solving financial constraints with innovative funding solution

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  2. 2. Solving Financing Constraints with Innovative Funding Solution Financial challenges that SMEs or Start-up business enterprises are encountering What are the traditional ways to deal with SMEs financing? Is Fintech the only ONE that causing disruption to Banks? How Fintech helps reshape the new ecosystem of Trade Finance What are the major hurdles? Some food for thoughts
  3. 3. Financial Challenges for SMEs & Start-ups Small and medium-sized enterprises (SMEs), which account for 80 to 90 per cent of Asia-Pacific businesses, have played a crucial role in stimulating domestic demand and international trade in the region through innovation, job creation and technology. After credit crunch in 2008, left with less capital to lend, banks have raised interest rates for SMEs, which they are already reluctant to lend to. As a result, the SMEs now have little bargaining power over lenders because of a lack of fixed assets and poor credit records. But even as their role in strengthening national economic growth seems to have received much attention, lack of access to finance has been a key constraint on the growth of SMEs. Financial systems in Asia and the Pacific have improved in the past two decades, however, inadequate infrastructure, weak networks of financial institutions and poor coverage of banking facilities inhibit the timely availability of trade finance to SMEs.
  4. 4. What are the traditional ways to Handle SMEs Financial issues problems The "bricks and mortar" culture, which banks and SMEs are both accustomed to, cannot be changed overnight. It takes time for banks to learn about the operation of SMEs in order to have a better understanding of the credit risks of SMEs in general, and to set up an effective support mechanism for assessing the credit risks. Banks will require high equity contributions, collaterals, loan covenants, credit and personal guarantees or even guarantors.
  5. 5. Is Fintech the only ONE that causing Disruption If traditional banks fail to keep up with the ever-changing demands of the industry, they could face the danger of becoming obsolete The FinTech sector is a double-edged sword for banks, Said Ms Susanne Chishti, chief executive and founder of FINTECH Circle On one side, the FinTech sector and the tech giants that have started to offer financial services and lending, payments are clearly the most disruptive threat the financial services industry has ever seen in its history. On the other hand, FinTech firms provide solutions for banks which cannot only speed up the internal innovation and transformation processes of existing financial services players, unlock the power of Big Data internally and most importantly help banks to survive long-term, as many tech firms will start to offer financial services to their existing millions of customers globally.
  6. 6. Is Big Tech, Not Fintech, Causing The Greatest Disruption To Banking? Amazon Web Services (AWS), which provides services to dozens of finance companies, including Aon, Capital One, Carlyle, Nasdaq, Pacific Life and Stripe Brazils Banco Bradesco Facebook app, which allows customers to conduct day- to-day banking from Facebook, relying on the social networks customer data analytics to target users Capital One and Liberty Mutuals Alexa solution (a voice-activated personal assistant), which allows customers to check balances, pay bills and track spending through these devices
  7. 7. We address a market failure Unfulfilled demand for credit SMEs struggle to access export credit markets at scale. Large Exporters seek cost-effective, sustainable and flexible sources of liquidity. 1 2 Excess supply of liquidity Professional Investors are interested in trade receivables with attractive risk- return and limited correlation to other asset classes but cannot originate or manage their operational complexity.
  8. 8. Trade receivable discounting at a glance EXPORTER HK Based SME DEBTOR European Buyer VELOTRADE For example: A HK based SME sells to a large European Buyer. The payment is due in 60/90 days. The Exporter needs cash advance to be able to fulfil financial commitments (such as rent, salaries, bills) without waiting for the invoice to become due. INVESTORS Velotrade Marketplace 1. Invoice Also by discounting the invoice the Exporter would be able to get cash immediately deployable to increase the production (selling more earning more money).
