Fintech fot SMEs: Payroll, Accounting, etc.
If you take a look at all the news about fintech startups, you might get a feeling that the new financial services are built for retail clients and not for businesses. However, these are the entrepreneurs who may become drivers of fintech. We should clarify what exactly do we mean by ‘SME’.
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The target audience for SMEs can be split in three segments that are most receptive to new technologies and demonstrate the highest customer involvement at the same time. These are cafes and restaurants, hotels, taxi services and fashion retail:
- they use products not just by themselves. Being bound to working with retail clients, they also engage them with their new services;
- cafes, restaurants, apparel stores, hotels, cabs – end consumers spend quite a long time (quality contact) here and get more than functional satisfaction, they get emotional satisfaction (interaction with your brand and loyalty to your service);
Close work with such segments provides banks (and telcos) with a number of advantages:
- Marketing – fintech demonstrates a significantly lower price of customer acquisition, comparing to what banks spend to sell their main products (current accounts, loans, deposits). Moreover, fintech is able to differentiate these products in the eyes of end consumers. A client that purchases the main product after being attracted by the fintech one (up-sell/cross-sell), costs much less than the one from the street, won in a fight by common messages.
- Lower risks – fintech services generate so much new data about clients (and they know how to store, analyse and turn it into leads), that they lower the loan risk assessment rate, talent acquisition costs and acceleration of new products and services development.
13 fintech solutions that may be very useful for solving some of the SME problems:
1. POS-management systems (Square.Dashboard, Mobikon, etc)
2. Tablet-based cash-registers (Poynt, Revel, Posseple, etc)
3. mPOS-acquiring (Square, SumUp, SoftPay, etc)
4. O2O: beacons & WiFi, card-not-present payments , Pre-ordering (Starbucks Card Mobile, HelloSettle, etc)
- Analyze your data about end-users (Lenddo, Ayannah, etc)
6. Working with feedback and loyalty
- Online-banks for SMEs (Tochka, Anna, etc)
8. Online acquiring (Stripe, etc)
9. POS-loans (FinanceIt, etc)
10. SME-loans (Kabbage, Square.Capital, etc)
11. Alternative sources of capital and their influence on marketing and loyalty (LendingClub, FundingCircle, AngelList, KickStarter, CapitalMatch, Crowdo, etc)
12. Turn your SME customer into your bank branch (Ayannah, Red Dot Myanmar, etc)
13. Online-accounting for SMEs (Knopka, Tradeshift, ZenPayroll, etc)
In December 2015 Gusto (formerly ZenPayroll) on said it raised $50 million in new funding and hit a valuation of $1 billion as it competes against much more highly funded Zenefits. This follows a $60 million funding in April in which the company led by CEO Josh Reeves was given a post-money valuation of about $560 million. It has now raised more than $100 million. Gusto’s early backers included General Catalyst, Altimeter Capital, Google Capital, Google Ventures, Ribbit Capital, Kleiner Perkins Caufield & Byers and Emergence Capital Partners.
It also has an interesting group of angel investors, including actors Ashton Kutcher and Jared Leto, and Bay Area CEOs Aaron Levie of Box and Drew Houston of Dropbox. One of the more interesting angels is David Sacks, the chief operating officer at Zenefits who was COO of PayPal before it was acquired by eBay, then founded and led Yammer before it was acquired by Microsoft.
Both Zenefits and Gusto emerged from Mountain View accelerator Y Combinator. Gusto was more focused on payroll when it came out of the winter 2012 batch and Zenefits had more of a benefits insurtech focus when it graduated with the winter 2013 batch. But their businesses have shifted to be more directly in competition with each other in the past year.
ZenPayroll mainly serves the small business market that would otherwise need to process payments and direct deposits manually. It offers an easy-to-use, cloud-based interface that allows it to take on industry incumbents Paychex and ADP. While Paychex and ADP have upgraded to the cloud in recent years, allowing them to make it easier for their own customer bases to handle payroll online and through mobile platforms, ZenPayroll’s recent raise allows it to take on larger businesses currently served by Paychex and ADP.
