Trade Ledger, a tech startup which rethinks the way lenders assess cash flow solutions for high-growth companies that struggle to find credit, is set help banks fight off internet giants such as eBay and PayPal.
The fintech, based in Sydney’s Stone & Chalk, is out to challenge a financial model that has been around for hundreds of years – that a business credit application is assessed by looking at the assets held by the applicant.
“High-growth companies are making up a growing portion of GDP in every country, including Australia,” Trade Ledger founder Martin McCann told Business Insider.
“But bizarrely, high-growth companies cannot get any working capital solutions from any financial institutions, which is nuts, particularly when you consider that around 50% of the private sector workforce is employed by these companies.”
With the rise of online payment services from multinational tech giants, that gap is fast being filled by integrated merchant advance facilities.
“This is pretty much dominated by three companies in Australia – Tyro, which is home-grown, PayPal and eBay.”
Trade Ledger gives financial institutions the ability to assess credit risk by looking at the supply chain of a business, rather than its assets.
“It looks at all of the factors that impact whether or not your invoices will be paid,” McCann said.
“In fact, the module we’re working on at the moment will be the world’s most advanced probability-of-default algorithm ever developed.”
The machine learning technology has already been used by the World Bank and “various other institutions”, according to McCann, allowing it to be refined for five years.
The world’s biggest banks now know this capability is a blind spot for them and McCann said his startup has a once-in-a-lifetime opportunity to take advantage.
“If you look at the RBA stats on business lending to small-to-medium enterprises for 2015, the market size was $240 billion but only half of that came from banks and other institutions. The rest of it came from domestic mortgages and other consumer credit.”
The real-time nature of Trade Ledger also puts financial institutions on an even footing with the tech giants, which offer its merchant advances at the click of a button. The fintech claims customers can apply for funding in under seven minutes, compared to the current average of 30 hours.
“SMEs will also no longer be treated as one homogeneous, high-risk group of borrowers, when variances in corporate structure, business model, cash flow need, degree of technology adoption, scalability, and a multitude of other characteristics that can change hourly all affect default and fraud risk levels significantly,” McCann said.
Trade Ledger is not planning to pursue relationships with Australia’s Big Four banks, but are concentrating on getting the attention of the global “top 20”.
“They’re much more open to strategically embracing fintech partners than the bigger banks here,” McCann told Business Insider.
“I do think the big [Australian] banks are genuine about wanting to [engage with fintechs]. But they don’t really understand what they want out of fintech – that’s the problem.”
Trade Ledger recently raised $850,000 in seed funding and deployed its product locally through alternative invoice lender The Invoice Market. The company will seek a series A round in the new year.
McCann, a former executive at German tech giant SAP, started Trade Ledger with co-founder Matt Born in April 2016. The business has seven staff now but is recruiting to get to double digit head count by the end of the year.