Float wants to provide liquidity to African SMEs like never before – TechCrunch
According to a survey, 85% of African SMEs do not have access to finance.Due to the long payment cycle of African SMEs, billions of dollars are trapped in accounts receivable every day. This creates cash flow problems and delays the execution of significant costs and new orders for the business.
Jesse Gunther And his co-founder Barima Efa I want to answer these questions with a new float of startups.
Gunther is a serial entrepreneur. Since graduating from college in 2014, he has co-founded several tech startups, but has gained worldwide fame with OMG Digital, a startup with offices in Ghana and Nigeria. African BuzzFeed In 2016, OMG Digital The one of the first African companies Adopted by Y Combinator.
Ghansah works well in the company and retired two years ago. For his latest venture, he focused on fintech outside of media. Formerly Swipe, Float is an 18-month Lagos-San Francisco-based company that aims to bridge the $ 300 billion liquidity gap for African SMEs. The company participated in YC’s Winter Batch 2020 and created Ghansah. One of the few founders of YC twice in Africa.
Float has evolved since it was partially billed as “Brex for Africa” on the last day of the demo. According to CEO Ghansah“Float is rethinking the way African businesses manage their financial operations, from managing and paying in cash to accessing credit. “
After 18 months of stealth, Float was finally operational. We spoke to the CEO to get an overview of his progress and the differences between similar platforms on the continent.
TC: What do you think is the problem that Float solves?
JG: When you ask SMEs, the biggest problem they face is probably cash flow. This comes from the entire payment cycle after providing a service or offering a product. Businesses that serve other businesses typically have to wait 30 to 90 days for payment to be made. It’s like a traditional payment cycle where you have to offer credit sales to your customers to stay competitive. That’s why you send an invoice and the customer will refund you within that time.
This poses many problems in terms of constant liquidity shortages. Waiting for income can delay payment of some costs, such as salary, inventory, and utilities. This actually causes many of these cash flow issues, preventing a business from growing. For existing businesses these are the problems they face and it is very difficult to get credit in terms of working capital when dealing with banks.
TC: Have you had personal experience with this problem, because your past business was in the media?
JG: As you know, I am the co-founder of OMG Digital Thanks to the media business, I had to wait a few months before being paid by my partner. This time I needed credit and got an overdraft from a long-term partner bank that traded over $ 100,000. However, the bank asked us to deposit 100% cash collateral before the overdraft.
I also remember borrowing usury money at high interest rates, sometimes at high interest rates, up to 20% per month, just to pay wages. This is why I started to solve these problems with Float.
TC: There are many lenders who offer business loans. How does Float solve credit problems?
JG: So our credit products are completely different in the way we present them to our customers. It is not as complicated as a loan. More flexible than the commercial overdraft. There are also differences in the tools provided. So we don’t just give money. We provided a software solution with built-in credits.
Today we are building what is called a cash management tool for businesses, and you can earn credit at key times. For example, if you want to pay a lender but need credit, you can cancel the credit and make the payment immediately. We provide lines of credit which are always available as soon as a business joins our platform and will increase or decrease depending on the transactions made on the platform.
So it is only the credit aspect. We are also developing tools to keep businesses informed about cash flow. We know that existing businesses typically have multiple bank accounts, so we provide tools for invoicing, budgeting, expense management, and a way to manage all of your bank accounts. At Float, they can see all of their balances and transactions and create a way for these companies to make payments from their Float accounts.
You can think of Float as a very good cash management platform. You can get credit when you need to pay suppliers or increase your working capital. This is crucial for our 0% loss rate. The second is a tool that provides overall visibility of your business and lets you know when money is coming and going.
TC: Is the floating loss rate 0%? Does this mean that there is no default activity on your platform?
JG: Yes, there is no fault at the moment. We have provided $ 2.8 million to our pilot customers in Nigeria with zero loss over the past eight months. It depends on the type of loan we offer. We provide businesses with financing to increase their working capital. So basically you are paying up front for future income.
In the US, it looks like Pipe is building it for SaaS companies and other customer segments, but that’s basically what we’re doing. Therefore, for us, the way to solve the cash flow problem is to classify future income and make deductions when customers make payments through our platform.
Think of it as Stripe Capital, Square Capital, Pipe or the new multidimensional lending platform that exists today. When you think of a loan, I think there are several phases. The 1.0 loan was when I completed an online application and made a loan decision. Loans 2.0 and 3.0 are where credits are integrated with online tools that businesses are already using. That’s why it really worked, because the companies on our platform aren’t exactly looking for lifelines, they’re increasing their cash flow, and basically walking on gas for growth.
TC: But that loss rate is likely to change as soon as you integrate more companies, right?
JG: Yes, that definitely changes. In credit, the credit model is tested as the number of customers increases. The more customers you have, the more likely you are to lose by default. However, as long as credit risk standards and ratings are in place, we should always strive to keep them as low as possible. It is almost impossible to have a 0% default rate when it starts to grow rapidly.
TC: What strategies does Float use to mitigate losses and mitigate risk?
JG: Our credit products are always connected to your bank. We know who your supplier is, who your supplier is and who your customers are. We always know how much money is coming in and going out of your business. So, as mentioned earlier, you can quickly adjust your credit limits as soon as you see a difference in your business. If you find that your billing activity has declined and you haven’t received more money than the week before, lower your limits. It’s a very dynamic type of product, quite different from what you see today.
TC: How are other tools useful for your business besides loans?
JG: During the pilot phase, we were able to provide credit and manage customer invoices and supplier payments worth approximately $ 5 million.
When they think of corporate payments, people always think of Paystack and Flutterwave. They basically work on another segment where consumers pay businesses. For us, we focus on companies that pay for other companies. As we know, their method is a very laborious process, the market of which is 10 times larger than that offered by Paystack and Flutterwave.
Looking at the big multinationals, thousands of salespeople get paid every month. There are trillions of dollars flowing between businesses around the world and we want to get involved. Customers and they refund within 30 days.
TC: The temptation to call Float a digital bank for small businesses. Are you saying there is a difference?
JG: Of course it does. Most business owners would say business banking is almost broken. Traditional banks generally offer an outdated and overwhelming user experience. Businesses are rapidly exceeding their basic banking needs and their options are desperately limited.
African neobanks aim to compete with traditional banks. Yet, they compete with each other for a relatively small share of the market because they have failed to address the main issues facing businesses. Slightly better UX and quick account opening. Experience is probably a value proposition that resonates well with new start-ups and aspiring freelancers. But this is woefully insufficient for those retailers who are already in business and are struggling to pay their suppliers on time due to insufficient cash flow.
This is why Neobank is not taking off in this market, coupled with credit problems, adjustments and audit headaches related to account transfers.
Our platform is designed to work on existing commercial bank accounts and payment processors, so there is little to no change fee when using Float. The idea provides a single platform that provides businesses with the credit they need, provides an integrated view of businesses’ existing banking and treasury activities, and combines with a variety of payment tools to speed up financial operations. and in fact. Is to allow you to spend more time developing your business.
Float Wants To Provide Liquidity To African SMEs In A Way Never Before – TechCrunch Source Link Float Wants To Provide Liquidity To African SMEs In A Way Never Before – TechCrunch