The startup opened up its API last year, allowing other cloud-based startups such as BambooHR and Zenefits to integrate the payroll services within their own HR platforms. The integration seems to have helped ZenPayroll in gaining more business. It grew 10x in 2014 and now serves more than 10,000 customers, according to the startup.
Another big focus for the company will be customer service. The startup is currently looking for an East Coast office space in order to better serve customers in the Eastern time zone. It plans to cover all 50 states, with the inclusion of Wyoming, Delaware and Vermont.
In February 2015 a round led by Silicon Valley Bank and featuring participation from current investors, Bill.com has added $50 million in new capital. The investment takes the company’s total funding to more than $120 million. Because most businesses still rely on manual processes for accounts payable and accounts receivable, Bill.com CEO and founder René Lacerte believes there is a “significant market opportunity” for Bill.com and its banking partners.
Jacob Moseley, senior market manager for Silicon Valley Bank, praised Bill.com’s growth and put the company “at the center of the digital payments space.” Existing investors also participating in the round were: American Express Ventures, August Capital, Commerce Ventures, DCM Ventures, Napier Park Global Capital and Scale Venture Partners. Founded in 2006 and headquartered in Palo Alto, California, Bill.com demoed its technology as part of Finovate Spring 2012.
Forbes.com contributor, Ben Kepes writes “that’s a lot of cash for something as unsexy as bills.” But the investment strongly suggests that sexy is as sexy does. According to the company, Bill.com is used by three of the top-10 U.S. banks and 35 of the top-100 accounting firms, and is seated “at the intersection point between banks, the accounting software providers, and businesses.” More than 600,000 network members use the technology to process more than $20 billion in payments a year.
CNBC’s coverage of the funding includes a breakdown of Bill.com’s previous funding rounds, as well as a peek into the company’s growth plans (190 employees by the end of 2015, up from the current 140), and potential IPO (“two to three years” away). The CNBC column quotes Mozilla CFO Jim Cook, whose company spends “thousands of dollars a month” on the technology, citing both cost-savings and a superior audit trail as reasons why he finds the technology “easier and more robust.”
According to René Lacerte, CEO and Founder of Bill.com, businesses pay seventy percent or more of their bills via paper checks. A 2013 Federal Reserve study revealed there were 21 billion checks processed in 2013 and roughly 19 billion of those were business to business payments. A majority of consumers use credit cards to process payments, but the three percent interchange fee is a deterrent for most business payments. Clearly there’s an opportunity to move payments into the digital age and mobile may be just the vehicle to drive change. Bill.com saw this opportunity and launched its first app for iOS and later for Android.
In addition, one of the keys to success for any cloud company is to become embedded within complimentary services from other companies. In January, Bill.com announced a payment service for NetSuite called SuiteApp that allows users to pay bills by clicking one button within NetSuite. As a result, users no longer have to print checks or upload electronic payment (ACH) files to their banks’ websites. Bill.com also has partnerships with accounting firms Intuit and Xero. Integrations like these are valuable because it allows a company’s employees to stay within the context of a their current workflow, such as CRM, while completing other tasks, such as bill payment.
In February 2015 public listed on ASX New Zealand-founded accounting software firm Xero raised a $110.8 million round of capital to grow its business in the North American market. Xero — which provides online accounting software for small/medium businesses and accountants — said that the new funds come from Accel Partners and Matrix Capital Management, its largest institutional investor. Accel is providing the lion’s share of capital in the deal — $100 million at a $15.052 per share value.
Prior to that day, Xero had raised over $240 million from investors, according to CrunchBase. Its most recent round was $150 million in October 2013, led by Peter Thiel-backed Valar Ventures and Matrix Partners.
The money will be put to work growing the company’s business in the U.S. and, on that note, Xero is also bolstering its U.S. and global team with a new hire. Russell Fujioka, formerly of Dell and a current partner at Bessemer Venture Partners, has taken on the role of U.S. president, based out of Xero’s San Francisco office. In addition, former Salesforce CFO Graham Smith has joined the Xero board as a non-executive director.
