Australian fintech company Octet has acquired the Bank of Queensland’s (BoQ) debtor finance business in a new partnership that will also see the bank provide a funding warehouse to Octet, and Octet integrate its solutions within the bank.
The long-term partnership, signed earlier this month, will see Octet assume responsibility for the bank’s debtor finance clients across Australia, effective immediately. But the deal comes with a twist, as Octet will integrate its business-to-business suite of products within the bank, and BoQ will also provide wholesale funding to Octet.
Debtor finance refers to products that unlock a business’ working capital by financing its invoices, with the two most common types being invoice factoring and invoice discounting.
Octet offers a supply chain finance and payments platform for Australian SMEs, with more than 55,000 members across 65 countries and has largely focused on financing imports from Asia into Australia and New Zealand, particularly from China.
The company has now taken over BoQ’s debtor finance business but will run it within the bank for the bank, meaning customers won’t notice any difference, according to Octet.
GTR understands that the debtor finance book is worth up to AUS$100mn.
Brett Isenberg, chief commercial officer at Octet, says to GTR: “They [BoQ] are funding us on a wholesale level and then we fund the client. This type of partnership is unique, but is definitely becoming more common in Asia, as you are seeing fintechs not just building platforms for banks, but now integrating and executing them on banks’ behalf.”
The deal is enabling BoQ to use Octet’s products, such as its supply chain finance and trade finance solutions, for its SME customers across its wider network.
Isenberg believes that the original iterations of platforms that banks, including BoQ, integrated into their core banking systems decades ago are rigid and difficult to evolve, meaning they are increasingly looking to partner with nimbler fintechs that can enhance their platforms continuously, instead of just buying the license to a solution.
In 2015, Octet was white-labelling its solutions, which the firm did for 11 banks and groups including Westpac and Bank of Melbourne, among others. But in the past few years, Octet has focused on moving away from licensing out its platforms. When implementing one of Octet’s solutions a few years ago, the Westpac Group spent millions of dollars, which didn’t “really go anywhere”, says Isenberg.
“A lot of the time you are not involved in the execution side of things”, he says, “so it becomes a black hole for capital. We found that for the most part, if you give a bank a platform it just disappears, there is a lot of fluff and talk and nothing gets done. Ultimately, it is like giving a formula one car to a drunk person, they don’t really know how to drive it,” he says.
The next step for Octet is to move into the US market and finance US imports from exporters across the world.
“Our immediate move forward is to go global. We want to be able to issue credit into the US because those US SMEs are importing from the same exporters in China as Australian ones. We have done merchant acquisition in Asia and around the world, but we have only enabled buyers in Australia and New Zealand to touch those merchants,” he says.