Blockchain: An Alternative Financing Solution for Small Businesses Impacted by COVID-19

blockchain

We have often made the point that electronic invoicing is a major catalyst for passing through the space-time continuum from 20th century processing to the digitally accessible future. In other words, once invoices are digitized, lots of good stuff can be subsequently done to create immediate value. Can blockchain help?

This piece appears in PaymentsSource and discusses the solution set from a 2014 San Francisco-based startup fintech named Crowdz. Of course the headline has coronavirus in it, now a seeming required addition to any posting.  In this case, however, it’s a good point, since the reviewed technology is mostly targeted to smaller businesses. Those who haven’t just arrived from Mars (which is not on any restricted travel list that we are aware) will know SMEs have been critically impacted by cash flow issues amidst the unprecedented health crisis.

‘Smaller businesses have struggled to obtain loans from banks because of lack of data about their cashflow and creditworthiness. B2B lenders, which have access to information about SME borrowers’ cashflow such as their invoices, can act as channels for disbursing government-backed loans from banks…”Right now we’re focusing on providing small businesses affected by the COVID-19 economy with an alternative financing solution,” said Payson Johnstone, CEO of U.S.-based Crowdz, which is backed by Barclays. “We want to help SMEs survive and see us as an additional resource to U.S. Government Small Business Administration (SBA) funding options.”’

The platform allows businesses to upload invoices to a blockchain network, (Ethereum based), where the digitally created or transformed data allows a broader market to access the information. The buyer can review, approve, and digitally pay, while the supplier has an easier and cheaper reconciliation process.

However, a key feature is that the supplier can also opt to sell the invoice to the highest bidder or best terms to suit their working capital needs, which for SMEs these days is critical.  Any number of funders can review and bid on the invoice(s), and the platform uses information about the buyer and seller to apply credit risk logic for the bidding parties.

“Crowdz uses Ethereum to ensure invoices and payments are closely tied together,” said Johnstone. “The blockchain allows us to move documents and value together on the blockchain underneath a smart contract. We can offer a layer of security and auditability on transactions including KYC, AML, tamper-proof documentation of all transactions, and title ownership of invoices. This prevents fraudulent loan applications where companies finance the same invoice from multiple banks.”

The company is a participant in the Oracle for Starups initiative and graduate of the Barclays Accelerator program, which have helped in development support and further funding.  The piece discusses other investments in supply chain financing by Barclays.  So just another and welcome example of the move towards digital B2B.

“We’re interested in Crowdz’s B2B payments platform because, while we believe the B2C space is digitizing very rapidly, there’s still a lot of potential to start that journey for B2B,” Nick Kerigan, managing director, future payments in Barclays’ Cards and Payments division, wrote in a blog post.’

Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group

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