There’s plenty of competition in the accounting software space in the U.S., and Xero must do battle with Intuit, arguably the biggest player in the space, and smaller rivals like Freshbooks. Accel partner Andrew Braccia believes that Xero — which claims to have more than 400,000 small businesses on its books — has what it takes to compete though:
Xero will use a raft of new partnerships and agreements to try and evolve from its traditional accounting roots to become an all-round player in the booming fintech industry, however plans for a US initial public offering have been put back. “We will be guided by internal as well as external factors. We have indicated that we won’t list in this financial year. We think the conditions could be right next financial year, particularly as Xero globally bypasses $200 million in subscription revenue this financial year,” he said.
Xero announced numerous new commercial partnerships at its Xerocon conference in Melbourne, including agreements with NAB, Moula and OzForex. The company’s Australian managing director Chris Ridd said it was part of becoming a “true fintech” player. “If you look at the next five to 10 years, we’re evolving into a true fintech with a big data play,” Mr Ridd said.
Xero and money transfer platform OzForex have also partnered to allow their customers to automatically make international payments against Xero invoices. Another agreement with CGU Insurance will let Xero customers obtain CGU business insurance quotes directly through the software. Eventually this will enable real-time insurance quotes, with customers able to have their insurance premiums automatically adjusted as their business grows and goes through different cycles.
The partnership with Dropbox will integrate the Xero Tax and Dropbox for Business platforms, making it easier for customers to store, share and collaborate on documents. Adobe is working with Xero to build in its eSign digital signature technology across the accounting platform and Bigcommerce will let 95,000 retail merchants and online stores push sales data directly into Xero.
National Australia Bank and Xero linked their technology platforms to allow Xero clients to receive faster approvals for business loans once they allow NAB to tap their live, balance-sheet data. As online business lenders such as Spotcap, Prospa, OnDeck, Kikka, Moula and ThinCats threaten to win over small-business customers by offering risk-based pricing and quicker credit, NAB’s deal with Xero illustrates how the big banks are using technology to become more nimble.
NAB and Xero customers are now able to file online loan inquiries to NAB straight from their Xero accounting package, after a secure connection between NAB internet banking and Xero’s accounting dashboard was established this month. It allows small businesses to instantly connect their loans, offset accounts and credit cards between the two organisations.
With 1600 clients in over 20 geographic locations, Kantox announced in September 2015 that they have reached over $2 billion in total transactions on the platform. A provider of low cost cross-border currency exchange, the $2 billion milestone was reached eight months after it had taken Kantox three and a half years to hit $1 billion in currency transactions.
Founded in 2011 by former Deloitte employee Philippe Gelis, Kantox offers a marketplace for businesses to exchange currency, including peer-to-peer, thus enabling them to get a significantly better exchange rate than that offered by the banks or traditional brokers.
According to Kantox, as its platform has matured, and alternatives to bank based currency transfers have become better known, it has been increasingly able to gain business from larger businesses. Having initially been focused on small and medium sized enterprises (SME), Kantox revealed that many new customers are from businesses with over £100 million in yearly revenue. According to Kantox, its average transaction size now stands at £100,000, with a single largest transfer of $33.67 million in May.
In May 2015 he currency exchange marketplace for SMEs right up to ‘mid cap’ companies raised $11 million in Series B funding. Leading the round is Partech Ventures, and IDinvest Partners, while Cabiedes & Partners also participated. All three are existing backers and the new investment brings total funding to $19 million.
“Large companies have resources, knowledge and leverage to manage their FX in a smart way and to negotiate fair prices with banks. On the contrary, SMEs and mid-caps are unable to do so and find themselves at the mercy of banks and traditional FX brokers,” says Gelis when asked to explain the problem his startup solves.
“At Kantox, we provide a transparent FX management platform which helps SMEs and mid-caps manage their FX the same way that a large corporate does, but without the risk of being charged extortionate rates.”
Austin-based startup Honest Dollar wants to eliminate the hurdles associated with setting up and maintaining employee retirement accounts for small businesses. The company also wants to help reduce the fees workers are hit with through typical 401(k) programs. The company offers an easy-to-use platform for small businesses to begin offering retirement benefits to their employees. They simply connect their payroll system to the platform, and Honest Dollar extracts the employee information it needs to set up retirement plans for them.
