our markets in the United States, regulatory concerns and the ever-increasing cost of risk-based capital has diminished the appetite for risk and, unfortunately, the availability of capital for many. Caught in this cycle are the businesses that need finance solutions the most, middle market businesses and SMEs.
Banks and other financial institutions, however, are in the business of evaluating risk, so the importance of tools that can help them better assess that risk is magnified in today’s economy. With this in mind, many of the conference panelists and attendees discussed solutions, whether process or platforms, that would facilitate more efficient means of finance among the whole ecosystem. Discussions revolved around amending existing regulations OR finding new means to address old challenges. Tools that can help financial institutions navigate a highly regulated space as well as provide them with timely information to better assess the risk environment are highly in demand. The development of durable, yet adaptable, financial technology to meet the needs of trade finance experts around the globe is a must.
As I sat with my fellow panelists from Greensill, HSBC, Bank of America, and the Bank of Tokyo Mitsubishi-UFJ Group, the relevance of this point was emphasized repeatedly. Whether it is the navigation of a tighter regulatory environment or the management of risk, FinTech can assist in ensuring financial institutions continue investing in this integral function within not only the Mexican, but global trade finance community.
Chief Revenue Officer
Effective immediately, TradeRocket is pleased to announce the appointments of John Monroe to Chief Operating Officer, and Jeff Gapusan to Chief Revenue Officer. Both reflect an expansion of responsibilities from Chief Financial Officer, and Head of Capital Markets, respectively. As COO, John will be responsible for all TradeRocket operations, including legal, human resources, customer service and sales support. As CRO, Jeff will be responsible for the company’s international client and field operations efforts, including aspects of client-facing activities such as sales, channels, client success and support, as well as professional services.
Prior to joining TradeRocket, John most recently served as the Treasurer for Wells Real Estate Funds, Inc., which raised over $10 billion of equity and acquired $12 billion of office real estate. Before coming on board with TradeRocket last October, Jeff founded Makai Advisory Services, focusing on the needs of institutional investors. He also served institutional clients in his various relationship management roles over the years at Cantor Fitzgerald and Citigroup.
Jeff will be speaking on trade finance later this week at the upcoming Global Trade Review Mexico conference, to be held this Thursday, October 20th, in Mexico City.
“Membership has its privileges.” We all know that slogan from American Express, which the iconic company used from the late eighties well into the nineties, and is clearly a campaign the retail finance industry has ingrained into our memories. It also represents an efficiency that has existed on the consumer credit side for many decades. If I’m a retail buyer and want to pay right away, I can just use cash. If I want to pay 30 days later, I pull out a credit card. For larger purchases, I can qualify for an installment loan and buy things like appliances and automobiles. In other words, as a consumer (buyer), I am in charge and can pay the retailer (supplier) whenever I decide, using my own funds or that of a credit card or installment lender (funder). So why doesn’t that same level of access to capital apply to small and medium-sized businesses, as well as the middle market?
According to Entrepreneur magazine, there are between 25 million and 27 million SMBs in the U.S. that account for 60 to 80% of all U.S. jobs. They are the drivers of the American economy. Furthermore, a study by Paychex states that small businesses produce 13X as many patents as their larger counterparts. So not only are SMBs driving jobs, they are also the innovators in our economy. Yet they remain an underserved market when it comes to working capital and trade finance. The International Chamber of Commerce (ICC) recently found that while SMBs submit 44% of all trade finance proposals, they account for 58% of all rejections, a disproportionate amount. For this critical audience, flexible access to capital just doesn’t work for them as it does for so many of us as consumers. The bigger guys? They don’t have the same set of problems, either. With a larger revenue base, track record, and concrete assets, most enterprise companies have no difficulty finding and qualifying for working capital, and at attractive rates. It’s the smaller players, SMBs through the middle market, who are truly driving jobs and innovation in today’s economy, but are struggling with this.
