Ricky Shankar, Chairman of Clear Factor
How was inter-bank lending affected by the 2008 financial crisis?
In the aftermath of the financial crisis of September 2008, money market interest rates rose sharply and there was a virtual freeze in inter-bank lending. A principal source of funding for loans to businesses and individuals was no longer available.
SME’s were directly affected. These small businesses, more than any other, relied on bank debt including overdrafts and loans for their external financing needs and were particularly at risk from a collapse in bank lending. Indeed, the available evidence from 2008 suggests that small businesses were not only finding it increasingly difficult to obtain finance, but were dealing with the withdrawal of promised finance, experiencing sharp increases in loan interest rates and were having facility fees imposed. Even firms with good credit histories were not immune to these problems. Banks became more risk averse and small business owners were being offered smaller loans, as falling house prices meant they had reduced collateral.
What type of SME’s were affected?
Ricky Shankar launched his then software services firm Amsphere, in 2002 to help FTSE 100 businesses reduce their risk of business change, particularly in IT.
Like many entrepreneurs getting started, Shankar had put up his home as collateral with a high street bank – HBOS. Amsphere grew quickly and exponentially, posting 100% growth in revenue and profits. In 2005, Amsphere continued to expand and subsequently, payment terms lengthened. Yet, despite being profitable, cash flow was becoming an issue and Amsphere required access to working capital in order to pay the monthly bills.
Shankar looked in to invoice financing and within a few weeks agreed an invoice finance facility with HBOS. In short, Amsphere was able to draw down 85% of all invoices raised immediately. Their cash flow problems were solved at a stroke.
The next three years saw Amsphere’s trajectory further rise, peaking in 2008 when the firm was named in The Sunday Times fastest growing Techtrack companies in the UK. HBOS publicised Amsphere’s accolades and were quick to also take credit.
In 2009, as a direct result of the financial crisis, HBOS was taken over by Lloyds and they merged to become Lloyds Banking Group, the largest retail bank in the UK.
The following year, Lloyds recalibrated its risk assessment and Amsphere was now deemed ‘high risk’ despite being a reliable client and posting no bad debts. In no uncertain terms, Amsphere was given six months to find a new invoice finance lender.
Shankar quickly sought an alternative arrangement with Bibby Financial Services and a deal was signed. However, three days before the transfer between banks, Bibby pulled out of the deal, asking for directors’ homes as collateral. Amsphere, now struggling as many SME’s were in the recession, still remained profitable but was three days away from collapse.
Shankar contacted Simon Featherstone, who at the time was Managing Director of Lloyds Commercial Finance. A meeting with Lloyds was arranged whereby it was explained how the failings of banks would in effect be putting a perfectly profitable and fast growing UK SME out of business and Featherstone convinced Lloyds to take back Amsphere as a client.
Whilst Shankar’s predicament had a happy ending, thousands of other profitable businesses were not so fortunate. According to data from the Federation of Small Businesses, 50,000 small businesses fail each year due to cash flow issues.
So, is the Alternative Finance Marketplace changing?
“After my experience, I saw the opportunity for the invoice financing sector to grow away from the banks. There are almost six million small businesses in Britain today. Of those, less than one per cent are funded by high street banks!” added Shankar, who is now Chairman of Clear Factor, a transparent, democratised global invoice-finance ecosystem that provides every viable SME with access to fair and affordable working capital.
“SME’s today have very few choices for working capital. Low borrowing rates no longer exist as interest rates range from 12% to 100% per annum for SME loans via the alternative finance lenders. Most lenders require director guarantees, additional collateral and debentures on the business. SME invoice finance for most of the business community still remains at a very nascent stage of development. That is why we have launched Clear Factor to change the playing field forever.”
So what does Clear Factor bring that is new to the sector, as the invoice financing industry has been using the banks’ collapse of 2008 as their marketing tool for the last decade?
Clear Factor is a new financial paradigm that has absolutely no reliance on banks which is attractive from a customer point of view. We have seen how people are flocking to digital platforms such as Tide and Starling instead of the high street banks.
Clear Factor is levelling the playing field so that all SMEs can access all investors on a global level through the auction system. Clear Factor will give every viable SME anywhere on the planet, in any currency, access to the affordable working capital they need to grow. The fair interest rate will be determined by the auction and agreed to by the SME.
Clear Factor is focusing on micro and small segments of the SME market – those that are not currently serviced by banks for invoice finance. There are no lock-ins, impositions, hidden costs or contractual binds and there will always be a quick payment against the invoice. The only fee is the ecosystem fee which is 1.0% of the withdrawal amount taken and this applies to the SME, individual investor and trade investor.
What is not ‘new’ but important for Clear Factor is that the company has a mandate to make sure that it is recession robust. It is about protecting SMEs from a possible future financial crash and a repeat of 2008.
A PROPTECH FOUNDER’S BEGINNING, THE START OF KLEVIO AND HOW ACCESS-TECH IMPROVES FACILITIES MANAGEMENT
An interview with Klevio’s CEO and Co-Founder, Aleš Špetič
What is Klevio?
Klevio is a smart intercom that allows individuals to enter a building using a mobile app, providing digital access and removing the need to use a key. Teams or individuals can manage access rights from our dashboard or the app, understanding the usage of their buildings better, whilst cutting costs and improving efficiencies. As well as Facilities Management (FM) professionals, Klevio’s technology has been implemented across numerous sectors including short-stay lets and longer-term property management, a recording studio that manages room bookings and a London pub which allows temporary access to delivery professionals via its solution. Klevio is also popular with private homeowners.
