Start-up profiles: Transfers, risk, marketplaces

CROSS-BORDER TRANSFERS – THUNES (SINGAPORE)

Peter De Caluwe, CEO of Singapore-based cross-border payments start-up Thunes, suspects his company is the only player in its field currently doing well in Myanmar. Thunes received a grant from UNICEF last year to go deeper in the country, and soon began tracking so much volume the central bank couldn’t keep up.

“Unfortunately, with the current situation, the volumes are pretty small. We started processing again two months ago, but we try to be very careful. We want to make sure that the money we pay into Myanmar arrives to the people it belongs to,” says De Caluwe. “The markets that are extremely hard are the ones we like the most. Sending money from the US to Europe is boring. We like the complexities.”

Thunes operates mostly in Southeast Asia both in terms of facilitating outgoing and incoming payments, but it has a significant outgoing network in the US and Europe, as well as large receiving marketing in Africa and Latin America. There are 115 countries in the network overall, with the euro zone counting as one country. In each jurisdiction, there are five to 20 partners, mostly banks and wallets.

This is where Thunes’ attraction to complexity is a bit more intuitive. As the company’s spiderweb of cross-border channels expands, so do operational savings. That’s because many transfers will cancel each other out, allowing the company to fulfil transactions without actually moving money, creating a significant multiplier effect. As De Caluwe puts it: “If the network grows 30%, revenue grows 200%.”

Thunes has two core missions, both with a focus on serving under-banked markets. The first is to replace the correspondent bank network that currently gums up international money transfers with multiple intermediary hubs, each taking a fee before the cash completes its journey. The second is to allow cross-border payments to and from various digital wallets, which is currently not possible.

The company claims to be growing 100% year-on-year, with monthly transaction flow reaching as high as $1 billion. Revenue is generated from a set-up fee, a subscription fee, currency exchange mark-ups, and transaction fees, which are usually less than $1 per transfer. Customers are banks, wallets, remittance service providers, and other fintech providers.

Insight Partners led a $60 million round in May, bringing total funds raised to date to around $130 million. The US-based investor’s network includes money transfer companies PayPal and Western Union, African mobile wallet M-Pesa, Commercial Bank of Dubai, and Southeast Asian super app Grab. Thunes has provided salary payout services for Grab’s ride-hailing drivers since 2017.

“The international payment network does work – the money moves, it’s secure, and it’s safe. But it’s expensive and slow, and there is little visibility. You never know if your money has arrived, which is weird because that’s very easy to do,” says De Caluwe.

“We tell you exactly up front how much it costs, exactly when it’s going to arrive – usually instantly or in a day – and we confirm the money has arrived. Those are three problems that don’t bother you today because you don’t know that you have the problem.”

 

RISK MANAGEMENT – ICEKREDIT (CHINA)

IceKredit was founded in 2015 by Lingyun Gu, a machine learning and data mining expert who previously developed risk control models for ZestFinance, a US-based credit-scoring business, and co-founded Turbo Financial Group.

From day one, the company has stuck to three principles: no lending, no possession of data, and no digital currencies. A decisive "no" to these attractive businesses gives IceKredit the credibility to be a trustworthy partner for China’s leading financial institutions. It now counts several hundred of them as paying users and has deep collaboration with four of the top five state-owned banks.

“We don’t lend because we want to be a technology-focused platform company to serve those lending institutions. If we lend ourselves, being one of the players, how can we still offer risk control solutions to others? Why should others believe us? Only by being an independent third-party is it possible to open up the market,” says Gu.

To make a risk profile of a certain individual or a business, IceKredit combines two information flows: the lending or credit data from banks; and the data generated in payment or consumption platforms such as WeChat Pay, AliPay, or e-commerce platforms and booking websites.

All the modeling is done remotely and IceKredit only takes away the modeling results. The underlying data is intact. In addition, because the modeling is done on local servers, the bank or the e-commerce company’s firewall and website administrators can define what a third-party can take away. In this way, IceKredit has established a reputation for respecting data privacy.