So how do we change this? At TradeRocket, we’re creating a marketplace where buyers pay when they want, suppliers get paid when they want, and funders deploy capital safely and efficiently. We know this process already works for consumers. It also works today for big companies, and we’re leveraging our marketplace to make it work for everyone else. In the next evolution of working capital financing, there is no more paper, everything is digital, trackable, and auditable. Taking an “Early Pay” or “Extending Payments” happens at the click of a button, and sounds so much better than factoring, which for many companies is not a preferred practice. Lastly, and perhaps most importantly, we don’t require a major technology integration that no one has the time or resources for, it’s all in the cloud. Getting working capital into the hands of companies who need it for growth is our passion - stay tuned.
TradeRocket has been selected to join an elite group of Silicon Valley visionaries, industry leaders and executives gathering to discuss the opportunities arising from emerging technologies. Our CEO Jim Eckstein will be sharing his expert insights on how fintech is changing small and medium business.
Join Eckstein at the Banking Disrupted | A Silicon Valley Leadership Summit in Palo Alto this Wednesday, September 14, as he presents “The Future of Working Capital Finance: SMB Edition.” Here’s a sneak peak at his presentation. You don’t want to miss it!
If you want to find out how to get up to $5,000,000 to improve working capital, visit our stand at the Conference or click here.
A Fed interest rate increase has been anticipated for years, and now it’s finally happened. The shoe has fallen, the pundits have emerged, and comments are flying on everything from the impact on mortgage rates to business access to capital. From our perspective, the impact to middle-market financing can be summed up in three short words: not much now.
When a company needs money, the actual interest rate for a short-term loan (or a longer term loan for some form of expansion), won’t stand in the way of the process. There are plenty of other hoops to jump through first, like underwriting. Getting to “yes” from a lender can be a challenge for middle-market companies; by the time you’ve reached the front of the line, the price of the ticket isn’t your biggest concern.
Research into the middle market has shown that 35% of middle-market companies do not actually know if traditional lenders or non-bank sources of capital are superior (Milken Institute, National Center for the Middle market, 2015). This means that there is room to improve on awareness, and that may prove to be the biggest impact of the Fed’s rate hike.
The concept that access to capital from traditional lenders may become increasingly constrained should lead middle-market companies to investigate other sources of funding including supply chain finance. In short, their eyes may be opened to other financial alternatives that provide a lower cost of capital, and have less impact on their balance sheet. Twelve months from now we may be looking at this event as the catalyst that propelled FinTech to its own next level of growth, through awareness of the alternative funding sources that are now available. Expect this awareness to increase with the second and subsequent hikes.
Is your Accounts Payable department swamped with paper invoices? Is your invoice approval process manual and time consuming? Is your Accounts Payable department spending a large part of its day responding to suppliers phone calls? Is your Accounts Payable department wasting time chasing down purchase order and inventory receipt data? Are you unable to take advantage of early payment discounts offered by your suppliers because it takes too long to get an invoice approved for payment? Are your suppliers frustrated because they cannot get paid when they need the cash?
Bob had these same problems until he heard about TradeRocket. Learn how TradeRocket helped Bob replace his paper-based manual invoice process with an electronic and automatic invoice process. Now Bob can do more with less. Also learn how TradeRocket helped Bob give his suppliers the ability to get paid early without negatively impacting his company’s cash flow
Click here to see how TradeRocket helped Bob.
I ponder the significance of Bernie Sanders' millionth donation and the parallels between a large number of individual donors in a political campaign and a large number of individuals (peers) on a marketplace lending platform. When does the collection of individuals make the difference for a politician or a platform?
Presidential hopeful Bernie Sanders became the first candidate of the 2016 election to earn his millionth individual donation on Wednesday. While significant in its own right, one must consider that the average contribution to his campaign is less than $25, while Hillary Clinton's campaign boasted an average donation of $145. From a total donation standpoint, he has raised far less than his primary opponent. This juxtaposition highlighted the appeal of seeking institutional investors in the P2P lending space. While the power of the individual (Peers) is admirable ideologically, the ability of the institutional investment to scale rapidly is more valued in a market where ideas and investment themes are highly perishable-- much like a candidate's run for office.
