Fintech company Crowdz has launched a pilot for its blockchain-based invoice financing marketplace with plans for it to go live by the middle of the year. Speaking to GTR, Crowdz CEO Payson Johnston explains InvoiceXchange’s purpose, discusses other trade finance marketplaces and says that collaborations are on the cards.
InvoiceXchange, built on the Ethereum blockchain, enables SME suppliers to receive payments faster by allowing them to digitally submit invoices to the marketplace for bank or investor financing, meaning they can compare offers for financing at competitive rates. This enables SMEs to improve their cash flow by unlocking capital which would otherwise be tied up in invoices, the payment terms of which often exceed 90 days.
The pilot follows a US$5.5mn series A investment round led by Barclays for Crowdz in May, which the company said at the time would go towards product development, marketing and sales, and hiring new staff. Crowdz connected with Barclays in 2018 as part of the Barclays Accelerator programme, powered by Techstars, which is where the invoice financing solution was first developed.
In this exclusive interview, GTR speaks to Johnston to learn more about the fintech company, where Crowdz sees itself in comparison to trade finance marketplaces and how the company plans to disrupt the business-to-business (B2B) invoice financing market.
GTR: Tell us about InvoiceXchange and how the pilot is evolving.
Johnston: What we are building is a 24/7 global invoice exchange, which is funded by Barclays and several other VCs, both in London and in the US – California, Michigan and North Carolina, and we’re focused on helping SMEs improve their cash flow, to survive and thrive in the overall market.
My background is working in global supply chains and I learned about supply chain finance in the days of Cisco, when I was managing its supply chain. I had supply chains go down all over the world because of earthquakes in Japan and floods in Thailand, and I then started realising that supply chain finance was very important and that it’s not very digital yet. So, what we’re building is a way for SMEs to get access to cash faster and in a much more digitised manner.
The pilot is currently in the US and it is growing, we have 150 customers on the platform, funders, buyers and sellers, so it’s quite an exciting launch from that standpoint. We’ll be expanding it into Europe shortly as well, with the platform going live in the summer of this year.
GTR: Could you explain the technology that underpins the platform and how it works?
Johnston: We’re based on the Ethereum blockchain and we use Ethereum for three reasons. Security, auto ability and the other key thing is that it allows us to combine value movement with document movement. If you look at a lot of the trade finance transactions happening right now, documents and money move separately in two different applications, and so what we do is move that all together using Ethereum. The platform is cloud-based as well.
We have a self-registration so you can register your company and you have a dashboard, which has three core functions. You can send invoices to customers, you can have your customers pay through the platform, but if say the payment is required in 90 days, you then can sell that invoice through the platform. Funders can come in and bid on different invoices in the auction. Once that bidding finishes, the money flows from the funder to the seller and then later, when the buyer pays, we route the money back to the funder.
GTR: We have seen the development of other marketplaces for trade finance, such as LiquidX for example: how does your proposition differ? Would you consider partnering with them?
Johnston: Definitely. We’ve been in talks with LiquidX, among others. One thing that’s interesting about LiquidX is that they don’t actually handle the SME space and this is one of the things we see as missing in the global market – a space that allows for SMEs to participate in trade finance too. The banking community doesn’t like to go into the SME space that much and many trade finance programmes are focused on the enterprise buyer side. They focus on the buyer and then they push down through the supply chain. I’ve been on that side of the supply chain too.
What we are doing differently is we’re embracing the seller side, and that’s our primary customer. We’re allowing for the SME to be a key participant in this and get access to cash. We do work with enterprises as well, of course, because in the supply chain, you have both big and small companies.
You look at everyone in this space – the LiquidXs, the Tradeshifts, and the guys like bill.com – we actually see Crowdz fitting in with all of these and being a player that helps the seller get access to capital.
I won’t talk specifics, but I am having discussions with a lot of these players on how we partner with them, versus not competing with them because we are trying to approach this differently, from the seller side and being an enabler and an auction in between a lot of these players.
GTR: Can you explain your business model – how do you make money?
Johnston: We make money a few ways. There is a subscription business and we have flow fees and there are other things that we make money on, that’s our revenue model, but our business is really a data business. One of the things you’ll notice as you go into the application and you play around with it, is that we calculate risk scores on every buyer and seller that uses the platform. This is something we’re interested in.
We originally created Crowdz to look at risk in global supply chains and realised that most of the data out there, including from the big players, is only updated every nine to 12 months. We started looking at all this data and realised this invoice and purchase order and payment data that’s exchanged between parties, if you can tap into that, you can see how companies perform in almost real-time. What becomes more valuable in our package is being able to sell data to allow funders to make better informed decisions on the SMEs, which right now is hard data to get and that’s why banks don’t really fund SMEs in many cases in the trade finance world.
GTR: What’s the plan now?
Johnston: We plan to continue expanding the platform and our relationship with Barclays, a big investor, partner and customer with us, and continue to push towards this real-time risk score that allows funders to better extend financing to smaller players.
One of the things that I’ve ran into with a lot of medium-sized suppliers is that they have orders from top companies but in many cases, because those companies don’t pay for 90 to 120 days or longer sometimes, they don’t have enough inventory to build those orders to ship out and so this system really helps those companies buy more inventory to actually fulfil orders they have, and that’s really exciting for us.