Neat, a Hong Kong-based fintech designed to serve small businesses with banking-like services, is now able to provide a virtual and physical credit card that is operated by Visa.
For Neat, the card is a way to do more for small businesses, particularly as they look to buy and sell more across borders.
For Visa, this is the latest in several fintech tie-ups aimed at businesses rather than consumers.
“The rise of B2B-focused fintechs has been a silver lining from the pandemic,” said Maaike Steinebach, Visa’s general manager for Hong Kong and Macau.
Pivoting to B2B
The COVID-19 situation has influenced Visa’s business strategy. When Steinebach joined the firm in early 2019, she told DigFin her priority was to grow into emerging business segments including public transportation, virtual banks, and small businesses.
While those goals remain, they are more consumer-based. Transport has been impacted by COVID, particularly given Hong Kong’s isolation from mainland China. Taxi companies, cited by Steinebach in 2019, are still cash-based. Visa is one gateway to use the Mass Transit Rail (the subway) via Apple devices, but it hasn’t won access to the dominant Octopus network, which awarded Alipay the right to develop a QR code in 2018.
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Two years ago, small businesses were just coming into Visa’s focus, on the back of the new Faster Payments System for domestic real-time payments. COVID has fast-tracked faster payments.
Suddenly there is a surge in demand for contactless, digital payments, and businesses are eager to use these to connect with suppliers, e-commerce platforms, and other online businesses, especially beyond Hong Kong.
Visa has initiated a slew of B2B-facing partnerships, with fintechs such as Reap, Currencie, and Airwallex – while upgrading its relationship with Neat.
“They’re all B2B fintechs, but with their own niches, such as remittances, the gig economy, or SMEs,” Steinebach said.
Neat’s difference is that it provides an entire chain of services for startups and small companies, from company registration to administration to accounting (developed with software company Xero) to payments.
Secondly, the Visa credit card is a dedicated U.S. dollar-denominated processor. A typical bank account in Hong Kong will result in a Hong Kong-dollar denominated credit line (which Neat’s card also offers).
In Asia, especially Hong Kong, most cross-border business is invoiced in U.S. dollars. Offering a U.S. dollar credit card eliminates foreign-exchange fees.
Third, Neat will be the issuer of the credit card (as opposed to relying on other banks, as it has had to do for earlier versions of its debit cards). This eliminates intermediary fees, as well as foreign-merchant fees.
“It’s not just about the card,” said David Rosa, founder and CEO of Neat. “It’s the software layer behind it, creating an infrastructure for expense management.” For example, as a card issuer, Neat can offer companies the ability to give employees a card with limits and controls on where they spend – such as ensuring salespeople spend money in restaurants and not on e-commerce platforms.
Nimbler than a bank
For most small business operators, just having access to a credit card is a huge benefit, says Rosa. Even those SMEs that have a conventional bank account often find it difficult if not impossible to get a credit card.
The challenge for banks and for fintechs is that these customers don’t have traditional track records to score their creditworthiness. For banks, this makes them too expensive to serve.
Rosa, an ex-Citi banker, says incumbent institutions have also made the card process painful for small businesses because of their own silos. The information they require for compliance and onboarding is often the same information they would need for a credit decision, but the functions are separated.
This is not only painful for customers, which have to repeatedly provide the same information to a bank, but also makes it difficult for banks to ever serve customers fully.
A startup like Neat incorporated the compliance and credit functions from the beginning, so it can make a decision on offering a card – debit or credit – very quickly.
From credit cards to lending
The next step for Neat will be to go from offering a credit card to using its own balance sheet to lend to its customers.
Fintechs can also rely on cashflow and user behavior to build a credit score. Rosa declined to discuss the metrics Neat uses, but says it takes about 12 months to determine which companies are safe to lend to, for a given price. He added Neat has recently entered a proof-of-concept for lending. This implies it could be able to start lending by late 2022.
Neat is licensed as a money lender. It is not a bank, and Rosa repeated his decision not to apply for a virtual-bank license. Although a banking license enables the full gamut of deposits and lending, a fintech like Neat can replicate many of these functions in a regulation-lite approach, which means it can operate in multiple jurisdictions with relative ease.
Neat has already opened an office in London, and Rosa says the Visa card means he is looking at other international businesses. “The real goal is to help your customer’s customers,” he said. That means having a presence in other markets to support Neat users’ counterparties when they want to make a payment.