The significance of reaching 1 million individual donors in a short amount of time is astounding, but without the "OOMPH," of a large average donation, this milestone loses some relevance. As we have seen in elections of all sorts, money (and the ability to raise it in large sums) has ultimately been the deciding factor. The same can be said about scaling a marketplace lending start-up and the allure of courting institutional investors.
P2P lending facilitates transactions directly between individuals, disintermediating financial institutions and empowering the individual. Crowdfunding takes the concept a step further by creating collective pools of money to support a project, an idea, an individual, or a campaign. The efficiency and efficacy of institutional investment (imagine a crowdfund of one large investor) in the P2P space has forced many platforms to shift their strategy of maintaining a pure peer-driven funding source to one that acknowledges and caters to the institutional investor. When armed with the ability to fund loan volumes (and generate profits) at an order of magnitude greater than one can achieve with peer-funding, these businesses caught the eye of the kingmakers of the start-up world. But let's not forget what drew institutional investors to the most promising platforms in the first place: a large collection of individual investors and borrowers.
It is not my intent to speculate on whether or not Sanders wins the favor of the kingmakers of his party. It is fascinating to consider the parallel, however, between the power of the individual donor in a political campaign and the power of an individual lender on a marketplace platform. The popularity of a platform (or a politician) can not be denied as a barometer of success of some sort, whether it is a large portfolio of probable investments, ease of execution, or any number of other factors. As it pertains to marketplace lending, the collective strength of 1 million of those individual lenders certainly attracted the notice of institutional investors. Only time will tell if Mr. Sanders' milestone will have the same effect on the political equivalent.
Head of Capital Markets
One of the biggest challenges suppliers face in managing their cash flow is knowing when they will get paid. Did my customer receive my invoice? Has my invoice been approved? Are there any adjustments to the amount invoiced? When will my invoice be paid?
These are questions each of your suppliers are asking. To get answers, they are calling your Accounts Payable (AP) department, which is very disruptive to your staff. They need to stop what they are doing, answer the questions they can or research the answers they cannot answer. This is a very time consuming task. Research shows that supplier inquiry calls can account for 15% or more of your AP staff’s time.
Is there a way to get your suppliers the information they need without taking your AP staff away from invoice processing?
Yes – TradeRocket’s Supplier portal is your solution.
Through its portal, TradeRocket provides full visibility of the invoice process to your suppliers. They can go to TradeRocket and see if their invoices have been received, are in process or are approved and scheduled for payment. Your suppliers can see if there are any adjustments and when they can expect to get paid. Also, once you approve and schedule an invoice for payment, TradeRocket notifies your suppliers. If your suppliers have any questions, they can send a communication directly to your AP department through the TradeRocket portal.
TradeRocket can help your AP department become more efficient and can provide suppliers with visibility into the status of their invoices. With TradeRocket, there is no reason for your suppliers to be in the dark or to call your AP department.
For more information, please visit the TradeRocket website at www.traderocket.net.
Last month, Goldman Sachs announced plans to enter the online lending space. Since that time, there have been couple of articles and thought pieces contemplating what this means for the marketplace lending eco-system. In her July 7th article on thestreet.com, Jennifer Tekneci even suggested that Lending Club might be better off finding an acquirer to avoid future battles with incumbent, traditional lenders. Here, I share my historical perspective and thoughts on how the space has evolved from P2P Lending, a market originally funded by retail investors, to one that has become increasingly dominated by the institutional investing community.
Over the past year, I have spent a fair amount of time with marketplace lenders, technology vendors, service providers, and institutional investment professionals determining what impact online lending would have on how we borrow and lend money. As a former Fixed Income salesman, my interest lies in the origination of these loans, and what it would eventually mean for securitized products. Would this area of FinTech truly disrupt finance as we know it? During this time, I have watched as many of my peers at sell-side and buy-side firms alike have gone from scoffing at this notion to ultimately (sometimes begrudgingly) attempting to understand how to embrace this new frontier.
