Fintech and Factortech: Revolutionizing Accounts Receivable Funding
Interstate Capital, based in Santa Teresa, New Mexico, processes over $ billion of B2B payments annually for about 1,200 SBEs throughout the United States and Canada. Its business, among other things, is to ensure that payments flowing to and from their clients—and their clients’ customers—are sent and received promptly, accurately, and securely. Most transactions take place without the need for any paper, thanks to the increasing role Interstate’s mobile and other proprietary technologies are playing in Interstate’s business. On the surface, Interstate would seem the same as thousands of other fintech companies that have dotted the landscape in the past several years as banks have all but abandoned lending to SBEs.
FinTech Weekly defines fintech in broad strokes as “a business that aims at providing financial services by making use of software and modern technology.”
Wikipedia describes fintech as “an industry composed of companies that use new technology and innovation to disrupt the marketplace of traditional financial institutions and intermediaries in the delivery of financial services…or enhance the usage of financial services of incumbent companies.”
Today, fintech generally describes companies that connect networks of payers and payees; companies that connect lenders and borrowers; and companies with technology and funding capacity to provide funding to consumers and businesses. Networks consist of consumers, businesses, or a mix of both. Online “marketplace” lenders and mobile payment services account for the vast majority of fintech transactions, yet mobile technology is driving fintech’s expansion into previously uncharted territory and in new directions.
According to a 2016 Pew Research Center study, 72% of Americans now own a smart phone, up from only 35% in spring of 2011. That fact is not lost on the hordes of fintech investors and entrepreneurs who want a piece of the “instant gratification market” created by millennials who demand speed on-the-go that only mobile can deliver. “There are over 4,000 fintech companies in the U.S. and Great Britain alone,” noted Thomas Curry, head of the U.S. Office of the Comptroller of the Currency in the December 2, 2016, Wall Street Journal. Curry added that investment in fintech has increased to $24 billion in 2016, an increase of 1,233% in the past five years.
The mobile opportunity hasn’t been lost on the factoring industry, formerly considered the technological backwater of the commercial finance industry, where cash-constrained SBEs sell invoices at a small discount. “Factoring was formerly a paper- and labor-intensive business that was ripe for transformation and expansion through use of mobile technology,” says Tony Furman, president and co-founder of Interstate Capital, one of the largest independent factoring companies in the U.S. Factoring industry executives have been committing $ millions to transform their businesses into “factortech” companies—factoring companies that have deployed mobile and other technologies to remove transactional friction from the application, payment processing, and funding processes. “Factoring companies that have not already embraced the factortech mindset will be unable to market and scale their businesses,” Furman predicts.
Interstate Capital, a 24-year old factoring company with only slightly more than 100 employees, was the first in its industry to employ a logic-based online rate quote–before the term “fintech” was coined. Interstate’s customers may use a smart phone to obtain a factoring rate quote in 30 seconds or less without speaking to a salesperson; submit a “smart” application that uses artificial and predictive intelligence to reduce effort and time; and have access to funds in as few as three business days.
All this sounds a lot like fintech—but it’s not a fintech at all. Fintechs tout their predictive “algorithms” used to approve SBE applicants quickly and with little or no traditional human underwriting element. Ultimately, marketplace lenders’ “algorithms” consider little more than an SBE owner’s FICO score, years in business, cash deposits, and a social media profile as predictors of future repayment capacity.
“Interstate Capital isn’t seeking to be an industry disrupter or a marketplace lender that makes term loans to SBEs,” claims Furman, whose background is in credit and banking—not technology. “As a company whose expertise is in payments and payment processing, our systems are designed around identifying when our clients have earned the right to obtain payments from their customers and then providing funds based on our ability to predict that payment will be forthcoming at a later date.”
Interstate’s application technology is “smart” enough to know which questions are necessary and which are not, based solely on how applicants answer the previous questions on an application. “Our clients are able to obtain a customized rate quote by answering only six questions from their smart phone,” Furman explains. “Funding takes place in as few as three business days. Legal documents are prepared ‘in-app’ and are e-signed from a desktop computer or on a smart phone in seconds from anywhere in the world.”
With its investment in mobile-enhanced automated workflow, Interstate captures client data via mobile, removes traditional invoicing from billing and payment work flow, stores vital data for its clients, process payments, and funds the working capital needs of its clients. “Mobile has transformed how we and our clients are doing business,” continues Furman. “We are capable of processing $ billions of transactions annually, inbound and outbound, ‘paperlessly.’”
Two years ago, Husam Jandal, Interstate Capital’s CIO, expanded Interstate’s technology team from a single programmer in El Paso, Texas, to an international team in Canada, U.K., South Africa, and India. “The diversity of skill sets we’ve acquired worldwide has reduced development time and expanded our technological possibilities,” says Jandal.
Today, Interstate, through its proprietary mobile platform, is able to take key pieces of data relating to goods or services its customers have sold, reorganize that data into a format that its clients’ customers will accept, pay its clients 100%, and collect payment directly from its clients’ customers. Interstate Capital is able to pull large amounts of data from higher-volume clients directly from their ERP into an FTP site, where the data is then integrated with proprietary and licensed systems that manage imaging, billing, collection, and funding, often without the need to physically handle any paper. “Our industry could be 100% paperless if all our clients’ customers would adopt EDI or other digital technology to replace traditional paper invoicing,” Furman emphasizes. “We will see that point soon.”