Rather than creating an employee 401(k) program, which can have significant costs both in terms of time and money it takes to implement, Honest Dollar offers plans that are structured as a Simple IRA. By doing so, it simplifies the cost structure of the program and mitigates employer liability around managing the plan. There are no setup fees, and Honest Dollar charges small businesses just $10 per employee per month to offer the program to employees. Employees can contribute up to $12,500 a year into these plans, which is above the $5,500 for typical IRAs. Employers also have the option to make contributions by setting up a Simplified Employment Pension plan for qualified employees.
But those are just the advantages that small businesses get from signing up for Honest Dollar. Employees also benefit due to significantly lower fees than typical 401(k) plans. Founder Will Hurley told me that those plans typically charge about 2 percent in fees for management of the program, and that can go as high as 4 percent in some cases. The company also hopes to make it extremely simple for users to manage their retirement accounts, by offering an app and dashboard to track their investment.
The company is targeting startups and small businesses typically with fewer than 50 employees, and closed a $3 million seed round led by Expansive Ventures, a new fund founded by The Founder Institute’s Adeo Ressi and former Blumberg Capital managing director Jon Soberg. Other investors participating include Formation 8, Core Innovation Capital, and Mint founder Aaron Patzer.
Financial supply chain company Taulia raised $46 million in funding almost a year after it brought in a new CEO and talked of a $1 billion valuation and a 2016 IPO. The company has raised almost $137 million to date. Zouk Capital led the Series E round with participation from undisclosed new investors and all existing institutional investors. Those include BBVA Ventures, DAG Ventures, EDBI (the corporate investment arm of Singapore’s Economic Development Board), Matrix Partners, Lakestar, QuestMark Partners, SEB Private Equity, TELUS Ventures, Trinity Ventures and Ulu Ventures. Almost one year ago Taulia raised $40 million and after that decided to add another $15 million in funding led by Zouk Capital.
Cedric Bru is the CEO who was brought aboard one year ago to head up San Francisco-based Taulia, which was founded in 2009 to connect large companies to their suppliers. The company’s platform has processed over $150 billion in transactions for 700,000 suppliers in more than 100 countries. Companies that have used the platform include Coca-Cola Bottling, Pfizer, Hallmark and John Deere, among several other Fortune 500 companies
The company provides a platform that simplifies the process of tracking invoicing and payments made to suppliers. In addition to automating the process, which in turn lowers costs for buyer, the platform also helps suppliers get paid faster by offering short-term financing for approved invoices.
Member of Forbes’ 40 Under 40 Jessica Mah (25 y.o.), CEO and co-founder of inDinero, started her first tech business at 12, founded inDinero at 19, crashed it at 21 and made the cover of Inc.’s 5000 issue for outstanding three-year revenue growth of more than 2,500 percent. InDinero hired more than 100 employees in 2015 and is on pace to double its staff this year. Jessica Mah thought she had the next big thing in Silicon Valley when she and her co-founder launched inDinero – but soon, her company was rapidly losing money and she couldn’t understand why the business wasn’t attracting customers… or revenue.
She told that in the years since, the company nearly ran out of money, laid off all its employees, and switched to a new model. But it seems to have bounced back after pivot and $7 million in new funding in the beginning of 2015. Instead of a self-service tool for tracking small business finances, inDinero now offers what Mah calls an all-in-one solution for accounting, taxes and payroll.
That means businesses don’t need to piece together a bunch of different service providers and software products to get all their needs met — they can just go to inDinero, which offers its services on top of proprietary software. The model works better for inDinero, Mah said, because it means the company isn’t trying to collect $20 monthly fees from “Mom and Pops” on sites like Etsy, but instead working with “sophisticated, complex businesses” and charging them “thousands of dollars, if not tens of thousands.” To be clear, Mah said inDinero can work with companies as small as one or two employees and as big as 100 employees.
