Sramana Mitra: What percentage of sellers are working with you in this mode? What is the penetration of this kind of technology in the B2B sellers’ world? What percentage of the sellers in the world are working with Fundbox or competitors today?
Eyal Shinar: I would say close to zero.
Sramana Mitra: So it’s very much at the beginning of the cycle. What do you think is preventing adoption?
Eyal Shinar: That’s a great question. There are two most important components that facilitated it in the B2C world back in the 50s. One is, it’s a pretty standardized and unified checkout process. Whether you go to a pharmacy, restaurant, or coffee shop, you get your product. You swipe the card or make the payment in cash. You’re done.
The B2B world is much more fragmented. Each segment would have a different checkout process. One would be with the lawyer, which is an ongoing relationship. You get the invoice once a month. One would be with a pipes manufacturer. That’s one every three months.
You have a negotiation process. It’s not an instant transaction. This high fragmentation makes it very difficult to create one go-to solution. The second issue was, even back then, there was no good way to underwrite the risk of the buyer, which the seller needs to know. If the seller doesn’t know that, you need the network to know that.
After FICO was introduced, it was easier for the issuing bank or the card company to assess the risk of the buyer. Once that was doable, they could issue the card as a payment method. Those things didn’t happen on the B2B side.
Two things started to happen about seven years ago. One was the bigger data revolution. It made data accessible and allowed for checkout to be more unified and standardized. It also allowed companies like Fundbox to pull the data in real-time and assess the risk of the buyer.
Once we have a clear picture of the probability of default, it makes it much easier to underwrite the buyer and provide them with payment and credit methods to make the transaction happen. It couldn’t happen before this bigger tech and data revolution.
Sramana Mitra: There’s another issue, which is when you have a small business working with a large company, the large company drives the terms. The large company dictates the terms the seller gets to work with. The paperwork and everything follow the lead of the buyer.
Help me understand how do you insert Fundbox to a small business process where they don’t really call the shots.
Eyal Shinar: Whoever is bigger and has more negotiation power determines the terms of the deal. In some cases, the seller is bigger. In some cases, the buyer is bigger. Our end customer is a smaller business.
The seller is usually a bigger company. The value proposition we are offering to the seller is selling more. Everybody wants to sell more and see higher conversion.
Sramana Mitra: That’s not my question though. If I’m a small business that is selling to Apple, I’m at Apple’s mercy. Apple dictates the terms.
On the good side, Fundbox has an advantage. If Fundbox is paying the small business against an order from Apple, that’s a very easy situation from a credit rating point of view. Apple is a very credible company. It’s a very easy company. If that is the transaction exchange that Fundbox is financing, that’s easy.
But in terms of inserting Fundbox in the middle between a small business and Apple, the small business cares. What does Apple need to do in that scenario and how does Fundbox insert itself?
Eyal Shinar: If Apple is a buyer, Apple is not going to be our customer for that product. The seller has two options. You could find someone at Apple who is willing to click on the button.
Sramana Mitra: That is not an easy process. I would say that is one of the biggest adoption problems that you have.
Eyal Shinar: It’s not because that’s not our market. Apple is not the buyer for us.
Sramana Mitra: Why not? You’re not involved in transactions where it’s a large company buying from a small company?
Eyal Shinar: Correct.