The online small-business lender Fundbox says it is integrating its automated lending service with several software programs commonly used by its borrowers — and it's a move that could hold a lesson for banks.
As small-business owners go about their day, handling their accounting through Bookly, say, or sending bills through Paid, they will see a button that says, “Get cash now” or “Get advance now,” and “Powered by Fundbox.” If they need short-term cash, they will fill out a short online application and get a 12-week-line of credit approval or rejection within a minute.
What’s striking about what Fundbox is doing, and the reason bankers could learn from it, is it is capitalizing on the concept of open banking — allowing a piece of a lender’s products and services to be accessed through a third party — in a way that few U.S. banks have.
Capital One comes the closest — its application programming interfaces let third parties offer services like prequalifying customers for Capital One credit cards and sharing its reward information.
It is an idea banks could use to become part of people’s everyday lives.
Fundbox is also building a network effect that could lead to fast adoption among small businesses. And it is leapfrogging banks with its use of artificial intelligence technology that can provide quick decisions on small-business credit, without charging the ultrahigh rates of some alternative lenders.
“What Fundbox is doing is indicative of this next wave of open banking and leveraging APIs to embed functionality in the longer tail of places where small businesses do work,” said Alenka Grealish, senior analyst at Celent. “Fundbox represents that new phase of, how do you embed in a greater number of third-party workflow facilitators.”
Started with QuickBooks
Fundbox first started offering what it calls “in-product” lending about two and a half years ago, when it signed a partnership with Intuit’s QuickBooks. It built a button for QuickBooks that customers can click on to secure a quick Fundbox credit.
Intuit liked the fact that customers could get funding without leaving its environment, said Sebastian Rymarz, chief business officer of Fundbox.
The company replicated the concept with FreshBooks and a few other platforms.
One stumbling block arose: Product integration takes a lot of work.
“If you have a smaller platform — maybe a startup’s [customer-relationship-management] or payment system for small businesses that was just founded two years ago and only has a few hundred customers — it’s difficult to justify in-product integration without knowing what performance will look like,” Rymarz said.
To make integration scalable, it developed Fundbox Fuse, a set of HTML code for lite integration.
“With three lines of code, a partner can install a button inside their platform that looks and feels like their platform, and when a customer clicks that button, it opens up a side panel that grants them access to effectively Fundbox,” Rymarz said. The median approval time is less than a minute, he said, because the decision is completely automated.
Fundbox calls this “democratizing access to credit.”
The firm is funded by Silicon Valley and finance types including Spark Capital Growth, Bezos Expeditions (the personal investment arm of Jeff Bezos), General Catalyst Partners, Khosla Ventures, SV Angel and former Citigroup CEO Vikram Pandit.
On Monday, Fundbox is launching integrations with several small-business software providers including Bookly, AND CO, Billy, Paid and Knowify. Eventually, it hopes to integrate with thousands such platforms.
“Small-business owners are completely strapped for time,” Rymarz said. “They don’t want to think about managing a gazillion apps, so we’re trying to embed ourselves in the workflow of partners they like.”
Case in point: Bookly
Zach Olson, CEO of Bookly, started his first business — a skateboard shop — when he was 23.
“I quickly realized that though I didn’t start my business trying to become an accountant or bookkeeper, unfortunately that's a big byproduct of being a business owner — you have to deal with accounting,” Olson said.
He was unable to find a solution that helped enough.
“It was expensive to hire a traditional CPA,” he said. “I didn’t want to just buy a piece of software and do everything on my own.”
In 2013, he launched Bookly with the mission of simplifying accounting for small businesses. Bookly’s software does the same accounting functions QuickBooks does, and its in-house accounting team handles much of the work. Users pay a monthly fee for the software and human help.
Bookly connects with more than 20,000 banks through the data aggregator Plaid, to pull in small businesses’ account information. Bookly automatically categorizes the transactions as they come in and helps the business owner understand what cash is coming in and going out. It now works with more than 3,000 small businesses.
Integrating with Fundbox lets Bookly provide another dimension to its service. With accounting basics covered, “the next step is, how do we make intelligent recommendations to that business owner?” Olson said.
Funding and capital are always a top priority for clients, he said.
Asked why he thinks none of the 20,000 banks Bookly gathers data from offer anything like Fundbox, Olson positioned this as part of the fintech revolution.
“That’s what’s cool about the innovation and disruption that's happening through this renaissance of tech companies: We get to rethink everything,” Olson said. “Fundbox did a rethink, and reimagined the whole funding process for a business owner start to finish.”
How the product works
Fundbox offers an open credit line. Borrowers don't pay a fee until they draw on it, and then they are charged a weekly fee based on a 4.6% interest rate on a 12-week line of credit. If customers pay the money back before the 12 weeks is up, they pay less.
“The whole philosophy here is, if that money is not working for you, we don’t want to be making money on it,” Rymarz said. “We’re looking at building long-term relationships with our customers and using this like a cash flow management tool more than a loan product.”
The 12-week term is intended to help entrepreneurs survive working capital issues, like not having quite enough money to make payroll or pay a vendor on time, or wanting to double inventory but being concerned about paying rent, payroll and other necessities.
Fundbox has no underwriters on staff. It does have risk managers, data scientists and machine-learning engineers who built its underwriting models. The models consider many types of data about a business, but notably, not the data element most traditional lenders lean on: the business owner’s FICO score.
“It’s our belief that small businesses should be treated as small businesses, not treated as consumers,” Rymarz said. “A business owner’s FICO serves as a decent proxy for the underlying credit of the small business. But in the year 2018, I think we can ask for a little more than a decent proxy, especially with the proliferation of data that’s available.”
Instead, Fundbox pulls data from accounting systems, invoicing systems, payments (e.g. screen-scraping from PayPal), public records, web interactions, social networks and tax returns.
For its first three years, Fundbox did not have a credit policy. It ran each business through a fraud screen and if it passed, it got a loan.
The point was to learn and observe defaults, so the models could be trained to predict defaults.
Fundbox’s vision is to become a platform enabler.
“We want to integrate ourselves wherever small businesses are interacting,” Rymarz said. “Wherever there's a natural place for them to potentially want credit, we want to be there.”
The company particularly wants to be close to “financial triggers” like accounting, invoicing and payment systems.
When it’s linked with an invoicing platform, for instance, Fundbox will show the customer its credit line alongside their outstanding invoices. Seeing how much money is coming helps them feel more comfortable asking for an advance.
The critical thing Fundbox is doing, in Grealish’s view, is helping small businesses at the point of need.
“As fintechs deconstruct product manufacturing and distribution, we’re going to see more of this modularity and functionality, being able to embed in a myriad of workflows,” she said. “If I’m in charge of accounts payable and managing expenses and using Xero, for instance, but I also need credit occasionally to cover my accounts payable obligations, wouldn’t it be great to have that right there when I’m working on these expenses and realize I’ve got a big, upcoming expense?”
Banks have been slow to offer this kind of service due to concerns about regulation, compliance and brand risk, she said.
And some banks are not motivated to underwrite more small-business loans because the costs are the same for more lucrative large loans.
“That’s why there’s a gap, and that’s why there’s Fundbox,” she said.
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