Lenders of First Resort
As markets recovered from the Global Credit Crisis of 2008, alternative lenders rose to fill a credit void left by traditional financial institutions. Increased regulatory oversight, heightened capital constraints, and a mountain of losses stemming from poorly underwritten loans would combine to choke off the banks’ ability to provide credit to their customers. Firms like Prosper, Lending Club, and OnDeck rose to prominence as they touted the virtues of Peer-to-Peer (P2P) Lending. Borne of the same core concept as microfinance, crowdfunding, and crowdsourcing, P2P lending offered the promise of providing lending capacity without the intermediation (and hassles) of a traditional financial institution. To be clear, these concepts are not one and the same.
P2P lenders slowly acquired loan origination market share as it appeared to consumers that banks were fleeing them just when they needed them most. This experience led to an erosion in the trust that had been placed in the banking system and people’s overall satisfaction with their banks. In 2012, US P2P loan origination was estimated at $870 million. Over the next 2 years, loan origination volumes exploded as the number of online lending platforms and capital providers multiplied. PWC estimates that in 2014, US P2P platforms issued approximately $5.5 billion in loans.
Nowhere to Run
As financial institutions adjusted to their new world order, institutional investors were facing their own unique set of challenges. New regulations and capital requirements changed the dynamics of the fixed income trading landscape as broker-dealers trimmed balance sheet and focused on the largest and most profitable trades. Yields tightened as trading volumes and volatility shrank, structured credit losses abated, and prepayments streamed in.
Shrugging off everything from natural disasters (2011 Tohoku Eqrthquake), large government and bank portfolio unwinds (ING, AIG/Maiden Lane, RBS—too many more to name), a 2-year running battle over the US debt crisis over the Fiscal Cliff, PIIGS and BRICS, Institutional investors needed new sources for yield . Through all of these events, Mortgage- and Asset-Backed Credit yields rallied from low double-digits (10-12%) to their current 5-8% range.
Online marketplace lending presents a variation on a theme that investors have seen many times before. When credit markets are tight, volatility is low, and there is plenty of yield-seeking investment capital, direct lending is viewed as a "safe" proxy for Fixed Income. Through online marketplace lending, institutional investors saw an opportunity to originate diversified portfolios of loans with plenty of the yield they needed. For the online lenders, this meant larger funding lines and the ability to originate more loans.
In the year or so in which institutional investors have ramped up their activity in the space, it has truly outgrown its P2P nomenclature. Institutional investors have advanced the evolution of the market from pure investment in loan portfolios to the bifurcation of risk, the packaging of derivative and structured products, and attempts at indexing the sector.
FinTech: Friend or Foe?
As Institutional Investors sought to learn more about online marketplace lending and how they could get involved, Wall Street firms have evolved in their approach as well. As I mentioned previously, a year ago many of my peers scoffed at the notion that start-ups could disrupt the world of finance. Fast forward to the present and very few are taking the space lightly.
"They all want to eat our lunch . . .Every single one of them is going to try.
- Jamie Dimon
In his 2014 annual letter to JP Morgan shareholders, CEO Jamie Dimon warned of the competitive threat posed by FinTech start-ups in online lending, payments, and investment portfolio services. From his comments in the press and the thoughts he has shared with investors, it is clear that he is concerned about how JP Morgan (and other traditional financial institutions) will deal with their more nimble FinTech competitors.
For online marketplace lenders, their success in building a loyal customer base and the ease by which they have originated loans in various sectors has led to close examination by the very firms that originally gave them little credence.
Enter Goldman Sachs
The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.
