Lawrence Gilioli, founder at Lenderwize, spoke with Brian Kane, Director Capital Markets and Origination at CrossLend, and explained how its tech-driven platform can perform real time monitoring of activities to prevent fraud, its value to insurance companies that insure the invoices, and outlook for growth within the digital economy.
Brian Kane: Can you please introduce Lenderwize?
Lawrence Gilioli: Lenderwize is a FinTech funding platform for the digital economy. We do trade finance, namely traditional factoring and receivables, but we’re doing it specifically for the digital economy. Currently we are focused on telecom receivables. So we are purchasing invoices from telecom operators that pay interest rates above market interest rates, which we share with our lenders. These receivables are also insured, to reduce risk for investors.
Our FinTech platform is essentially a risk mitigating service, which starts with a full know your customer (KYC) process that we carry out on our clients and finishes with the insurance of the actual invoices for services that have been delivered. These invoices are certified and validated by our platform. So we are serving the digital economy – currently we are serving the voice telecom wholesale industry, the SMS industry, the data industry, and the direct carrier billing industry.
Brian: What market do you serve, and what was the impetus for founding the company?
Lawrence: We come from the telecom wholesale industry. Augusto Pellegrini, my co founder has substantial experience, including managing over $750 million worth of receivables specific to the voice wholesale industry. Globally this industry is expected to be worth around $60 billion by 2027, with annual growth of above 10%, according to a recent report. This industry is essential for international phone calls and will always exist because no operator in the world has all the lines.
And so necessarily for international phone calls to occur, they have to go through multiple operators and they have to be invoiced between operators. Technically it works perfectly. The problem we are tackling and solving are the payment mismatches in the supply chain.
Take for example Vodafone BT – they are a great company, but they operate on a 60 days payment cycle, but their supplier – the transit operator – needs to pay the terminating operator, which completes the phone calls, in a seven day cycle. So there is a negative 53 day cashflow gap, which is present across the entire industry.
We came across this problem by experience. And we decided to find a solution, by creating a FinTech funding platform, which provides working capital to our clients on a daily basis for all the phone calls that have been delivered in a single day. The following morning, the invoices are purchased and funded. Therefore, our clients can increase their revenues almost overnight since they have that additional capacity. There are also additional benefits: because they have ready access to working capital, they can in turn negotiate better deals with their suppliers. So working with Lenderwize gives them the potential to increase their margins and significantly increase revenues.
Our clients sell us their invoices to Tier One operators such as BT, Orange, Vodafone, Telecom Italia, China mobile, and so on. And they love working with us – they’re giving us more and more clients. So we have great growth, we have doubled almost month over month, we have significant traction with the clients, and we also have significant traction with lenders, because we are providing access to this asset class, with the insurance wrapper and our in-house validation process.
This asset class is typically underserved by banks – banks do not understand the digital world. They shy away from it, because they don’t have the technology to validate or correctly assess it, which is what we are able to do.
Brian: Looking at the platform, what are some of the key features, what problems are you able to solve via technology?
Lawrence: Our platform sits between a lender and a borrower. The borrower is a telecom operator that needs working capital. The lender is an institutional lender, who is looking for risk-adjusted returns for funding invoices.
The lender has his own dashboard, and his own wallet. The lender sees all the transactions. The lender sees all the invoices which should be purchased, and the lender approves everything before going live. That means, they give us an approval and a credit limit for every seller and every debtor. Because we carry out strict KYC and AML processes, we validate all the underlying clients, even before [the invoices] go live. We also carry out all our own checks, we connect with the insurers and get an insurance wrapper.
In terms of problems that we are solving with our technology, we give clients a clear view into the telecom wholesale industry. We are able to answer or validate these topics: What are the underlying digital assets? Are they real? Have they been delivered? Are they insurable? We solve all of these problems with our technology, because when an invoice is uploaded on our platform we validate, capture and we certify that the underlying services have been delivered. That means we can ensure that there is no ‘monkey business’, there are no fake invoices, there are no invented phone calls – we validate the underlying assets. And that is our unique selling proposition. We believe we are the only invoice marketplace platform which is able to solve this problem of the digital economy.
It’s important to understand that there are SMEs in the digital economy, which typically face a lengthy wait for their clients to pay them, even if the customers receive the product instantaneously.
For example, it could be a game developer which sells apps or games via app stores, such as Google or Apple. Often they have to wait 60 days for the payment. It’s a similar situation with our clients, the telcos. And so we are validating the underlying assets – invoices – making sure that it’s a real service that has been delivered, and that there is no fraud. So we are solving the potential of fraud within this segment of the trade finance space.
Brian: Can you give a brief overview of how you validate the underlying transactions?
Lawrence: Client data is uploaded automatically into our platform. They give us access to their switches anonymously, so we can validate and verify the information they are giving us on a daily basis. Currently this is taking place on a sample bias – looking at calls going to the same destinations from the same number and capturing durations and frequencies.
Brian: Which are the geographies and market segments where you are active? What is the profile of a typical debtor on your platform?
