You Asked, We Answered: Fintech Startup AMA
Dan Kimerling and Chris Dean go way back. The Deciens Capital Managing Partner and Treasury Prime CEO first Standard Treasury in 2014 — an API-first bank that was designed to function as a wholesale bank for fintech companies. Standard Treasury was acquired by Silicon Valley Bank in 2015.
Now, Dean and Kimerling are working together in a different way. Kimerling’s firm, Deciens, is an investor in banking as a service (BaaS) provider Treasury Prime, which connects enterprise companies and fintechs to banks and helps them launch embedded banking products, and Kimerling is on the company’s board.
The two joined up with me to answer questions from early-stage fintechs during an “Ask Me Anything” session. Here are some of the top questions and insights, many of which centered on opportunities in the business-to-business software as a service (B2B SaaS) space.
What pain points and opportunities do you see in the B2B SaaS payments space?
Kimerling: When it comes to finding opportunities around facilitating payments between companies, I would look at three components of money transfers.
First, money movement. What’s the best way to move money for the customers your solution will serve? There’s ACH, which is inexpensive; wire, which is lower risk for the party accepting payment; bill pay, which can be faster; and many other mechanisms. Deciding which mechanism works best for your specific use case is fairly straightforward.
Second, reconciliation. Where the complexity lies is around the metadata — this is the second component. When Company A sends money to Company B, how do the two organizations reconcile the payment, especially if the companies are in different countries?
Finally, liquidity. A lot of B2B payments have associated working capital issues. Businesses may be dealing with time-sensitive transactions or transactions involving loans that are still processing. There’s an opportunity for tools and products that can provide liquidity on either side of the transaction in order to help the buyer or supplier.
Dean: The surprising thing for people new to banking is how broken payments can be and how much just moving the money can be challenging. Those challenges are where you can find opportunities. Find a real problem that people need you to solve. Stripe is a great example of this. They took something really challenging — accepting card payments online — and created a sleek, easy-to-use solution.
As a side note: Things get complicated when you start dealing with companies in different geographies. If you're used to the European market, realize that the US market works differently — in terms of regulations, technology, and just common practices. If you're used to the US market, be aware that going outside the US can be quite different.
Buy-now-pay-later (BNPL) is popular with consumer-facing payments. Can it also help small and medium enterprises (SMEs) to buy SaaS?
Dean: Buy-now-pay-later is hot. The trick when translating it to a B2B scenario is to figure out what you're actually offering. Are you allowing the business that’s using your tool some more capital, or increasing their buying power in the current moment? Or are you just offering an alternative payment rail that they couldn’t access before? Both of these are good ideas, and Treasury Prime has multiple clients taking each approach with great success.
Kimerling: People want to buy software, and people want to sell it. If you can inject a BNPL-style solution in the middle of that, that's powerful. When dealing with SMEs, it can also be risky, and you have to prepare for that. Small businesses have very high failure rates. So how do you underwrite a small business to make the economics work?
Lopez: While installment payment plans are not exactly new to software sales, BNPL can add flexibility to today’s SaaS pricing models. For example, many B2B SaaS companies charge their customers an implementation fee in addition to the monthly SaaS fee. Offering SMEs that might be struggling to manage their cash flow the ability to break that implementation fee across several monthly payments can unburden them from large cash or short-term credit card outflow. Businesses typically have peaks and valleys in their account balances throughout the year. SMEs can use BNPLs strategically to ensure they have more cash flow when they need it.
What’s the quickest way to launch vertical-specific corporate cards?
Dean: The quickest way with a full-stack card offering is — honestly — probably going to be with Treasury Prime. When I say full-stack, I mean with real bank accounts attached. That said, I think you could find several other folks who would tie with us if you were just looking to issue cards, without any bank accounts. But I’ll almost always advise startups to take the time to go with the bank accounts option because it will help you scale better and allow for more customization down the road. The best card technology provider out there is hands-down Marqeta. That’s why they’re one of our partners.
For capital-intensive businesses, like lending, when is it better to use traditional capital providers versus marketplace lending?
Kimerling: I don't think it's an either/or — I think it's an “and.” I think you need to have multiple capital tools because you never know when one or more of them is going to not be available. Marketplaces are great in the sense that they are pretty durable. But they're not great in the sense that they don't scale. Ultimately marketplace lending models rely on non-institutional capital. And there is no material scale to non-institutional capital. So for scale, you can't rely on a marketplace model. You need to go direct to institutional capital partners. Traditional lending facilities like forward flow agreements or warehouse lending have real scale behind them. The challenge here is that traditional options can take a long time to get up and running.
How do you know if an idea is going to get traction?
Kimerling: It’s entirely possible to be right at the wrong time. A lot of life is about recognizing what is in your control, and what is not. This is what happened with Standard Treasury. We did our best knowing that a lot was not within our own control. Ultimately we were acquired by Silicon Valley Bank after also receiving offers from Coinbase, Airbnb, Dropbox, and BBVA.
In the current market, venture capitalists are extremely hungry for fintech investments, so you probably won’t run into the kind of issue we did seven years ago. If you do run into similar challenges, just try to recognize what is in your control and what is not.
To learn more about how Treasury Prime can help your fintech or startup grow through collaboration, get in touch with our team.