Learn about the unique advantage merchant platforms and aggregators have over other B2B lenders.
One of the biggest differentiators in B2B lending is 'pre-income servicing', or the ability of a lender to get paid before a borrower does. Both merchant platforms and aggregators have this unique advantage over other types of lenders.
Let’s start with merchant platforms.
For our purposes, merchant platforms can be understood as software applications that facilitate payments and other functionality on behalf of a business.
For example, as a payments processor, Square stands directly in the path between a merchant and its customers. This makes it possible for its lending arm, Square Capital, to intercept receipts and get paid before the borrower does.
Compare this to a bank or a lending startup: since they are generally uninvolved in the merchant's core business, they are stuck on the sidelines, hoping they get paid.
This advantage makes it possible to make better underwriting decisions (since the platform has direct access to merchant receipts) and ensure higher rates of pay off.
Other examples of platforms: Paypal and Stripe.
Companies that could move into this space next: HR applications like Gusto, Zenefits, and Rippling.
Aggregators have an additional advantage beyond merchants. We are using the term aggregator to describe a service that facilitates a multi-sided marketplace (see Ben Thompson’s excellent article defining aggregators). An aggregator does more than just facilitate payment - it creates market demand for a merchant's service, which is where the additional advantage potentially comes into play.
Take Uber as an example. Uber can make a loan to a merchant. It can then implement pre-income servicing, by taking payment for the loan out of the driver's fees.
So far, this is similar to the advantage that platforms have. However, Uber can also help the borrower by directing more customers to them, so that they are better able to pay back the loan. This improves the quality of the loan for Uber, since the driver is now much more likely to repay the loan in full.
Other examples of aggregators: AirBnB, Etsy, Ebay.
Pre-income servicing is a huge competitive advantage in the lending industry, and it poses a serious threat to banks and other lending institutions that are stuck on the sidelines.
Sandeep: Tell me a bit about the early part of your career.
Tom: I spent a decade helping to build start-ups focused on application and database software. This was where I learned how to sell and do business development. I was fortunate to be part of one company going public and another being sold to IBM.
Sandeep: What is something you learned during this time that helped you with consulting?
Tom: I began to appreciate how different customers achieved varying levels of success with the same foundational technology. This made me understand just how critical getting your team and process right can be.
Sandeep: This is something I only came to appreciate years into consulting, especially after the sale of my first consultancy to Capital One.I saw teams in different parts of the company trying to solve challenges like real-time messaging. Same corporate culture, same technology, same internal support mechanisms. Night and day outcomes.
Tom: We saw a lot of the same thing after selling our practice to EMC (sold to Dell in 2015). This is probably the thing I'm most proud of when it comes to the teams I've helped to build: the ability to perform well in a variety of contexts, sometimes in ways that inspires the client team to up their game as well.
Sandeep: Yes. It's particularly cool to see your team succeed in individual ways after an acquisition...consulting skills definitely translate into the corporate environment.
Tom: Totally. We have people who've stayed on at Dell and risen up the ranks, while others took the opportunity to become successful executives at other Fortune 100 companies....or to start their own agencies and startups.
Sandeep: We've both been around a while. My first consulting project was a Y2K thing for Cisco back in 1998. You've been around a little longer than that :). How do you think consulting has changed most during the past five years?
Tom: I think because there is so much infrastructure available now, consulting has become more delivery and outcome-oriented. A better blend of strategic and tactical. Public Cloud has also enabled velocity to increase at a pace unfathomable 5 years ago.
Sandeep: What has stayed the same?
Tom: It's still mostly about people. People who thrive on change and are focused on their personal and professional development. I love that this has not and will not change...it's what I love about consulting.
Sandeep: I know you're adjusting your work style to COVID. You're still a dude who clearly prefers to drive an hour for a socially-distanced hike or outdoor meeting over Zoom any day of the week :) But personal styles aside, what is specifically compelling about a remote agency during the era of COVID?
Tom: Kunai has been remote for years, which gives them an inherent advantage. There is something about the communication and management styles that just works in a way that other organizations are still figuring out.
Sandeep: Yeah, I think what a lot of people fail to realize is that remote work isn't just office work over Zoom. it's an entirely new paradigm. There needs to be an understanding for asynchronous efficiency...and this just takes time and effort to develop. How do you approach remote work and family? What are you learning about separating work and personal time?
Tom: No matter what the form of interaction, Focus. Be present. Quality over quantity. The best weeks are the weeks where I proactively schedule work and personal time. Neil (Kunai's Head of Delivery) shared a great quote with me "With discipline comes freedom." When I am proactively addressing the majority of my professional and personal commitments, I find I earn a little flexibility. A little freedom.
Sandeep: Tell us about a business hero of yours that I may not have heard of before.
Tom: Paul O'Neill is someone you may not know. His work in both the public and the private sector created a profound impact
Sandeep: We are both over forty years old :). How have you learned how to work smarter during the past decade or so? What do you wish you knew about consulting when you were 25 that you know now?
Tom: Consultants want to make lasting change. Lasting change is often not the act of a single person. Today I work much harder bringing others along on the journey.
Sandeep: Last question. What are you doing here? :) Why join a small consulting company this late in your career when you could have a cushy job somewhere else?
Tom: I love a good challenge personally and professionally. When I turned 40, I decided I would run a 10K every Thanksgiving weekend and try to have my finishing time be less than my age. With the exception of one year where I did not run due to a health issue, I have met the goal. I also recently completed the Leadville 100 Mountain Bike race. So, I guess I'm here because I'm a glutton for punishment :) Jokes aside, our customers have a job to do and I intend to put Kunai in a position to execute flawlessly on their behalf. I love committing jointly to audacious goals for our customers and our business.
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