- Matt Taibbi
Last month, Goldman Sachs announced it was working on its own business unit to offer consumer and small business loans by 2016. It should come as no surprise that the company would want to replace shrinking business lines (trading, securitization, etc.) with new revenue sources. All indications point to the online lending space as a market that could fill those revenue needs. In a February 2015 report, PWC estimates that the market could reach $150 billion or higher by 2025. As a Bank Holding Company, Goldman’s ability to tap the Fed Funds Market and other low-cost funding sources give it a huge advantage over current marketplace lenders.
Will that funding advantage be enough for Goldman to succeed? While they have the means to build the technology, they have never been a true retail, consumer-facing organization (Private Wealth Management doesn’t count). How does this bode for the future of established online lenders and start-ups? Do other Wall Street firms follow suit and attempt to build platforms on their own as well? As Matt Taibbi so eloquently illustrated, Goldman has a knack for following the money. While it is perhaps the highest profile bank to do so, there are plenty of other traditional financial institutions attempting to figure out how they secure their own slice of the pie.
History has shown that Wall Street has not had a great track record at innovation, but that hasn’t stopped it from trying. At a FinTech Start-Up conference this past April, Brad Katsuyama, President and CEO of IEX Group, illustrated Wall Street’s approach to innovation and why it has failed in the past. For years, Wall Street firms have convinced themselves that they can innovate from within. This is due partly to the fact that the space has been unable to attract true innovators as they hate scandal, something that Wall Street is not unfamiliar with. Brad continued to illustrate the vicious cycle as follows: scandal creates regulation, regulation creates loopholes, and loopholes get exploited until a new scandal creates another regulation. This is a pattern that anybody that has worked on Wall Street has most likely seen.
One could argue that this cycle is what has allowed alternative lenders to prosper in the wake of the new regulatory and capital environment in banking. Is the online lenders’ ability to underwrite loans based on economic efficiency and “better” underwriting? Or was their prominence built on loopholes (the fact that they are not currently regulated like the banks) that were exploited to fill a need? As banks and other traditional financial institutions enter the online lending space, does regulation catch up with these entities and hamstring them equally?
I tend to think that the relationship between traditional financial institutions and FinTech start-ups continues to evolve. Given Wall Street’s history at innovation and the success that FinTech start-ups have been able to demonstrate thus far, both communities offer complementary competitive advantages. The woes of the banking industry will not be fully solved by technology, but it will surely be bettered by the innovation. Traditional financial institutions would allow the online lending platforms to access low cost capital and large networks of existing customers, while the online lending platforms would be able to share their innovative successes in improving the customer experience and more expedient underwriting. The regulatory landscape is certainly one that needs to be monitored as this is potentially the key to enabling (or disabling) the success of marketplace lending platforms and partnerships going forward.
Your thoughts and comments are welcomed.
Head of Capital Markets
The Internet has played a vital role in the way consumers learn about new products and services. As the person in charge of the supplier onboarding process at TradeRocket, I always strive to use the latest marketing strategies available in the market to improve efficiency and maximize results. Among many, the Inbound Marketing strategy is one that is helping me to accomplish this.
Inbound Marketing focuses on creating quality content that attracts people toward your brand and converts them into clients. Inbound Marketing, also referred to as Permission Marketing, is information that visitors to your website have requested as opposed to Outbound Marketing, also known as Interruption Marketing, which is promoting a product through advertising, promotions, and cold calls without the individual’s consent.
The Inbound Marketing strategy consists of four marketing actions that we consistently apply at TradeRocket for both potential clients and existing suppliers.
1) Attract: Bring new traffic to your brand. The goal is to attract not just any traffic; it is the right traffic the one that we want; visitors that are looking for your product or service that later will become leads. This phase can be accomplished with the use of marketing tools such as a blog, social media and keywords. Specifically, we publish valuable content in our blog on the TradeRocket websiteas well as actively participating in LinkedIn and Twitter.
2) Convert: This action consists of gathering the website visitor’s contact information; at the very least, their email address. Some of the marketing tools used to bring the right leads are: calls to action (CTA), landing pages and contact forms. By offering valuable content in the form of case studies, white papers and benchmark reports, our leads are able to engage with TradeRocket’s products and services.