The London-based company WorkAngel has built a mobile-first “employee reward and recognition platform” that couples an inter-company private social network where employees can communicate and, specifically, call each other out for recognition, with a points-based voluntary benefits scheme. The more recognition points employees earn — the platform also includes a leaderboard — the greater access to benefits, which includes cashback at 1,200 UK online retailers, and discounts and cashback at 6,000 UK restaurants, as well as 50 per cent off for cinema tickets at VUE and Cinewold.
Managers can also apply recognition points to employees and gift them specific rewards, and, in addition to the point-based system, users of the app are able to access the company-wide voluntary benefits scheme, so they can see what kind of discount offers are available for them and access them through the app. The company has closed a $5 million Series A funding round. Funding came from former Tesco CEO Terry Leahy, who was leading the round.
Homebase, a San Francisco-based startup, launched out of beta to take the pain out of scheduling and payroll management for small business restaurants and retailers. 90 percent of retail and restaurant scheduling is currently done on paper or Excel, which makes managing payroll an owner’s nightmare.
It takes an average of seven hours per week to review timesheets and coordinate schedules, all while taking into account labor law compliance, overtime rates, and keeping within your operating budget. For the 33 million people employed hourly by these local businesses, getting a shift covered often means consulting a call list, sending out a bunch of texts, and hoping you’ll hear back in time.
Homebase helps to reduce the administrative burden of hourly work by automating scheduling, timesheets, and communication between employees. The basic tools are free, with tiered pricing options for additional features. Homebase will focus initially on the 2.5 million small business restaurants and retailers in the U.S., but there is a much larger market to tap — over a third of all American workers are hourly employees.
Bench, the TechStars-backed company that matches bookkeepers with businesses, closed a $7 million Series A round. The financing was led by Altos Ventures with participation from Contour Venture Partners. Bench started out as 10sheet, an algorithm-meets-human platform where SMBs could sign up to have all their transaction paperwork sent directly through the 10sheet system and then looked over by a human bookkeeper.
The idea was to remove the hassle of bookkeeping so businesses can focus on the service or product they provide, instead of focusing on hiring an accountant to handle the books or doing it themselves. Hiring more accountants will give Bench the ability to meet demand better, and the extra funding will allow for a better office and a better system for bringing on and retaining talent.
FreeAgent, the cloud-based accounting software startup that targets freelancers and so-called “micro-businesses”, for which it claims to be the leader in the U.K., raised a further $5 million in funding — money it plans to use to increase the rate of customer acquisition. This time around, however, the additional capital comes in the form of debt financing from SaaS Capital, which was set up in 2012 specifically to provide “debt-based growth capital” to SaaS companies.
Hong Kong-based payroll solution company Salarium has partnered with PyxPay, a mobile payment firm, in an attempt to increase its service offerings. With this, the former will have an e-wallet that can pay employees anywhere in the world. It also partnered with e-money providers in several ASEAN countries for local payments. Currently,
Salarium’s payroll system provides software that carries out human resource functions such as time and attendance, payroll processing, expense management, employee database management, government due computations and employee self service applications for loans, leaves and overtimes. The linkage to PyxPay’s mobile, web and prepaid platform will help offer a full-fledged payout system called SAL Pay.
The Hong Kong-based service Shopline (alumnus of the US accelerator 500 startups), which allows users to build their online stores, has raised a $1.2М round from Ardent Capital (the parent company of the largest commerce platform in Southeast Asia aCommerce), Hong Kong’s SXE Ventures, East Ventures and Singapore’s COENT Venture Partners – to expand across Southeast Asia. One of the largest eCommerce players, eBay, partnered with Russian eCommerce service Ecwid. Ecwid clients are able to place their goods at eBay platform and manage sales directly. It takes three hours for Ecwid users to register at eBay. The service is free for standard package users with a price per package ranging from $0 to $99.
Singapore-based startup TradeGecko, a B2B web-based inventory and order management software provider for independent brands and their retailers, raised $6.5 million in a Series A round from local venture capital firms NSI Ventures and Jungle Ventures. The funds will serve as growth capital for global and product expansion. The company is aiming to establish offices in the United States, Australia and Hong Kong, in addition to new initiatives and partnerships. Prior to this, the company had raised about $1.2 million in seed funding from four investors in two rounds.
