Korean startup Fin2B (Finance To Business) is bringing in innovation in providing financial solutions for small and medium enterprises (SMEs) through their platform centering on the Supply Chain Finance (SCF) area. The account receivable trading platform of the startup allows SMEs to receive efficient short-term financing from institutional investors based on receivables issued by large enterprises. The Vice-President of Fin2B Duke Lee talked in depth with koreatechdesk.com about the company, the service and future of supply-chain finance.
1. Can you please tell me what is your startup about?
Fin2B is a startup where we provide finance to small and medium companies based on their partners’ credit, which could be a large company with a credit-worthy history. So, this is the investment and the motivation for the SMEs. The biggest problem for SMEs is to obtain efficient financing from first-tier financial institutions. So, if they don’t get finances from first-tier financial institutions, they must resort to secondary finance institutes such as savings banks and other financial companies which charge exorbitant rates in excess of 20% APR. We are trying to provide them closer to what their buyer is getting which is somewhere near 6% if the buyer is in the BBB range. So, in that way we can help SMEs get an efficient loan by allowing investors to utilize their relationship with credit-worthy buyers.
2. Can you talk about the vision of the company?
Fin2B’s vision is to create an efficient means for SMEs utilizing assets in supply chain such as account receivables. We envision that we continues to expand our presence in Asia beyond Korea and Vietnam where we are currently present which will allow us to do cross border financing based on account receivables..
3. What about the opportunity for such a product or service in the market? Do you see revenues growing?
Factoring allows SMEs to obtain efficient financing utilizing a creditworthy buyer. So there really is no reason not to use the service if offered. Because smaller supplier supplying to larger buyer is commonplace, the opportunity is huge. For instance in Korea, the total amount of account receivables held by SMEs today is about 240 billion USD. Among this, only about 10 billion USD is being addressed by the first-tier institutions for factoring only utilizing less than 5% of full potential.
We believe that we can unlock the potential by innovative solutions in factoring business with technology. We do have some immediate opportunities both Korea and Vietnam for growth and looking forward to expanding to other parts of Asia.
4. How does the actual business model work?
To explain our business model, it will be worthwhile to explain factoring first. When a supplier provides goods or services to the buyer, the supplier has the right to be paid by the buyer. This right is called account receivable. Factoring allows financier to take account receivable from a supplier and provide funds to the supplier directly. The financier will eventually be paid by the buyer. As financier depends on the buyer to be paid, financing fee depend on buyer’s credit not the supplier’s credit
Fin2B platform allows factoring service to happen efficiently by automatic authentication of account receivables, digitization of processes and connecting all parties via Internet-based platform. This allows cost reduction in operation and high scalability. We basically take a fee from the transaction on the platform.
5. How did you join the company, and can you talk about the founder’s background?
My first job after school was at a consulting company called BCG and Sangsoon Park, Fin2B’s founder, was my boss on my first project. We were doing a risk management project for KEB (Korea Exchange Bank). I developed a high respect for Sangsoon during my years in BCG which eventually led me to join Fin2B. I worked in Fin2B for two and a half years.
Sangsoon Park, the founder of Fin2B, had been the managing director and partner for BCG. During his 18 year tenure at BCG, he supported the advancement of Korean financial industry working with leading financial institutions in Korea. His reputation in the industry and business insight is the foundation for our company.
6. What is the unique strength of your company when compared to other finance companies in the market?
In Korea, we target market with buyer’s credit from BB to BBB range currently not being served by banks. Banks are serving only the highest creditworthy segment and tend to shy away from offering factoring service to the buyer with credit below BBB. Unable to access factoring service, SME suppliers in this segment are forced to resort to high-interest loan from 2nd tier financial institutions. We offer a competitive rate to suppliers in this segment by efficient financing platform.
In Vietnam, we work with various financial companies to address wider markets. As the factoring market is still at the developing stage, suppliers who have account receivables from creditworthy buyers may not be able to get financed based on account receivable. We work with banks and securities companies to address various segments of the market. We believe this is similar to some of other southeast Asian countries such as Indonesia.
7. What about your scalability strategy for the domestic and overseas market for your product and services?
Both in Korea and overseas, key part of our growth is partnerships. We make partnerships with financial institutions, insurance companies and service providers to large buyers. Partnership with financial companies also provides the necessary license for factoring which can be an issue in some part of South East Asia.
8. Can you talk about your funding history?
We have received about $2 million from strategic and financial investors.
9. What next milestone do you want to achieve for getting the next round of funding?
We are have recently opened our Platform for Mirae Asset in Vietnam. So, our next focus would be to make this project a success.
10. How will you be utilizing the new round investment?
The investment will be used to expand to different market segments in Korea and Vietnam and expansion to Indonesia.