François Masquelier (Simply Treasury): Small is Beautiful

Although the large IT vendors are necessary to properly serve large MNCs, we must accept that they cannot solve every single problem and that fintech’s may be solutions to problems often faced. There is a bias consisting of over-sizing solutions, perceived as sort of kitchen robots by treasurers and CFOs. The solution can be often found in emerging fintechs, for those who take time to contemplate existing and performing solutions to complete and fulfil their IT panoply of tools.



Fintechs, the Swiss army knife in finance.


We have seen fintech's as modern solutions to a thousand and one problems faced by private or small users. However, these same fintech's seem to have helped less the larger companies. Paradoxically, "retail" developments are often faster and more intense than "corporate" developments, notably for reasons of security and integration into the IT systems of large companies. The latter too often think that only the "big IT systems" can take care of everything and that they are the only ones that can really manage their finances in an efficient and secure way. Is it a kind of arrogance, lack of humility, ignorance? An overconfidence, simplistic prejudices? No one can explain it. However, these "big systems" certainly offer guarantees of solidity, but they also have handicaps linked to their aging and cumbersome technologies that prevent them from being sufficiently agile. You can be a victim of your IT infrastructure and the weight of it, sometimes.


The best way to predict the future is to create it.

Number of fintech’s, but for whom?


There has been an explosion of Fintechs serving retail and exceedingly small “SMEs” in the last decade. We could not name the solutions given their huge number. Nevertheless, there has been much less innovation for servicing (larger) companies, despite the potential of this market. The answer could be because they are better served already. But isn’t it the opposite? Large MNCs are today using big ERPs, customized to their needs, integrated, or interfaced to many other IT treasury solutions dedicated to certain tasks. These huge systems are fantastic, no doubt about that. However, they remain hard to use, expensive to maintain, costly to develop with external or internal resources to better fit with the company needs, cumbersome to upgrade (despite the cloud solutions) and so big that any change become scarring. They present a certain inertia, inevitable for large solutions. Nonetheless, they are in general well equipped with heavy IT solutions immersed and interfaced, often “best-of-breed” in their categories and not always really integrated, which means additional tools to coordinate, extract, transform and load data into another layer to produce more accurate pieces of information of reports and dashboards. When large IT solutions and best-of-breeds are less flexible because of SaaS/cloud-mode, fintechs may present the advantage of flexibility to adapt the solutions to your needs and not the opposite.


Heavy weights corporations are better served by IT companies…so far.


There are behind this “heavy weight category” many (i.e., million) of smaller entities (e.g., SMEs, Private Equity Funds, Family Offices, holding companies, fund servicers,) not that well equipped. For these larger categories they often have many different bank accounts with no aggregation and inconsistent user authentication, giving them no real-time knowledge of current cash position and FX risks, among others. These companies are often managing finance and treasury on separate financial systems which are poorly integrated, if integrated at all. From the complexity, lack of integration and absence of dedicated tools, big issues and problems arise over time. We saw since the beginning of the Corona crisis (without considering the virus was culprit of it) emergence of fraud cases, problems, opacity in structures, etc.… creating huge dangers for investors and stakeholders. Today, with a better and easy-access technology, we should consider better serving these companies. Some smart Fintechs are building/ have built solutions for SMEs or smaller entities to help them better managing liquidities, improve yield, execute, and secure payments, set up reliable cash-flow forecasts, negotiate excellent FX hedging instruments, orchestrate KYC documents exchanges, etc.…


What are they doing in such situations?


These companies typically work around. The smartest try to find ways and hand-made solutions to do the job. Other simply suffer this lack of treasury tools and spend lots of human resources to compensate, helped by XL sheets. They suffer also from regulations requirements which are increasing as well as from increasing demands from management, which inflate. In such a context, these actors need solutions designed by Fintechs to help enhancing the whole cash management with reliable properly sized solutions. We are convinced Fintechs have many solutions to equations faced by SMEs. The two must somewhere converge. One of the elements of answer to this absence or limited presence of solutions for medium size companies is the business models. Fintechs try to access huge markets and retails to scale up solutions and make fast big money, where some other IT vendors, well-established target big players, juicy contracts, and limited number of exceptionally large customers. These are the two extreme strategies. In the middle, there is room for potential good businesses. Of course, it is not that sexy, not that easy and it requires to make the first key customers before scaling it up, gradually. The sale cycles may be longer, the return lower as they should play on volumes and minimum fees. It may be hard to win your first large clients as a seed stage company, particularly in an area as sensitive as treasury solutions providers. But the good news it is not impossible, and we are convinced some smart solutions are emerging and will be the unicorns of tomorrow.


An “everything-is-possible” green field.


Treasury system needs is a huge pound. But in the past, IT vendors were concentrating on heavy weights only (for profitability/return reasons). Now with Fintech’s they often developed solutions for retail side or smaller companies. And then in the middle, there is an extremely profound pound where there is room for a lot of fintechs. The needs are there, but the fintechs should come with answer for these mid-caps and SME’s. The market remains a green field where everything is possible. We simply need more X-factor fintechs with easy-to-implement solutions to serve the mid-market.


Mid-cap’s as a key target


It can be successful to attack a mid-range target customer group. However, if successful, we believe the range can be extended on the upper side to larger corporations. By sharing problems and pain points with larger corporations and servicing SMEs they can understand what they need to deliver. One thing may be missing: human resources and skilled treasury employees to run the solutions. Indeed, it is a problem. But the solutions exist: A. to have recourse to outsourcing for running systems B. full automation and AI to fully automate patterns, ways to solve problems etc.…


The time is now” (Moloko)


It may be time to build financial software’s for the smaller enterprises — if it does not exist yet – to help them facing these post-covid challenges. The big money in financial services will likely come from the capacity of some Fintechs to solve giant needs and problems of companies. And here, the flexibility of smaller entities compared to large ones, already fully and heavily equipped, as explained earlier, will help them becoming more performant. We can mention couple of fintechs which are perfect examples of emerging solutions for this above-described huge pound. For example, we like innovative companies like KANTOX in FX automation, TREASURY SPRING, highly promising, COMO in the e-commerce solutions, A352, a real TMS for SME’s, I-HUB (belonging to CINFONI network) for KYC, C2FO for dynamic discounting, INTENSUM, or FENNECH, the wrench of treasury and finance. There are quality solutions, but not enough to respond to the increasing demand of the mid-size businesses. We are convinced that solutions will come from this category and once successfully implemented, they will attract larger players in quest of simpler, cheaper, and more efficient solutions. As Peter Drucker used to say: “the best way to predict the future is to create it”.