Embedded finance — the idea of offering financial products where customers are already congregating via white label solutions and APIs — isn’t an entirely new concept. In fact, in one form or another, such as point of sale credit, the concept has existed for years and long before Silicon Valley venture capital firm and media company (ha!) Andreessen Horowitz made it a thing. However, fuelled by cloud technology and a plethora of new fintech and banking-as-a-service startups, there is no doubt the embedded finance trend is accelerating.
The latest company to declare its hand is Berlin-based Banxware, which offers embedded finance in the form of loans for SMEs, in partnership with marketplaces, payments providers and others. It launched in December and today is disclosing that it has raised €4 million in seed funding.
Leading the round is Force Over Mass and VR Ventures. They are joined by HTGF and private investors in banking, payment and e-commerce.
Banxware says it will use the investment to develop and grow its embedded white label financial services offering, and expand its team. In addition to lending, the startup will also soon offer card-based products and other financial services.
Banxware’s tech and infrastructure enables any company to offer loans and other banking services to SME customers. The idea is to act as the link between banks (lenders), digital platforms and merchants. Banks get access to hard to reach SME customers. Platforms, such as online marketplaces, can up-sell financial products beyond their core offering. And merchants benefit from speedy access to working capital.
“SMEs have a hard time to access capital when needed, especially when they are less than three years old or do not have the most pristine credit history,” explains co-founder and CEO Jens Röhrborn. “On top of this, loan applications, i.e. loan decisions and loan payout, still take several weeks in most cases.
“More and more sellers and merchants are using digital platforms through which they sell their products or process their digital payments. By using the recent historic data on these merchants provided by the platforms, we can lend against their future revenues”.
This has seen Banxware build an instant lending tool that includes AML and KYC compliance, and a scoring engine that analyzes historic platform data and data from third-party providers, such as account information providers and external scoring services. The promise is an instant loan decision and loan payout, “all in less than 15 minutes”.
“On the lending side, we work with both balance sheet lenders and lending vehicles with whom we pre-agree on lending terms and loan decision criteria and on whose behalf we execute the loan decision,” says Röhrborn. “Merchants repay their loan in such a way that platforms subtract a certain percentage of the future merchant payouts”.
Röhrborn says the company’s instant lending tool is “only the beginning” and that Banxware will develop additional embedded financial services and expand internationally.
Meanwhile, the German fintech currently generates revenue by charging a one-time fee for each loan that is processed through its platform and via a one-off customization fee.