A new fintech firm is seeking to revive traditional reverse factoring models with the launch of an on-demand buyer finance solution for European companies.
Going live with its digital platform this week, Germany-based Modifi is the latest startup attempting to bridge a trillion-dollar trade finance gap with more flexible and digitally-driven solutions.
The firm was set up earlier this year by Nelson Holzner, Sven Brauer and Jan Wehrs – the team behind BillPay, an SME-focused payments company, which was bought by Swedish bank Klarna in 2017 in one of Europe’s largest fintech acquisitions.
“Then we thought, what’s next?” Holzner, now Modifi’s CEO, tells GTR, explaining the trio’s decision to pursue new ambitions within trade finance.
“We looked at different markets and when we came across trade finance we were stunned by its sheer size of the market, and the deeper we dug, the more we saw how difficult it is for SMEs to get finance and how broken the process is. There are lots of initiatives now to make the big leap into blockchain, but I think just delivering a product in a digital way, without blockchain, will be a huge advantage for many players.”
Modifi will first offer a purchase order financing product for buyers, focusing primarily on Western European companies who wish to extend their payment terms. While the platform is designed to support suppliers anywhere in the world, Holzner says Modifi will initially focus on Asia-Europe trade, as this is where the highest value proposition is.
The aim, he explains, is to provide a better alternative to the range of reverse factoring programmes that buyers typically have in place today, which often require them to bring in large pools of suppliers, who in turn need to agree to join the programme.
“You don’t need pools to use our platform. We have an on-demand model, where a buyer can book our service like they book an Airbnb. We onboard the buyer once, but it’s up to them whether they want to upload one, two or three invoices, or all of them,” Holzner explains.
“The nicest feature from an operational point of view is that we don’t need the supplier to sign a contract. We pay the supplier on behalf of the buyer, but they don’t have to sign into, let’s say, a reverse factoring pool. This is really a very big obstacle for a buyer that has a lot of suppliers but doesn’t have the manpower to look after all the contracts being countersigned by them.”
He explains that the fees will be flat, starting at less than 1% per 30 days and with repayment terms of up to 120 days.
The next product in the pipeline, a factoring product for suppliers, will be launched in the first quarter of next year and come with the same flexibility as the buyer financing product.
In contrast to the destiny of the founders’ previous company, the aim is not to sell the Modifi enterprise to a bank, but rather work with banks to bring more funding to SMEs.
“Banks are very eager to finance those portfolios, as long as you are aligned on the underlying underwriting policy,” Holzner says. “With the systems they have in place at the moment, they really understand that they don’t do a very good job in supporting SMEs with trade finance. For them it’s complex with a fairly unattractive risk-reward. But the appetite is there.”
The platform’s first portfolio will be financed by solarisBank, a German bank, but Holzner expects that other financial institutions will be interested in working with Modifi in the future.