The evolution of Bank-FinTech partnerships
Marco Hinz: You have a very broad career spanning first banking and later FinTech. Can you give us an idea about what motivated you to make that shift from banking?
Kate Pohl: When I started out, I was looking to combine an international career with finance and marketing, so banking seemed to be the place to start. My career began in the United States before moving to Germany and later to the Netherlands. I went from initially being relationship and risk focused to concentrating on transaction services.
I worked with five very international banks, but there came a point when I asked myself, ‘How can I put this all together? How can I really make a difference?’ I’d come to love working with innovation, digital transformation, and FinTechs at ING, and I didn’t see myself being able to achieve as much as I wanted to while working for a bank. So, this was my moment to go out on my own. I freelanced for a few years, working with various FinTechs and neobanks, and one of my clients was Traxpay. They made me an offer I couldn’t refuse. I wanted a role where I could really have my own area of responsibility and be measured based on my results. I started out in charge of banking sales. Now, I have the whole sales process under my wing – banking as well as corporate sales . I also continue to work on various projects in my ‘free time’. For example my podcast (‘Digital Dump: Technology Explained, with Steven Batiste and Kate Pohl’). I also work with the Euro Banking Association, and deliver coaching for purpose with CLI, the Core Leadership Institute.
Marco Hinz: Can you describe Traxpay?
Kate Pohl: We are a supply chain finance (SCF) platform and we see ourselves as a true enabler. We’re not the financier, but rather we facilitate the process. Funding primarily takes place through banks, but other investors also provide support e.g., with digital forfaiting. Traxpay has a broad range of products within supply chain financing and we support a 360-degree liquidity concept.
Marco Hinz: How do the clients use the platform? What are the benefits for SMEs?
Kate Pohl: The key player in supply chain financing is the buyer, who tends to be a large corporation. The corporate’s suppliers can be anything from multinational enterprises in their own right, to the mom and pop store around the corner. As an example, one of our large clients at Traxpay is EDEKA. They have suppliers who range from large companies down to small vegetable growers and so forth.
We want to facilitate the ability of buyers – either through their own liquidity which is called dynamic discounting, or the liquidity of a bank, which is referred to as reverse factoring – to support suppliers in accelerating their receivables.
Traxpay makes this possible through a platform, because when there are hundreds or thousands or even multiple thousands of transactions, processes must be handled very safely and efficiently. The processes need to be platformised and certainly digitalised. Our products are at the core of what we do, however Traxpay goes so much further, with features such as ERP integration and supplier on-boarding.
Marco Hinz: You also have a number of partnerships with banks. How does this relationship work? Is it unusual for a trade finance platform?
Kate Pohl: There are platforms that certainly do not partner with banks. In fact, banks are seen simply as the institutions that supply necessary liquidity. Although the corporate buyer is the linchpin of SCF, our strategy is to work very closely with financial institutions. Having banks as our strong partners allows Traxpay to position the platform, and our services with a bank’s clients. As a FinTech, we spend a lot of time and money making the platform as perfect as possible. That means having the right products and an intuitive and robust platform. But, we do not have a large sales force. We are currently moving from Germany/DACH into the broader European market. To make this move, a company typically needs to have a very large sales team.
Our view is that if we want to support the relationship between corporate buyers and their banks, the best way to do so is to work with financial institutions such as banks to help serve their clients. So, in this way, banks are helping us with client acquisition and expansion while retaining strong relationships with their customers.
Many banks don’t have a platform at all, or if they do, it tends to be their mono-bank platform used for reverse factoring, utilising their own liquidity. There are, however, so many more things that can be done on a SCF platform. A bank does not typically invest in a broad spectrum of functionality given the cost or ‘perceived’ need. Meanwhile, large corporate buyers themselves are wary about using a mono-bank platform, as they don’t want to be locked in. They prefer multi-bank and bank agnostic choices. Corporates want to maintain the flexibility to reconsider their banking partner if, for example, their bank’s rates increase, or the service levels decrease. That’s why collaboration between banks and FinTechs makes sense. Banks can maintain client intimacy, extend and enlarge their product offering, as well as offer funding. A FinTech can leverage these relationships without disintermediating the bank.
Marco Hinz: Talking about SCF in general, where is the business today, given the difficulties that banks face when it comes to servicing higher risk clients? Why does it work for a FinTech but not a bank?
