Helping SMEs get capital from New Zealand to NY
You don’t build a FinTech in New Zealand – with a population of five million souls and just over half a million SMEs – to scale just in New Zealand.
As Ranqx CEO Dave Lewis told PYMNTS’ Karen Webster, the goal was always to go big in trying to fix what ails millions of small and medium-sized businesses (SMBs) seeking faster access to capital from banks and other lenders across the whole globe.
“We’re just a small country,” he said, “and we’ve always looked to the United States”
As he told Webster, the New Zealand-based company traces its roots back to the pre-pandemic days of 2014, when the company saw the opportunity to help democratize finance. They did so for the company’s fifth largest bank, Kiwi Bank – which launched Kiwi Fast Capital – right at the start of the pandemic.
“It’s a freaky time to launch something,” Lewis said, just a little tongue in cheek. Now Ranqx has crossed the Rubicon, announcing last month that it has formally begun operations in North America.
See also: Lending platform for small businesses Ranqx is launched in North America
The mechanics
In terms of mechanics, the company’s platform expedites and accelerates banks’ existing credit and underwriting processes, without changing underwriting risk parameters or underwriting principles. The platform gives right through loan applications for small businesses, unsecured or secured, and offers an immediate decision on SME’s applications.
Banks, he noted, benefit from more accurate decisions, and can take advantage of the countless data points collected by Ranqx (in partnership with Visa), which span years of data, including accounting, balance sheet and information from the credit bureaus.
Lewis noted that the platform offers a kind of new wine/old bottle combination for potential lenders as they contend with new business applicants who may have unfamiliar business models or thin credit files.
“What we do in a two to five minute process is we say, ‘This is who this company is, this is their financial status and their ability to service the loans,'” he added. “They get the insight in a far less friction-filled way.”
With at least some statistics showing the success of the model, in New Zealand, Lewis provided the details where, with data-driven insights over 100 applications, a third would be an automatic yes, a third a hard no, and the rest would be referred for further consideration – and a significant majority of these (almost 80%) will also be approved.
The platform also allows real-time monitoring of performance over the life of the loans, which can help foster conversations between the banks and the SMEs to triage things before maturities become unmanageable.
The data-rich environment helps the banks to answer some age-old questions: Exactly who are the loans to – and when will they be repaid? Along the way, with so much of the data collection automated, banks can save themselves thousands of dollars — as much as $4,000 — it can cost to originate loans.
If the loan isn’t approved, Lewis said, well, that’s a huge sunk cost spread across the bank’s operations. As a result, many of the mega banks push anything “under” a $500,000 loan into their banking system, sending applicants into a branch to begin the traditional, paper-filled process.
An extensible model
The Ranqx model stands in stark contrast to traditional channels, where banks spend days, weeks and even months onboarding companies and providing loans. He compared the model to Blend, which has been busy digitizing the mortgage process.
Of course, time is of the essence for SMBs — many of them e-commerce firms and other companies seeking loans in the $10,000 to $500,000 range. The platform can also be extended to other stakeholders in the financial services ecosystem, such as payment providers and even physical services and merchant firms.
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That means the spigot opens a bit for lenders and the companies seeking loans, with many of the loans extending through the platform averaging around $25,000 to $35,000. This money can be used by SMEs to purchase inventory or hire additional staff – and by extension, keep the US economy moving.
“It’s the opportunity to expand the loan book to the smaller end of the market, because you can do it efficiently,” he said.
Some market differences
There are at least some differences in the New Zealand and US markets, Lewis noted. Firstly, an overwhelming majority of SMEs in New Zealand use cloud-based accounting software and there is robust register data at the federal level. But in the US there is much more difference in data quality and sources.
To that end, Ranqx has worked with partners, among them Visa, to have everything from tax data to accounting data to address these differences and create a data ecosystem. Without this collaborative effort, he said, banks and credit unions — swimming in data — struggle to orchestrate that information into a meaningful workflow.
“We sit in the cloud and we can say, ‘Look, you don’t have to fix everything in-house to be able to provide a more frictionless customer experience here.’ We can take care of the data, we can do it on your brand,” he said, with compliance with banks’ internal guidelines and risk scorecards – across the country and without banking frictions Banks end up competing effectively with FinTechs on digital services and access to capital.
Looking ahead, the greenfield opportunity is significant for banks and SMEs navigating what appears to be a tough, recessionary environment.
“Everybody needs to work together to figure this out,” he said — and using the platform and data points can help the smallest companies not only survive, but thrive.
As Lewis told Webster, “Every great business started as a small business.”
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