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Fintech startup brings blockchain and cryptocurrencies to invoice finance

Fintech / 09-08-17 / by
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blockchain invoice finance

New fintech startup Populous is introducing smart contracts, blockchain technology and digital tokens to the invoice financing space.

Having raised more than US$10mn in crowdfunding in just five days, the company has now started piloting its new platform, which lets firms and individuals sell or buy invoices globally.

The early support has been overwhelming, Populous’ founder and CEO Stephen Williams tells GTR. “We’ve been getting a lot of interest from other invoice factoring firms and financial firms that are not on the blockchain, wanting to join the project, including banks as well,” he says.

The platform is much like a conventional invoice marketplace, but the underlying blockchain technology brings a range of advantages, such as cheaper transaction fees, more efficient and faster processing, as well as improved transparency and security.

Williams says the startup aims to lower the barriers to entry for investors, allowing for far more accessibility to the invoice finance market. And with lower costs, it will bring increased liquidity to companies looking for financing.

Built on Ethereum, the platform takes advantage of smart contracts and a decentralised network, but none of its operations use or rely on cryptocurrencies like bitcoin or Ethereum’s value token ether, which are often described as volatile. Instead, it uses Populous’ custom stable tokens – called Pokens – being stable in that they are pegged with fiat currencies around the world (although they can also be bought with other cryptocurrencies).

“With the smart contract, we have created our own tokens, our own currency in a sense, which the contracts accept,” Williams says. “For example, a guy from India wants to finance an invoice from Sweden, so he would place his money into the platform, and it will get converted into kroner Pokens via the smart contract.”

When an auction is live, investors can bid on an invoice within a timeframe of 24 hours. Their tokens are held in the smart contract until the auction has concluded, after which the contract executes itself depending on the pre-defined criteria, and the invoice seller automatically receives his tokens. These can again be redeemed in any fiat or cryptocurrency.

The whole process, however, isn’t completely autonomous, as the platform administrator still needs to carry out know your customer checks, and approve and manage clients’ accounts and actions.

The use of stable digital tokens, Williams says, is more straightforward, quicker and cheaper than conventional methods, especially for cross-border activities.

“If you think about the complexity around different currencies and settlements and consolidation of payments, it’s a much more efficient strategy to use tokens, and it opens up the market to the rest of the world,” he explains.

 

Initial coin offering

Having lined up clients, Populous started piloting its platform this week and will release the beta version in November, before going live in January next year.

The final steps were made possible after having received an unexpected level of support as the company was about to launch an initial coin offering (ICO).

An ICO is an alternative way for a startup to raise funds – as opposed to seeking investments from venture capitalists or banks – by issuing digital tokens. It is similar to an initial public offering (IPO) in that a stake of the company is sold to finance new projects, but in an ICO it is – like a crowdfunding process – open to any supporters keen to invest, and funds are typically raised in cryptocurrencies like bitcoin or ether.

Early backers are usually motivated by a prospective return on their investment, as a startup’s success would often translate into a higher token value.

In Populous’ example, US$10mn+ was raised in ether by issuing so-called platform tokens – these are different from Pokens and are classified more as an asset. While Populous had announced it would issue these asset tokens in an ICO on July 16, it never got that far. Having initiated a pre-ICO a week earlier – in which the token was first offered to a limited number of potential backers – Populous sold out after just five days.

Williams says most investors were high-net-worth-individuals, who were especially keen on the innovative approach to traditional invoice financing. “A lot of the people have not invested in cryptocurrencies before and haven’t participated in any ICO before,” he says.

Ultimately, the big beneficiaries are the invoice sellers, primarily SMEs around the world, who will soon have yet another way to improve their cash flow, now with blockchain and digital money.

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