  9. 9. Very large addressable market Source FCI & HKTDC Growth YoY: Receivables discounting, not a niche! HK SG KR TWWORLD CHINA USD 3 Trillion USD 400 Billion USD 200 Billion EXPORT Related: 7% 22% 12% 20% 8% 50%
  10. 10. End-to-end solution for corporates and investors Velotrade provides the technical infrastructure, handles the origination, carries out extensive due diligence and robust anti-fraud procedures. We also look after the settlements pre and post auctions. ORIGINATE In-house sales team targeting corporates Banks partnerships Corporate partnerships e.g., logistics companies DE-RISK Banks grade DD External information gathering e.g., Rating Agencies Internal risk assessment INSURE Partnership with Specialised Trade Insurer (Euler Hermes) MANAGE OPERATIONS Settlement Reporting Collection MITIGATE Recovery
  11. 11. We do this by using proprietary technology
  12. 12. model comparisons Benefits Banks Velotrade Non-bank lenders monetisation of invoices scalability of funding lighter regulatory burdens fast, efficient and user-friendly online service swift transfer of funds to sellers with no minimum threshold requirement flexibility to discount individual invoices transparent fee structure We are more efficient, user-friendly and flexible than banks. We are more scalable, cost-effective and flexible than traditional non-bank lenders.
  13. 13. What are the major hurdles How to prevent Fraud cases The growing risks of fraud in the $4 trillion industry have led to heightened regulatory measures, including increased checks around know your clients (KYC) and anti money laundering (AML) legislations. As a result, 46% of the larger financiers have rationalised their funding away from smaller businesses which are deemed to be riskier and cost-ineffective to serve. The global trade finance gap is currently around $1.4 trillion, of which $693 billion relates to developing Asia. 4 of products and offerings Lack of products and offerings In the fintech problem statement report produced by the Monetary Authority of Singapore, the main problems of the industry were identified to be a lack of trade credit products available for SMEs and inefficiencies in verification processes. FinTech could potentially solve these via digitisation of trade finance processes and building aggregator-type platforms to connect those who are seeking funding and those who are providing funding.
  14. 14. What are the major hurdles Blockchain enables trade information to be truthfully represented on the centralised ledger. It will revolutionise the old, manual way of information processing to enable trade processes becoming more optimised, more transparent, and less risky. This would benefit businesses of any scale to secure trust from financiers, overcoming the costs arising from KYC and AML checks. While cryptotechnologies like the Blockchain can potentially address the problems salient in trade finance, regulatory frameworks are still far from complete to ensure a fair playing field for stakeholders while ensuring the stability of current payment systems. With uncertainty in regulatory expectations, businesses and financiers are unlikely to adopt the technology right away. Benefits for all stakeholders will only be maximised where mass adoption is reached. One of the biggest challenges would be convincing the stakeholders that the security of the distributed ledgers is comparable, if not better than current proven networks.
  15. 15. Some food for thoughts 1. Dont build a Start-up, build a movement 2. Education is needed 3. Industry cooperation and active engagement issues is critical in bringing onboard the adoption of such technologies to address the inherent gaps. 4. Banks and Fintech Confrontation VS Collaboration 5. Disrupt and Create 6. Regulators Forward looking VS Conservative
  16. 16. DISCLAIMER The material in this presentation has been prepared by Velotrade Management Limited (Velotrade) and is general background information about Velotrades activities current as at the date of this presentation. This information is given in summary form and does not purport to be complete. Information in this presentation, including forecast financial information, should not be considered as advice or a recommendation to investors or potential investors in relation to holding, purchasing or selling securities or other financial products or instruments and does not take into account your particular investment objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information having regard to these matters, any relevant offer document and in particular, you should seek independent financial advice. All securities and financial product or instrument transactions involve risks, which include (among others) the risk of adverse or unanticipated market, financial or political developments and, in international transactions, currency risk. This presentation may contain forward looking statements including statements regarding our intent, belief or current expectations with respect to Velotrades businesses and operations, market conditions, results of operation and financial condition, capital adequacy, specific provisions and risk management practices. Readers are cautioned not to place undue reliance on these forward looking statements. Velotrade does not undertake any obligation to p


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