3) Close: After attracting the right visitors to your website and converting the right leads, this action is all about converting leads into customers through email marketing, CRM integrations, and marketing automation. At TradeRocket, we create email campaigns to send targeted and relevant message with clear call to actions.
4) WOW Experience: Offer your clients and suppliers a delightful experience so that they continue to do business with you. Current customers should become your “evangelists” as they help to spread the good word about your product. The use of surveys and social monitoring are critical to the success of this stage.
Finally, it is extremely important to measure campaign results. You can’t improve what you can’t measure. Inbound Marketing technology has the ability to monitor every element of a marketing campaign to determine if the goal is accomplished.
Supplier Relationship Manager
Regardless of size or industry, every company receives invoices for goods and services. Whether thousands of dollars for raw materials or a few hundred dollars for office supplies, invoices need to be verified for accuracy; thus the Accounts Payable department is an integral part of every company.
A recent study shows that the average company takes 15.8 days to process an invoice at a cost of $9.38 – best in class companies take 2.8 days at a cost of $2.18. What makes the difference? Electronic invoices that are automatically matched to POs for quicker and more efficient approval.
TradeRocket offers a simple tool for AP departments to eliminate paper invoices and take control of their approval process. Through the TradeRocket platform, a supplier submits their invoice, and the platform creates an electronic invoice and automatically compares it to the Buyer’s PO and receipt document. This will ensure that the invoice is correct and that the goods and services have indeed been received.
The TradeRocket platform will let the AP department know if the invoice is correct and can be scheduled for payment. If the invoice contains information that the platform can’t verify, the AP person can look at an image of the PO and invoice, to quickly make a decision. If other individuals need to approve the invoice, the AP person can easily start an email-based workflow, which allows the other decision makers to review and approve/reject the invoice online. This greatly reduces the time spent matching POs with invoices and getting invoices approved.
As an added bonus, suppliers can log onto the TradeRocket portal and see if their invoices have been approved and scheduled for payment – without having to contact the AP department! TradeRocket helps your company reduce invoice processing costs by eliminating paper invoices, streamlining the approval process and eliminating supplier inquiry calls into AP.
The term onboarding refers to the ability to bring new suppliers to the supply chain finance system.
Honestly, the process of onboarding suppliers into a new system or process may sound like a daunting task, because you are asking companies to change their existing process and adopt a new one. For large and medium companies, the change may seem normal but for small companies this disruption may be a major roadblock to implementation. In order to successfully implement a supplier onboarding program, all parties, both buyers and suppliers, need to understand and appreciate all the benefits of the supply chain program.
5 steps to successfully onboard suppliers:
- Establish Goals: It is imperative to know upfront what the buyer wants to accomplish with the onboarding program. This step involves the identification of suppliers to participate in the program.
- Analysis & Segmentation: Includes an exhaustive analysis of suppliers to determine the onboarding strategy. By creating a targeted approach, buyers should be able to prioritize and focus first on suppliers who could benefit the most from the supply chain solution.
- Supplier Education: Creation, development and deployment of marketing campaigns to inform the suppliers about the benefits of joining the program.
- Registration in the Program: A self-service registration portal that guarantees suppliers an easy and quick way to register.
- Training, Support & Analytics: Provide training, materials and performance metrics to measure campaign success.
What challenges or resistance do you think companies would experience when trying to deploy a supplier onboarding program?
Supplier Relationship Manager
According to Strategic Treasurer’s 2014 Supply Chain Finance survey, 70% of Buyers want to increase or maintain their days payables outstanding, while 65% of Suppliers want to reduce their days sales outstanding. It is a tug of war. The result: tension between Buyers and Suppliers.
What if there was a way for Suppliers to get paid faster without negatively impacting Buyers’ cash flow or working capital? Sounds like a paradox. But it isn’t with TradeRocket’s PayMe Now! feature.