An Indonesian startup called Jurnal, which is a cloud-based accounting software for small- to medium-sized businesses, announced that it received seed funding of an undisclosed amount from local venture capital firm East Ventures. Jurnal plans to use the fresh funds to grow the team and invest heavily in further product development.
Co-founder Daniel Witono says his software simplifies and expedites the bookkeeping process. It’s also capable of generating reports instantly, something that not many competing products are able to do. “We are awesome because we serve two parties, the businesses and the accountants,” explains Witono. “[We provide] easy collaboration between accountants and business owners through a shared ledger. This saves time and eliminates redundant entries.”
Bangalore-based seed-stage VC fund AngelPrime invested US$500,000 in city-based happay, a startup which makes expense management cashless, paperless and mobile.
Founded in 2012 by Anshul Rai and Varun Rathi, happay is a business expense management solution that streamlines an organisation’s expense workflow from end-to-end (expense reporting to accounting) and gives real-time visibility and control over business spending. All purchases done from this card are auto-captured on the happay platform.
Employees can snap photos of receipts, record cash expenses and submit expense reports in minutes, on the go.
Small and medium enterprises are the engines of growth and innovation in the APEC region. SMEs account for over 97 percent of all enterprises and employ over half of the workforce across APEC economies.
SMEs contribute significantly to economic growth, with SMEs’ share of GDP ranging from 20 percent to 50 percent in the majority of APEC economies. (However, less than 20 percent of all SMEs get approved for bank loans.)
Flow Account offers an easy cloud-based accounting system that is tailored for small businesses in Thailand. Co-founder Kridsada Chutinaton says most companies in Thailand still rely on Excel for their accounting, while some are trying out accounting software too complicated for non-experts. “Flow Account gives you the simple tools to help organize your basic invoicing and accounting needs such as creating a quotation, billing note, invoice, and receipt,” says Chutinaton. Other services include financial reports and summaries, transaction tracking, and products list management. In the long run, Chutinaton says they aim to capture a 10 percent share of Thailand’s sizeable market of 2.8 million small businesses.
Freee, an accounting software as a service startup led by ex-Googler Daisuke Sasaki, confirmed a windfall of JPY 3.5 billion (US$28.7 million) in a series C round. Recruit Holdings, Japan Co-Invest, and a previous investor, Silicon Valley-based DCM, all participated. Freee is gaining steam in Japan as software slowly eats paper-based administrative tasks. Its basic accounting service attracted 380,000 companies since launching in July 2012.
That’s a massive jump from September 2014 when it was servicing 120,000 firms. In the interim, Freee also nabbed the lead among cloud accounting software, with over 40 percent of the market share. Now the company is positioning itself as a one-stop-shop for administrative needs. It already added services for handling salaries, tax filings, and company establishment. In October it will expand its offerings to encompass administrative work related to “My Number,” Japan’s newly approved national system for tracking social security and taxes.
Also on the horizon is a digital receipt tracking tool, which will coincide with a major change in Japanese accounting law. Until now, only paper receipts were considered valid by tax authorities. Freee is hoping that the national exuberance over this long-awaited reform will result in a legion of new fans.
In September 2015 WIRED magazine highlighted Knopka between TOP100 hottest startups. (Also in this list was placed Life.SREDA’s portfolio startup – neobank Rocketbank.) Built for Russian entrepreneurs, Knopka provides its 1,000 clients with a team of specialists to take care of their day-to-day business needs, such as recruitment and accountancy. “We have a partnership with the biggest commercial bank in Russia,” says Anton Sizov, CEO. “We make about £120,000 a month.”
Their main focus, they say, is customer happiness. “Knopka is changing the way entrepreneurs do business in Moscow,” remarked Dima Afonin, marketing director for Knopka. Borne out of a need to make running a business easier and in turn more fun, Knopka (which means ‘Button’) combines personal and business banking, a personal assistant, lawyer and accountant – creating an entirely new category designed for Russian entrepreneurs.
Life.SREDA VC is a global fintech-focused Venture Capital fund with HQ in Singapore