Kate Pohl: Banks started this business. They built or bought mono-bank platforms to allow corporate clients to work with their suppliers and carry out reverse factoring by purchasing receivables. This, in turn, allowed suppliers to get their money early at a discount. But corporate buyers started to say ‘No, I don’t want a mono-bank platform’, or they wanted a lot more products and services than those mono-bank schemes could offer. That is when the independent platform solution was born. There are also products in this space that aren’t bank specific. Dynamic discounting (DD) uses the liquidity of the corporate, and basically doesn’t need a bank at all. DD requires a buyer, suppliers, and a platform. But with platforms that are bank friendly, like Traxpay, financial institutions can benefit from referring their corporate clients, while these enterprises gain access to a broader range of services.
Corporates have become very interested in platforms, in ecosystems, and they don’t want to be tied to a single player; they don’t want to be so integrated that they can’t get out.
Marco Hinz: That seems to be a feature of banks, that they have their core relationships and can add products on top of that, whereas FinTechs are typically competing in a much broader market.
Kate Pohl: That’s a good point, and it brings me to the topic of cooperation between FinTechs and banks. I truly believe that there’s a place for everyone in this model. At the end of the day, large incumbent banks still have a great amount of trust. They have a large number of customers, strong capital ratios, risk know-how, and of course, experience. What they often don’t have is the nimbleness to pivot, to develop niche products.
Banks want or need clients to use multiple products (sometimes referred to as cross-selling or deep-selling). This is beneficial for a bank‘s bottom line, and it strengthens their relationships with clients. However, there are always going to be products that banks need but can’t offer. They need these in order to retain or improve client relationships. One option is to use FinTech partners for these additional services. It sounds simple, but typically it isn’t – if it was easy, everyone would do it – but once accomplished successfully, this cooperation is very powerful.
Marco Hinz: As you mentioned, partnering with banks and offering services to their clients is a smart way to grow a platform provider like Traxpay, but are banks typically willing to refer clients?
Kate Pohl: Banks are willing to introduce their clients to FinTechs and support them through the process, as long as a FinTechs can actually provide added value to the client and revenue for the bank. Usually, this means providing products or services that banks themselves don’t offer, or that they can’t provide as well or as cheaply as a FinTech.
Typically, large commercial banks have a significant number of corporate clients who in turn have a large network of suppliers – anywhere from 1,000 to 50,000 each. So, working with a corporate client means reaching a much larger network both for the platform and for the bank.
Marco Hinz: Looking back to some years ago when the FinTech scene was just getting started, it was common to read stories in the media about ‘upstarts challenging banks’, which is true to some extent. But at the same time, we see a lot of cooperation between the two segments. Has the relationship between FinTechs and banks matured?
Kate Pohl: Going back to when FinTechs first arrived on the scene, there were certain start-ups proclaiming that they were part of a revolution, that banks were dead, and that FinTechs were going to do it all. But that’s not what happened, as we know. I feel there is room for everyone. There has been a realisation that cooperation and collaboration make a lot of sense and it’s great when everyone does what they are best at.
I recently spoke to a neo bank and asked them why they weren’t doing banking-as-a-service. They said that they wanted to go the competition route, head-to-head with incumbent banks. But that’s unusual, you hear a lot more about collaboration and cooperation, and I see that as the model of the future.
Marco Hinz: Sharing the pie is safer than the winner takes it all?
Kate Pohl: You can think of it with the analogy of a young new starter, full of ideas and energy, and the older, more experienced colleague with the attitude of ‘we tried that, and it didn’t work’. There should always be a healthy balance between having more experience and having unfettered views and lots of new and exciting ideas. It’s the combination of both that is really powerful.
Marco Hinz: Do you have a view on buy now, pay later (BNPL) and embedded finance? Do you think it could have an impact in the B2B space?
Kate Pohl: While this is not within my core area of focus, I do have an opinion. I think that embedded finance is going to become ever bigger and more pervasive over time. Consumers are driving this, wanting ease, comfort, and convenience. And in the business space, business owners will want to see similar benefits. With regard to the buy now, pay later concept, I find it a little scary. On the one hand, I’ve always believed in the free enterprise concept, and adults being ‘old enough’ to figure things out for themselves. But I’m not so sure anymore when I see some of the statistics. I worry about how it’s developing in the consumer space, especially the level of debt creation and defaults.
Having said that, I think BNPL is a very interesting concept for buyers in the B2B space. SMEs may have needs today with limited cash to pay. BNPL can develop as a tool to gain more control over payables and therefore liquidity management. For businesses, this could be appealing as an alternative to bank financing i.e., especially smaller companies with less favourable banking terms. A wide spectrum of goods and services including office supplies, product components, legal advice, or even HR services could qualify for BNPL.
Marco Hinz: So the more flexibility you can insert into payment / funding products the better?
