Populous, A New SME Lender, Puts Blockchain Into Invoice Finance

There is a sea of new FinTechs looking to challenge traditional banks in the U.K., and there is another sea of FinTechs exploring how to take blockchain from a hypothetical disruptor to a real-world one. A new company, Populous, is looking to be a strait that connects these two seas.

The U.K. firm made its introduction to the world last week, announcing plans to formally launch in a few months. Populous aims to use blockchain to disrupt the SME finance space, in particular the invoice financing industry, using distributed ledger technology to generate and transmit smart contracts and create a digital marketplace through which small businesses can finance their unpaid invoices.

In an interview with PYMNTS, Steve Williams, founder and CEO of Populous, said his company is “one of the first, if not the first, smart contract-based platforms with a real business plan attached to it,” speaking to the recent rise in papers and experiments that explore blockchain. He added that not only is Populous looking to introduce a real-world use case for blockchain-based smart contracts but that the firm will also aim to play a role in the financial services market.

Williams noted that he doesn’t have anxieties related to introducing a working blockchain solution and that the only anxieties he and his team may have would be related to the “excitement,” he said, of the company’s actual launch, planned for next month.

It’s a bold move considering analysts’ discussions as to whether or not blockchain can actually disrupt the financial services market as so many have hypothesized.

But, some research said, it may be time.

For instance, as outlined in a recent study of government leaders across 16 countries, 14 percent of those leaders plan to dive right into blockchain in the coming year, and that includes in the area of contract management.

“When assets are registered or transactions are recorded on blockchains, the quest for transparency and right to privacy needn’t be at odds,” IBM’s IBV research concluded of the potential of blockchain. “On blockchains, data can be shared widely, seamlessly and, when needed, anonymously.”

Again, however, there is a difference between researching, developing and putting faith in blockchain technology and actually putting it to use in the real world. For Populous’ Williams, banks’ lack of working blockchain solutions thus far is something to take note of.

“I agree that big banks are a long way off adopting the technology,” he said. “There’s been a lot of hype and misunderstanding about what blockchain is and where its use case exists.”

But the executive added that, for the area of smart contracts and invoice financing, blockchain is ready.

“For our purpose,” he continued, “it is mature enough as it has just further automated one aspect of the overall Populous platform and [is] a perfect partner to the additional automation our scoring engine provides. It’s definitely a massive help and not a hindrance.”

In the area of financing invoices, there are already copious amounts of hindrances SMEs face. Late payments have become one of the largest issues in B2B payments in the U.K., and as Williams explained, regulation there has struggled to make a true dent in the problem.

“It’s up to the government to overhaul public services, but retail is under so much strain to undercut,” he said. “For example, the Walmart model is to pay [suppliers] once goofs are actually sold, and this model of competition — or anticompetitive practice, depending on how and who is affected — found its way to the high street.”

In other words, regulation can’t combat late B2B payments alone; there has to be an entire overhaul in corporate business models, Williams explained, as well as “a different incentive structure or an acceptance that this is the norm and to create opportunity at an individual level to source other forms of cash flow that enable growth.”

That’s where invoice financing comes in. If small suppliers are at the point where they are willing to, or must, accept that late payments are a part of their realities, there needs to be new ways for these SMEs to access financing. Alternative finance in the U.K. has exploded in recent years, with many platforms identifying this very issue of late supplier payments, compounded with banks’ reluctance to lend to small businesses, as having created a critical need in the market.

Williams added that, today, SMEs need transparency, less administrative work and faster settlement when accessing financing. And for Williams and Populous, the way to automate, boost transparency and accelerate the process is to integrate blockchain into the solution. As Populous gears up to emerge from beta and open its invoice financing solution to the masses, the company may need to do a bit of convincing for borrowers weary or unfamiliar of blockchain, but its CEO is confident Populous will be a strong competitor.

“We prefer to embrace change and spend cost savings on reducing risk,” he said, “and on offering better rates for borrowers.”