Fintech/Opinion/

Fintech doesn’t need another banking app. We want software

The big money in financial services now lies in solving the giant needs of enterprises.

Credit: Partner Rob Moffat

By Rob Moffat

There has been an explosion of fintechs serving SMEs and freelancers in recent years: Qonto, Tide, Funding Circle and Market Invoice to name but a few.

However, there has been much less innovation in fintechs serving enterprises (companies with over 250 employees), despite this market being the same size as the SME sector (roughly 50% of the economy in the UK). 

That’s not because large companies are better served. Quite the reverse — enterprises managing their finances today will often have a custom SAP, Oracle or Microsoft system which is hard to use, expensive to maintain and cumbersome to update.

Companies will also often use many different bank accounts with no aggregation and inconsistent user authentication, giving them no real-time knowledge of current cash position and currency risks. If the enterprise has acquired businesses over the years, they are probably still running on separate financial systems which are poorly integrated — if it is integrated at all. 

This complexity and lack of integration can lead to huge issues over time. The collapse of Greensill and its complex relationship with GFG Alliance is just one recent example of the dangers of such opacity.

We need fintechs to design software that can help enterprises manage their cash, improve yield, conduct payments, and access reliable financing solutions.

Enterprises typically work around this by throwing people and processes at the problem, resulting in a packed calendar of monthly and annual audits and reviews. Rapidly increasing regulatory reporting requirements just add to the burden.

We need fintechs to design software that can help enterprises manage their cash, improve yield, conduct payments and access reliable financing solutions. This is where strong founding teams — with the tenacity to solve complex problems and firsthand knowledge of enterprise fintech issues — need to step in. 

Unsexy, but big money

Being a fintech in this space won’t be easy.

Sales cycles are long and it can be hard to win your first large clients as a seed stage company, particularly in an area as sensitive as company cash management.  

However, it’s not impossible. Look at the success of other enterprise software businesses in sensitive areas (e.g. UiPath in business process automation, or Unqork in no-code software). Smaller startups in this area are also slowly coming to the fray, including Treasury Spring and Flagstone.

The addressable market size here is in the hundreds of billions. 

This isn’t a one-size-fits-all market. There’s space for several software-fintechs to enter this space and target different areas, including:

  • Open banking for enterprise: Aggregating across a company’s bank accounts to understand and manage real-time cash position and payments. ‘Plaid for enterprise banking’ if you will. Treasury Intelligence Solutions is one European scaleup addressing this challenge, but the market remains mostly greenfield.
  • B2B payments: Does an invoicing approach even make sense in the 2020s or should businesses be transacting with each other in the same way that consumers do? Payments automation systems and crossborder payments for B2C payments have seen strong demand from B2B as well.  Open banking or PSD2 payments seem even more beneficial for B2B payments than for B2C, due to the low costs as percentage of transaction value and high security.
  • Accounting: As companies scale, they typically outgrow Xero and have to move to Microsoft Dynamics or Oracle Netsuite — neither of which are particularly popular. I am not aware of any startups going after this market, and realise it is a really tough area to build a product given the enormous complexity (if it were easy Xero would already have expanded to this area).
  • Insurance: Most insurtechs have gone after consumers or SMEs. However, insurance for enterprises is a huge market segment and even more inefficient. Lloyd’s of London is great at writing complex risks but is a technology laggard. There is some startup activity, but it is in its early stages.
  • E-invoicing and supply chain finance: This area has probably seen the most activity, with e-invoicing companies such as Taulia and Basware adding financing, plus financing players such as Orbian, Tradeshift, C2FO, Modifi and Previse. However, it remains a pain point and new regulations (in particular, real-time invoice reporting to tax authorities) have created fresh startup opportunities.

I would encourage any founder looking for a new idea in fintech to go and speak to some senior finance people in large enterprises and listen to their pain points. Now is the time to build financial software for the enterprise — the reward will be worth the challenge. 

Rob Moffat is a partner at Balderton Capital. He has a particular interest in fintech and insurtech.

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James Jones
James Jones

See Chairman of the Concordium Foundation, Lars Seier Christensen, talk about the vision of Concordium.
https://concordium.com/
https://youtu.be/wEenAa9duVc

Rob
Rob

I believe the main issue is not the lack of technology options, it’s that most large enterprises beyond a certain size are unwilling or unable to change. No matter how many “transformation”/ “empowerment”/”simplification” projects they run, it will still end up a complex web of interlinked systems that is almost impossible to migrate to a fintech solution safely and they will not take such a risk.

mbh
mbh

Enterprise contracting with start-up: “apologies but even though your tech is amazing and you only employ 3 well paid software engineers in London you don’t have a modern slavery policy and therefore our procurement team have decided not to move forward with you, thanks for participating in this 2 year tender”