“If your business is just based on price, you will become commoditized,” said Pawel Kuznicki, founder and director at Capital Match, a Singapore-based fintech for invoice financing. “You need to build a business model that’s yours. Control the origination channels, and automate them.”
That’s what Capital Match thinks it has done by entering an equity merger with Sesami, the largest e-procurement platform in Singapore.
Sesami has only about 20 large corporate customers, but they are “Singapore Inc.”, including the airline, the telco and the healthcare provider, plus the funnel of all of their domestic suppliers and contractors.
From P2P to supply chains
What Sesami lacks is the ability to finance them. Capital Match is a peer-to-peer marketplace doing invoice financing, with S$5 million of transactions a moth. It connects investors with SMEs keen to get their invoices filled immediately, with Capital Match taking a fee to underwrite them and on-sell to lenders.
But the P2P business is increasingly competitive, and independent platforms such as Capital Match face high funding costs.
Sesami now handles S$200 million worth of electronic invoices and S$500 million worth of electronic procurement orders. It has 20 years worth of credit data on its corporate users and their suppliers.
“By providing financing to their trading community, we can easily double or triple our origination volumes,” Kuznicki said.
Cost of capital
More over, access to Sesami’s customer data will let Capital Match optimize its own cost of capital, by being able to identify risks. That in turn could let it provide capital to its own (non-Sesami) network of users at the same cost as a bank.
“This can change the landscape of lending to B2B businesses,” Kuznicki said. But he is not looking to take on banks directly; instead, he believes banks will want to use Capital Match to provide a scaled, cost-efficient channel to SME loans.
Today Capital Match’s average returns for its investors is around 20% annualized, higher than in Hong Kong but lower than comparable sites in the U.S. Via Sesami, depending on the quality of the borrower, Kuznicki estimates returns will disperse from 5% to 20% annualized.
“We can’t survive on underwriting invoices returning 5%,” Kuznicki said. “But we can be can become more than a P2P lending platform. We can also do credit assessment and customer onboarding, to let banks become lenders to quality suppliers on our network.”
Although Sesami’s corporate customers retain ownership over their own data, Capital Match can learn from its exposure to their supply networks, and use that to provide better pricing to its non-Sesami customers. The data comes in three types: financial, transactional, and psychometric (profiling borrowers via online questionnaires).
Kuznicki says the business may expand to new products or areas (Capital Match also has a new presence in Hong Kong) but the new entity will remain focused on B2B companies, and avoid consumer plays. “Anyone in the B2C space has only a short timeframe left, because Grab is going to come for you,” he said, referring to the rideshare-turned-payments company.
Capital Match and Sesami are not disclosing the valuation of the deal. Technically, Sesami, which reported more than S$30 million in revenues last year, acquired Capital Match and then issued the P2P’s shareholders Sesami stocks, and put in some investment as well.