Payoneer's small biz loans lean on data that banks don't have
E-commerce merchants with just a few employees that sell through Amazon or Walmart often fall through the cracks for traditional bank loans, but for Payoneer they're the sweet spot.
Payoneer's existing client base fits that description and will be the primary target for its Capital Advance lending product, putting it among a growing group of fintechs that use existing payment records to vet underserved small businesses for lending.
The New York-based payment platform provider is expanding upon its Early Payments service by giving merchants the option to immediately receive needed working capital at a low interest rate between their payout cycle periods from Amazon, Walmart or Tophatter.
Repayment terms will range from 30 to 90 days based on existing payout cycles from the retailer and its financial history in the Payoneer account.
"It is true that traditional banks have had a hard time underwriting for e-commerce merchants, often times they may not hold any product at all, shipping directly from supplier to customer," said Iain McNicoll, country manager U.S. for Payoneer. "The bank cannot see any collateral on hand, and that means maybe they are underestimating the value of the business."
Because Payoneer sees the flow of money and transactions coming through the Payoneer account, the company has "a full understanding of the volume these businesses are doing," McNicoll said. "We feel like we are closer to the e-commerce seller and more actively assess their ability in terms of a working capital amount."
As a global payments provider, Payoneer positions itself between the payment flows of e-commerce merchants and their bank accounts. A Capital Advance amount of $100,000 would go into the merchant's Payoneer account, where the merchant would most likely transfer to pay suppliers or move to his own bank account to pay bills or make purchases.
When the next payout cycle came from Amazon or Walmart, Payoneer would pull the money owed, along with a low interest rate, for the repayment.
"The whole point for smaller merchants is there has always been this financing gap filled by the online lenders like Kabbage and others," said Steve Murphy, director of commercial and enterprise payments advisory at Mercator Advisory Group.
The support for loans to very small businesses among financial institutions since 2008 "has pretty much flattened out," Murphy said. "They are still doing small business loans for those seeking a larger amount, but the marketplace lending is where the fintechs can stretch their muscles a bit."
In offering Capital Advance, Payoneer is taking the opportunity to get stronger "in a space that has been ignored for a long time," Murphy added.
Payoneer's Early Payments service is tied to sales already earned on the merchant's site, offering an earlier payment on those sales as opposed to waiting for the retailer payment cycle. However, the new Advanced Capital service lends money for future sales or needs.
"We are actively selling the Advanced Capital service to a client, presenting enrollment on the Payoneer dashboard," Payoneer's McNicoll said. "But we present offers to those not necessarily enrolling in the program."
Those offers keep appearing for about seven days, and the merchant can ignore the offers or click on the acceptance button to determine the amount needed. If the merchant declines an offer, another appears in the next payment cycle.
"We see it as an ability to build your business and maybe grow into a new market, or do more sales," McNicoll said. "It is using Payoneer in different ways as a global growth partner."
In an advancing borderless digital payments landscape, Payoneer says it enables businesses in more than 200 countries reach new audiences with its cross-border payment services. Corporations like Airbnb, Getty Images, Google and UpWork use Payoneer's mass payout services.
The Capital Advance service focuses on the U.S. marketplace initially, but Payoneer will be considering other markets in the future. The company acknowledged last year it was benefiting from the rapid growth in the Asian digital marketplace.
Because of its global presence, Payoneer would have much information at hand and be in a position to advance its lending through better decision making and machine learning in other markets, Mercator's Murphy said.
"Making split-second decisions on lending during the buying cycle is a natural extension of the way things are going," he added.
Payoneer has consistently added services to better serve e-commerce customers, including acquiring Armor Payments in 2016 to add escrow payments for high-value B2B transactions.
The company also has advanced its software-as-a-service technology to better equip companies needing to make more frequent payments to independent contractors in the gig economy.
Over time, other major e-commerce payment processors might spread their wings, with Stripe being one that has advanced its financial services capabilities in the past year. But American Express and startups like Kabbage are making inroads as well.
But for now, Payoneer has found an opportunity with its own account holders for what it hopes is an easy and effective way to provide value to its customers.