Global trade is like a holy grail for fintech. It is the largest untapped sector for financial markets with some $17 trillion of goods shipped each year – most without a financial product involved, but also the largest problem, given the competing requirements of stakeholders.
Exporters expect to be paid when they ship the orders, but their customer, the buyer, typically wants to pay later. There is a banking product, called the “Letter of Credit” that helps to manage this problem, but it is not favoured much as it is a complicated and expensive proposition.
It is not an easy problem to fix – and that is the challenge global trade finance company PrimaDollar is trying to surmount with its innovative solutions.
“Banks have self-disrupted in this market and their market share is now well below 10 per cent. The opportunity is staggering – and there is strong demand for an alternative product that gets exporters paid when they ship whilst allowing their buyer to pay later – delivering this result simpler, cheaper and quicker than the legacy banking products. PrimaDollar’s solutions are quicker, cheaper and simpler than the alternatives and are properly designed to meet the needs of suppliers,” says PrimaDollar CEO Tim Nicolle, who founded the platform in 2015 in a bid to surmount the gap.
In his mid-50s now, Nicolle, a former investment banker and most recently a partner in global accounting firm PwC, feels “it is never too old to be an entrepreneur”.
So what does PrimaDollar do to fix this vexatious issue?
THE BUSINESS MODEL
PrimaDollar’s procedure is to offer a simple trade finance product. When an exporter puts goods on a boat (or plane, train, lorry), the platform pays him, and his buyer can pay them back later, with PrimaDollar assuming the buyer credit risk.
With PrimaDollar paying the exporter at shipment and letting the buyer pay later, it takes the risk, and if the buyer defaults, PrimaDollar takes the onus. Buyers get open accounts or sale contract terms, whilst the exporter is paid upfront – just what importers and exporters need to make their lives easy and their trade work smoothly.
PrimaDollar offers two products. For exporters, it offers an export finance product for their transactions with individual buyers. This works shipment by shipment.
And for importers, it offers an enterprise-wide solution for their international supply chain called “Supply Chain Trade Finance“. This also works shipment by shipment, and is designed to be complementary to existing supply chain finance programmes. It is also usually funded at low cost by relationship lenders to the importer.
Having learned the ropes by providing the finance itself, PrimaDollar has pivoted to a SaaS model and now provides its proven trade finance product directly to large and mid-sized corporate importers via its leading-edge technology platform.
“With high levels of automation, machine learning, OCR systems, and integrated electronic documentation – we have a transactional platform that allows importers to take control over how their international suppliers are funded and paid, typically saving 1 per cent or more on landed costs as a result,” says Nicolle.
Nicolle says the PrimaDollar platform sells itself as its approach is radically different.
“It is very important to get potential clients to give up 30 minutes and actually see the system in operation. Seeing is believing, as they say – and it is surprisingly difficult to do this in the boardrooms of the big corporate world. But once senior executives have seen how we make things work… progress can be rapid. The idea is astonishingly simple and our technology teams have executed brilliantly. And this is the point of a fintech – the technology should be doing the talking,” says Nicolle
PrimaDollar has a global first mover advantage and “barriers to entry are high,” he adds.
THE NEED FOR A PLATFORM LIKE PRIMADOLLAR
There is a large financing gap emerging globally in supply chains as the banks are finding trade finance a difficult product to offer and increasingly, banking is becoming less international because of compliance norms. Also the new Basel 3 regulations have made trade finance unattractive.
Secondly , supply chains are moving around the world as importers look to have their goods made in lower cost locations. Exporters in these lower cost locations often have weaker access to credit, so they need help to meet the increasing demand of their customers. But international supply chain finance rarely pays at shipment and is often unavailable to exporters due to limitations of the programmes.
Also, local bank support for exports is declining. Various factors are involved including US dollar strength against local currencies across Asia, and increased pressure by regulators and politicians on local banks to address non-performing loans in the books.
These factors mean that the export finance gap is getting larger, and there is a huge demand for a reliable, low cost alternative from a non-bank provider like PrimaDollar.
“This is a true ‘blue ocean’ opportunity – and we decided to invent a new product rather than tweak the existing banking solution. This radical approach is high risk, high reward. With no guide book to follow, no experience to drawn on – we have made mistakes, lost money, learned lessons and iterated as quickly as we could to a product that works. With that main task now done, we are now in a scaling phase. Almost all the famous cliches apply to us (lean startup, move fast and break things, fail fast etc.),” says Nicolle.
PrimaDollar is working with exporters and importers on a global basis with a global network of offices. The UK-based trade finance platform launched their India operations in 2019 and has offices in Mumbai, Delhi, Chennai, Bengaluru, and Kolkata.
Nicolle finds India a great market with a high potential. “We target the top 100 importers by value of containerised products. This is a large number – around $60 billion per annum,” he says talking about PrimaDollar’s India market.
Nicolle says the Covid-19 crisis has had an adverse effect on their growth. Whilst it is relatively much easier now to engage with senior executives in large corporates, correspondingly, they are also very busy putting out the fires in their own businesses.
“They have survived for decades using the LCs or taking expensive credit from their suppliers. Whilst the payback on working with us is instant, and the savings are material, we are fixing a problem that many in the corporate world do not feel is broken,” he says.
PrimaDollar has already worked with around 500 clients in 40 countries. “We can scale to a global size, as this is a global problem – but have decided to focus on India and the UK as launch markets for our platform. This strategy is working well with clients going live as this is being written – and the pipeline of enquiries is significant. This is a very exciting time to be bringing change to one of the oldest and un-addressed markets in the world – global trade,” says Nicolle.