Kate Pohl: Absolutely. I think in the B2B arena, especially in the SME space, BNPL is something that’s going to gain traction. Embedded payments make things easier and more convenient. The issue will be controlling the risks!
Marco Hinz: What are some of the technology trends that are important to mention in the trade finance space? I remember we used to hear a lot about blockchain…
Kate Pohl: Supply chain financing on a platform, in its simplest form, doesn’t need the blockchain. Having said that, there are use cases that can certainly benefit from different and advanced technologies. A significant amount of data is generated in the SCF process, data that can benefit the client. For example, in the ESG space, information from suppliers can be analysed and used to underpin ratings or to give corporates an indication of where they can improve their sustainability. AI and machine learning may come into play here. AI can also be used to support the assessment of risk.
Digitalisation and reducing or eliminating the paper that is used for e.g., bills of lading or bills of exchange is the future. Provenance and authenticity is also important, and this is where blockchain technology can be supportive. Traxpay is a member of the Digital Negotiable Instruments (DNI) initiative, which aims to digitise trade documents. It’s something we consider vital for the future of trade and key to supporting 360-degree liquidity.
Marco Hinz: Looking at the global logistics situation and the general trend for longer transiting times for goods, how has this affected the business?
Kate Pohl: This affects everyone! There is literally no one that can avoid the consequences right now, unfortunately. At Traxpay, we’ve seen two main effects. The good news is that we are experiencing more traffic on the platform. This is due to buyers trying to support their suppliers, helping them with liquidity. But what we have also seen is that some larger corporates have started facing their own liquidity issues. For example, we had a buyer who was planning a dynamic discounting program, using their own liquidity to accelerate invoices, i.e., paying earlier at a discount. They went from being extremely liquid to suddenly worrying about their own cash position. So now, this enterprise is considering reverse factoring using their bank’s liquidity.
Overall, we see that these issues have definitely created more demand for liquidity and the careful management of cash.
Marco Hinz: When it comes to risk and the pricing of risk, how do you see this? Certainly, there are fears that credit conditions may worsen.
Kate Pohl: As a platform we understand the need for risk assessment, but we ourselves are not assessing the risk associated with limits for buyers with respect to reverse factoring or suppliers for dynamic discounting. Having said that, we are working with one of our bank partners to help them better understand the risks of this business across different sectors. We’re also helping them create the kind of modelling they would need to measure that risk. Even though this is a short-term business – we’re talking about 30-60-90 days – the maximum tenor is usually 120 days, there is still short-term risk involved. Over time, what we’ve seen is a desire to be much better at measuring risk, making the assessment more precise. But I think that the risk categories themselves have not changed.
Marco Hinz: When it comes to inflation, some experts have pointed to short maturity instruments like supply chain financing as being more attractive for investors. Where do you see investor demand?
Kate Pohl: I think that no matter what happens, SCF will continue to be a very interesting investment, because it is short term. The longer the term, the more uncertainty there is, and the larger the risk premium. In a time when we have so many disruptions and so many issues – first Corona, then the war, and now inflationary pressures, short term risk is something that banks and other investors appreciate. There is a great deal of interest in investing in this business. But there’s also a limit as to what a supplier may be willing to pay. Discounts for early payment will always be compared to other financing such as bank loans or overdrafts.
The more cost effectively a buyer can borrow, the better it is for a supplier. A SCF program is also extremely flexible and stable for suppliers. There is a lot less “paperwork,” and can offer fewer fees vs bank loans.
Marco Hinz: Thanks for your time, Kate. Please sum up for us, what do you see as the future for Traxpay.
Kate Pohl: I truly have a very rich background in transaction services – payments, cards, trade, liquidity – you name it, I’ve done it. I’ve worked with every kind of client. I’ve run sales, product, implementation, and client services. The reason why I agreed to join Traxpay was that I see SCF as a triple win. With many products, there is a clear winner… and a loser. SCF is really a service where everyone wins. The supplier gets more flexible funding at a better price as they need the liquidity. The corporate buyer is able to help their suppliers and if they have excess liquidity, they can put it to work. The bank wins because they maintain client intimacy while extending their product offering and increasing their revenue. The platform brings them together and supports the above, so that’s good for us as well. I believe that bank-friendly SCF platforms such as Traxpay have a very promising future. However, it will not be enough to simply offer reverse factoring and dynamic discounting. SCF platforms will need to offer products and services that support 360-degree liquidity.
Any views expressed in this interview are the personal views of the interviewee, and do not necessarily reflect the position of CrossLend or its employees. This article should not be construed as investment advice, or relied upon by anyone as legal, accounting, compliance or tax advice, or for any other purposes. This article is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell, nor as a solicitation to buy securities.
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