How did the idea come about?
The founding of the team and the products we worked on came from several influences along our journey. I was still working on CubeSensors, a company I founded that created miniature sensors for both the home and offices, feeding back data on temperatures, noise, light, humidity and the likes, something of a Fitbit for the room.
My co-founder and now Chairman, Demetrios Zoppos, was involved in the creation of Sherlock, the digital entry system that went on to be the underpinning technology for Klevio. When Demetrios exited his previous company, onefinestay, he held onto the intellectual property (IP) of Sherlock, knowing that there was a future for this technology elsewhere.
We quickly came to the conclusion that my IoT experience and history with physical products for consumers and offices, and the IP he had kept for Sherlock, meant that it would be criminal not to pool our experiences and so Klevio was founded.
How do you compete with the other access solutions on the market?
We have merged the new and the old. Keys have been around for thousands of years in some way or another, so have been ripe for a digital upgrade. With our competitors, although there is some amazing technology, most add confusion or annoyance to the process. There are smart-lock providers whose technology normally requires the changing of locks or at least the installation of an ugly and not always user-friendly pin-pad at the door.
Other options require magnetic cards and in many larger establishments receptionists are paid to ensure that someone enters their email for data capture, further adding to huge setup costs. With Klevio you do not need an extra key, token, or card. Everything is on your phone, similar to Apple Pay.Klevio is installed inside the building and is connected to the existing lock.
For office spaces, co-working and other large blocks, key cards are just one more item that can be shared and lost. With Klevio there’s no need to provide a keycard to anyone and it can be connected to an existing system. Many access systems do not have this benefit, and for offices this means you can change the access to your own unit without affecting the rest of a building.
What are the main challenges for your business?
Changing a mindset. People have used and trusted keys their whole lives. Getting them to accept a simpler alternative isn’t an easy thing to do.
The other difficulty is hardware, especially when it comes to security and people’s offices and homes. With software, if you make a mistake or something doesn’t quite work, you can patch it and update things. If a hardware product has a fault, a product recall is going to be a huge undertaking, and no startup will have the budget to ride the storm like a Samsung or a VW Group. We invested a huge amount of time to make sure that Klevio performs well.
Customers need to build confidence and trust in your offering, rushing to deliver and make a splash can backfire in a huge way.
What trends in tech do you see shaping the future of offices and homes in the next five years?
In the IoT space things are moving fast with the world’s largest companies like Amazon, Apple, Google and Facebook all vying to be the centre of the interconnected home and office. There are hundreds of startups carving out their own little corners too, so the next big shift will be consolidation. The industry leaders are already making moves to buy or partner with interesting startups to get ahead on IP and reach.
On a consumer level, people want smart solutions but are increasingly aware of their rights and privacy. Products that offer that on-demand feel, making lives easier and smoother, without taking too much data, will provide that personal touch consumers want and slowly start to manage the offices and homes of the future.
What is the one piece of advice you would give an organisation when looking to digitise its processes?
Do your research – don’t rush to find a solution. There are companies out there that will be able to make your place of work run more smoothly. You just need to find the one that suits your systems, colleagues and budget.
OPPORTUNITIES IN FINTECH: LEVERAGING CROSS-BORDER PAYMENT SYSTEMS
An interview with Aron Schwarzkopf, CEO and Co-founder of Kushki, a payment platform tailor-made for Latin America.
What are some of the biggest challenges in the fintech sector, specifically related to POS payments?
There is a lack of standardization in the way that payments are handled in different countries, and this presents the most significant challenge because it complicates the process of connecting them all across borders. We’re working to address that by adding some standardized connecting processes and using artificial intelligence to help mitigate these complications and make smooth cross-border payments a given.
Why are cross-border payments becoming more of a necessity?
As the world becomes increasingly global, the necessity for cross-border payments grows. People and businesses are expanding their scope and reach and therefore need to be able to operate in different countries. Part of being functional is the ability to make those cross-border payments, and so the demand for better options for those payments will continue to grow.
What are the key opportunities for cross-border payments?
There are four main opportunities that I see for cross-border payments. The first is facilitating fast and direct payments, cutting down on the extra steps required, but still maintaining the security of the transactions. From this, follows the need (and opportunity) to centralize recurring payments. Smart links are also an area of opportunity, letting people make mobile payments through different platforms using personal payment links. Lastly, expanding the opportunity to store payment information, like card numbers, and using tokenization to facilitate recurring payments.
With several fintech startups launching recently, how can you tell which are valid?
One common mistake is to assume that just because a startup has built something innovative that it is going to be useful. Instead, the most important thing to evaluate is whether the company is offering a solution to a significant pain point or just offering a minor improvement. I recommend comparing the startup to the most established version of its product. Which is less expensive? Which is easier? Which is resolving a larger challenge? If the startup is doing well on both counts, they’re probably on to something.
What are the security concerns surrounding POS payments?
The authentication process for credit card transactions is different in different regions due to different technological infrastructure. This inconsistency can generate confusion and concern about the security of various transactions and makes it hard to verify and understand the different fraud management and security processes in place.
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