Thought Leaders in Financial Technology: FundThrough CEO Steven Uster (Part 2)

Sramana Mitra: Can you talk more broadly about the space of invoice financing? What’s happening from a FinTech point of view?

Steven Uster: I’ll take a step back even before FinTech. When my grandfather used to sell coats, he would sell you a coat. You would give him a dollar and you’d walk away with the coat. Then over time, it would become, “Give me the coat, and I’ll give you the dollar in 10 days.”

Over time, that 10 days became 30 days. Then the financial crisis came. 30 days became 90 days. The larger the customer, the more powerful they are when it comes to deciding when they pay their suppliers. They want to take as long as possible.

There’s this mismatch between small businesses wanting to get paid today and their customers wanting to pay them as far out in the future as possible. That gap has gotten wider and wider.

At the same time, the availability of data using technology has increased significantly. People have started using QuickBooks Online versus QuickBooks desktop. Those data sources created the FinTech industry so that as you grew, you now have the opportunity to use technology to modernize an industry that has been around for thousands of years.

The thing that has changed it over the last several years is where we have integrations with our partners. It becomes a seamless flow. It’s not a financing source. It’s just a way of simply doing business. That has been the evolution of invoice factoring and the FinTech side of it. 

Sramana Mitra: Let’s assume we’re talking about invoice financing as it pertains to small businesses selling to companies that are larger. What is the size of that market and what percentage of that has been touched by FinTech?

Steven Uster: Just within Canada and the US, we know that there are about 14 million small businesses and about two billion transactions. In other words, invoices have been issued two billion times. That equates to about $5 trillion.

$5 trillion in North America is being invoiced on a regular basis. The percent of that $5 trillion that is currently being serviced by invoice factoring is miniscule. Most small businesses aren’t aware that when they invoice their customers for services that have been delivered, they have created an asset that they can use to get the capital that they need to be able to continue to grow.

That’s why I created FundThrough; it’s to bring an old industry that has very limited awareness to the masses and change the way small businesses think about payment terms in general across North America.

Sramana Mitra: You take a percentage of the invoice? How do you monetize?

Steven Uster: We would take a slight discount off of the invoice amount as our fee, similar to a credit card transaction. It’s in that range. What’s interesting is, if you compare the way invoice factoring works relative to getting your customer a discount to get paid early, small businesses will often offer their customers a discount for them to pay them early.

It’s always cheaper to use a service like FundThrough. If we succeed in doing what we want to accomplish, the idea of ever giving a discount to your customer will be dead. It will be quaint and old-fashioned.

Sramana Mitra: Broadly in FinTech, where do you see open problems and opportunities for entrepreneurs to start new companies?

Steve Uster: There are gaps in cash flow, both in small businesses as well as all aspects in the economy. I saw some interesting data on startups bubbling up in the consumer payroll space as well. They all come down to the same idea, which is you should control when you get cash. You don’t have to wait for somebody else.

You’ve done everything you were supposed to do. Why do you have to wait? If you’re a worker and you’ve done the work today, why do you have to wait to get paid? Historically the reason was, it’s too expensive to manage that instant payment.

Now with technology, it makes it much easier. Think about Uber or Lyft with the instant pay at the end of each ride. You’re going to see this across all industries where people can control when they get paid.

Sramana Mitra: Great. Thank you for your time.

This segment is part 2 in the series : Thought Leaders in Financial Technology: FundThrough CEO Steven Uster
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