This attitude towards data is believed to keep the company safe in the current environment: China is set to pass one of the world’s strictest data privacy laws this week. But Gu emphasizes that the strategy is not regulation-oriented.

“From day one, we decided not to occupy data, although the regulator did not supervise the data at that time. Our company is valuable and has a good reputation because we chose the right direction based on our internal standard, rather than being pushed by regulators.”

Finally, models built on both sides, are organized on IceKredit’s central server. By integrating models, instead of integrating underlying data, the company sets a high technological barrier to entry. And Gu believes this is the company’s core competency.

IceKredit has a valuation of several billion renminbi. It raised a RMB335 million ($51.7 million) pre-Series C round in 2019 featuring Shanghai International Group (SIG). This followed rounds in 2020 and 2021 of RMB200 million and RMB228 million, respectively, with SIG and other strategic investors re-upping. 

 

B2B MARKETPLACES – OFBUSINESS (INDIA)

In 2016, when OfBusiness started providing financing to the small and medium-sized enterprises (SMEs) that sourced materials through its marketplace, the five co-founders did the underwriting collectively, balance sheet by balance sheet. They had tried partnering with financial institutions, but soon found that the SME lending ecosystem was underdeveloped and insufficient.

“Our assessments are based on live transactional data, how companies interact with suppliers and customers. Conventional banks don’t look at that. They are conservative in their approach, and they don’t understand the nuances of micro supply chains,” says Vasant Sridhar, one of the co-founders.

“We realized we would have to do the sourcing and underwriting ourselves. And if we were doing that, why rely on bank balance sheets to issue loans? We might as well do the full stack ourselves. It gives us more flexibility, a stronger hold on the customer, and more profit.”

They were well-equipped for this task. Sridhar and his co-founders all came from manufacturing backgrounds. They believed in the potential for B2B disruption through technology platforms that could sweep aside the middlemen presiding over opaque procurement processes. Focusing on industrial supply chains, OfBusiness would go direct to manufacturers, bringing price transparency and opportunities for cost savings through bulk buying.

The starting point was Bid Asset, a searchable information source on government tenders in India and overseas. SMEs that came to the platform – there are now three million, drawn by actionable information rather than targeted marketing – were pitched value-added services, such as raw materials procurement. It was only a matter of time before financing was added to the mix.

OfBusiness established a non-banking financial company (NBFC), Oxyzo Financial Services, to handle the financing. Inbound inquiries come from manufacturers that want to sell materials to SMEs but cannot provide credit, as well as from SMEs. Oxyzo does not lend to companies directly, preferring to sanction credit lines and supply materials against these lines. Only one-third of the $250 million loan book is unsecured, and non-performing assets account for 1%, including provisioning.

“We don’t target customers who are new to credit or who don’t have prior banking behavior. In India, banks only give collateralized loans, and regardless of company size, there is always a 20-30% working capital gap filled by informal lenders rather than banks,” says Sridhar.

On launching the NBFC, OfBusiness was generating $5-7 million in gross merchandise value (GMV) per month. Now it is $70-80 million per month, for an annual GMV run rate of almost $1 billion. Financing is responsible for 40% of revenue and 60% of profit – the rest comes from marketplace services – and it has been integral to the company achieving net profitability for the last three years.

The lending book is expected to grow twofold this year and twofold next year. OfBusiness hasn’t discounted the possibility of going one step further and applying for a banking license, but M&A is a more immediate goal. The company wants to become a manufacturer of raw materials as well as a supplier with a view to exercising more control from supply chains and extracting better margins.

OfBusiness has raised $330 million across five rounds since inception in 2015. Investors include Creation Investments, Falcon Edge Capital, Matrix Partners, Norwest Venture Partners, SoftBank, Zodius Capital.

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