Lawrence: Our geography is global – we have 50% of our clients in the United States, 25% in Europe, and then 25% in the rest of the world. Of course, it’s all insurable. So, if the country is blacklisted and not covered by either Euler Hermes or Allianz, we do not cover it. But otherwise we are very global and happy to be so because of course there are varying interest rates across different nations. The segments we cover are specific to the digital world: voice wholesale, data, SMS, direct carrier billing. E-gaming and e-goods will be the whole new frontier [that we plan to enter in the future]. Obviously, we are talking about a huge addressable market, which is totally underserved by banks and therefore undercapitalised.
The typical profile of a debtor today is a telecom operator, one with years of experience, with very big revenues, typically the debtors are Tier One companies. And therefore, we are talking about very large clients with established payment track records, and which have insurability. This insurability can be up to $11 million, we see that with major players like AT&T and Verizon, for example.
The sellers, our clients that are selling their invoices to these debtors, are typically mid-sized to large telecom operators. Before they come on our platform we pre-vet them, we know them and visit them, and they are subject to our ongoing monitoring.
Brian: For investors, what is attractive about this market segment? What are some of the important features of this asset class, such as duration or risk classes that are important to note?
Lawrence: It’s attractive because the digital economy is huge. Frankly, we’re only calculating the market of SMS, data, carrier billing and voice wholesale, which is worth $324 billion. And that’s excluding the e-gaming and e-goods segments that I have mentioned above. So we are talking about a huge addressable market, which is underserved by banks and traditional finance because they don’t understand it, they are scared of digital commodities. We make it safer, because we monitor it on a daily basis.
With that monitoring it means we can intervene immediately if someone presents a fake invoice or a fake underlying asset. We will block it immediately. This is one advantage of investing in the digital economy. Take the example of a more traditional economic activity, such as the shipment of a container from China to Brazil. This shipment would likely take at least a month to ship to its destination, with the potential for additional delays such as at Customs or related to logistics. In this kind of scenario, when trade finance is applicable and there is a suspicion of foul play, it can take several months before an intermediator can intervene due to the lengthy shipment time. In our case, 1-2-3 hours go by. So we intervene immediately. So I argue that for this reason our model is safer than other trade finance or factoring solution. Because it is digital, meaning it can be monitored by our technology, that allows us to intervene and block things immediately and mitigate risks.
The risk classes are confined to the debtors, ultimately the risk is on the debtor. The debtors we are working with are large Tier Ones, including Vodafone, Verizon, Orange, Telefonica, Telecom Italia, China Mobile, Vodafone, British Telecom, we have over 40 Tier One debtors at this point. And it’s growing, we expect to have a penetration within the Tier One market of at least 75%.
Presently, Tier Ones are reaching out to us, asking us for supply chain financing solutions. They say, ‘Wow, this is a great solution, because the problem of the payment mismatches is there.’ They ask us to onboard their suppliers on our platform, and pay us a fee for that.
Brian: Can you talk about your partnership with insurance company Euler Hermes. What have been the benefits for your invoice factoring product? Can the data-rich Lenderwize platform help improve outcomes for the insurer?
Lawrence: Insurance companies themselves are very enthusiastic about our platform, because we are giving them access to such a wide variety of data points. With our platform they can see in real time the payment behaviour and the utilisation. For example, if they give a credit line with $5 million of insurability, they typically don’t know whether an invoice is truly made for $5,000,000 or whatever amount. In our case, they see if they give $5,000,000 as a credit line, they see if there are invoices for $3,500,000, $4,000,000, or whatever the invoice actually consists of, they see it, therefore they can allocate their primary resource of their insurable credit line properly. They have to put capital aside for every credit line they give. So we give them the ability to optimise their own business from the point of view of credit limits.
Secondly, we give insurers access to the payment behaviour of clients. We can give them up to 2,000 data points, which helps them to refine their own credit rating model.
And in fact, we are developing for insurers a better tool, an improved credit rating model specific to the digital economy. We will launch this division under the name InsureWise, and this will be a unique offering.
Brian: Looking at your due diligence processes, can you please give some details about the main steps when you are looking at onboarding a client?
Lawrence: The usual process is that when a client reaches out to us they have to fill out a credit request form online. Actually, it’s identical to the info an insurer would request – we get the same data on the individual, the universal beneficial owner, on the seller, updated financials and corporate documents.
And then we get the data on their debtors, knowing who the debtor is, the currency, the jurisdiction, the name, and of course, the amounts that are needed to be funded. So we go through all of this. On top of that we do our own AML checks, our own KYC and KYB checks, thanks to some very good partners. Then we do our own credit vetting. We have a very sophisticated credit vetting mode for vetting SMEs on a global scale, with a very strong partner.
Once we’re happy with the client, we onboard them on our platform, then we go to the insurers to get insurance, then we go to our clients, and notify them of the outcome, and the limits, such as individual limits on each debtor. And then the client goes live and onboards everything on our platform and we validate. We purchase on a daily basis for pre-vetted, validated and insured clients.
Brian: What sort of origination volumes are you seeing? What is your outlook for growth?
Lawrence: Right now we are originating $32 million per month, which is up from $4 million not even 18 months ago. We expect to double that within the next six months, we expect to hit $400 million a month, within 24 months, hopefully actually within 18 months. We are expecting very healthy growth in volumes.