On the TradeRocket portal, Suppliers can see when their invoices are approved and scheduled for payment. If the Supplier needs to get paid sooner, it is as simple as 1-2-3 with TradeRocket’s PayMe Now! feature. For a small fee, Suppliers can get paid before the scheduled payment date. TradeRocket gives Suppliers control over when they get paid. No more “shaking the money tree” to get paid early.
What about the Buyer? They continue to pay the invoice on the scheduled payment date. TradeRocket partners with third parties who make the early payment to the Supplier on behalf of the Buyer. As a result, there is no negative impact to the Buyer’s cash flow or working capital.
What if a Buyer wants to extend payment terms but is concerned about the impact on their Suppliers? With TradeRocket’s PayMe Now! feature, Suppliers can get paid as soon as their invoices are approved. This means Suppliers can get paid sooner despite the longer payment terms.
See there is no paradox. TradeRocket provides a solution that is a win-win for both Buyers and Suppliers. Visit www.traderocket.net to learn more about how TradeRocket can help you manage your cash flow and working capital.
I started to read an interesting survey, conducted by PayStream Advisors, regarding how companies receive, approve and pay invoices today as opposed to a few years ago. I'm sure you can guess what comes next; invoice workflow automation is starting to gain traction as companies look for additional efficiencies. But my question remains, how much does it really cost to approve an invoice? What are the real costs?
The answer to my question is not as simple as it seems, as there are many factors that come into play to paint a complete picture. Also, the answer might not be the same from one company to the next.
For starters, it helps if the buyer receives invoices in electronic format directly from its suppliers. This is not a new concept; however, the challenge lies in how much leverage the buyer has over their suppliers. Bigger companies can mandate electronic invoicing to their supplier base, but smaller buyers might not have this leverage. Another issue is that the buyer is basically changing each supplier's invoicing process. Even if the buyer can get away with that, it would still have to be able to receive paper, email, and faxed invoices as some suppliers might not comply. Some buyers are resorting to paying external firms to turn these invoices into electronic format, and that is part of the answer.
If the buyer is already receiving electronic invoices from its suppliers, then they must look at their internal approval processes. Does the Accounts Payable (AP) staff have to manually match each invoice to its respective purchase order and inventory receipt? What happens if the invoice needs additional approval? Typically, companies use either email or intra-company mail, which might take days. What if the invoice has to be reviewed/approved by more than one person? This could take several days or even weeks before the invoice is fully approved and entered into AP.
Another hidden cost, which is not so hidden, is the expense of researching and answering supplier inquiries. If you ask a CFO if her company receives ongoing supplier calls, she might not even be aware of them. She would probably answer by stating that they pay on time and a small number of calls might be received. That might be the case; but if you talk to the AP manager, he will have a different answer. Answering supplier inquiries is not AP's main focus, but it takes a lot of time out of AP's day.
Finally, the cost of not taking early payment discounts is the most expensive cost of all. Some people might not agree with me on this, as they do not see this as a cost, but I do. If I pay $10 for an item when I could pay $8, it's costing me an additional $2. Granted, approving invoices quickly and effectively is not the only component here; the buyer also needs to have the cash available to take advantage of early payment opportunities.
Technology is starting to help companies automate their manual processes, but they may need several solutions to fully automate invoice matching, invoice approval and early payments. That could pose another set of challenges and might even discourage buyers from contemplating these initiatives.
I don't want to finish on a negative note, so I will leave you with the following questions...
- What if your company can receive invoices electronically without changing their suppliers' processes?
- What if you allow AP to focus only on invoices that do not match their corresponding purchase order and inventory receipt?
- What if you had a simple, electronic approval workflow that gave your suppliers visibility into the status of their invoices thus eliminating the need for supplier inquiry calls?
- What if you could offer early payment to your suppliers without impacting your cash flow?
If this is something your company is looking to explore, you should look at TradeRocket’s solution (www.traderocket.net). It's an elegant solution built to be a win-win for both buyer and supplier.