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Embedded Financing Helps Asia’s SMBs Weather Cash Flow Challenges

To smooth cash flow headwinds, small- to medium-sized businesses (SMBs) can benefit from access to financing through digital-only channels.

To that end, Banking-as-a-Service (BaaS) company RootAnt, based in Singapore, is aiming to strengthen enterprises and ecosystems through open banking technologies.

The company said earlier this week that it has raised money via a seed funding round through a consortium of investors for $1.46 million. RootAnt has said that it will use the capital to expand in Singapore, Southeast Asia and Japan.

In terms of mechanics, the company connects enterprises and financial institutions (FIs) to help bring embedded financing and other innovations to enterprises.

BaaS looks to help modernize B2B payments, moving beyond paper checks and other long-standing and less-than-efficient payment methods.

In an interview with PYMNTS, Lincoln Yin, CEO of RootAnt, said the pain points being felt right now by SMBs in Asia are particularly in the travel, event and other industries. One commonality is that firms in these verticals rely on offline operations.

“They’re suffering from the challenges of finding new revenue streams and transforming to digital,” he said.

Clients of these SMBs, he said, are also suffering from the pandemic and delayed payments. Thus, working capital challenges are mounting for these SMBs.

Embedded financing, he said, through digital and open banking technologies can help extend funding/credit to help SMB suppliers weather the storm. The company has said that its embedded financing efforts, delivered through digital means, also dovetail with the Singapore government’s initiative to develop digital-only banks.

“With the embedded finance model, including financial services like deposits and payments, the digital-only banks are able to be as a role to provide Banking-as-a-Service for non-financial companies, especially those who are the anchor in an ecosystem,” he told PYMNTS.

Risk Management

Risk management is critical, said Yin. Better risk management comes through leveraging alternative data sources through industry conduits. Through digital payment obligations — which Yin said is “new way to do B2B payments “– SMBs can better navigate cash flow challenges.

In terms of mechanics, the financing entity grants credit to the “anchor” corporate; the corporate issues the days payable outstanding (DPO) across the RootAnt platform; the DPO is transferred to the supplier who can elect to discount the DPO in exchange. The end result, according to the company, is timely financing and faster processing, with lower financing costs.

Lin said the cloud is the fundamental part of the platform which reduces costs and enables scaling with ease.

He noted that the firm’s BANCO Engine, which provides the BaaS, also will tie with the development of BANCO Chain. The chain is a permission chain tied to blockchain that shares data across ecosystems without compromising data privacy and security. BANCO Engine would sync with BANCO Chain, he said, for transaction record keeping, which in turn should help speed processes and cut costs.

“APIs will play an increasingly dominant role in transaction banking,” he said. “APIs could allow banks to easily share data or software services either internally, or bilaterally with partners, or openly with many third parties.”

He added that “extensive cloud-based, API-driven interaction with enterprises will be the norm, with ecosystems creating cross-industry revenue opportunities.”

Asked which verticals might be early adopters of embedded financing, in an effort to improve supply chain dynamics, Yin pointed to real estate firms, construction companies, telecom and other verticals with long payment terms and supply chains.

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