Unlocking trade for SMEs


Everyone knows the reasons for the SME trade finance gap: small firms don’t have the time or the collateral to get their loan applications approved, while banks are nervous about having SME risk on their balance sheet. But what if SMEs’ owners or managers could pay for their B2B supplies the same way they buy their consumer products? Margrith Lütschg-Emmenegger and Marius Savin, co-founders of Octet Europe, share their insights on unlocking trade for SME’s.

For the SMEs’ owners or managers, procurement can be the cause of many headaches. Without the time or resources to do thorough KYC and AML checks, companies can never be sure who is on the other side of a transaction, which means they can either take the risk upon themselves, or they have to resort to letters of credit. These are granted through a cumbersome process, with paper documentation being sent back and forth several times between the buyer, the seller, and their respective banks.

E-commerce platforms and marketplaces are increasingly popular for procurement, for good reason: not only do they allow buyers to compare prices on hundreds of different options, but they also facilitate more secure payments, at least in regulated markets. However, this convenience comes with a price – an Octet Europe study found that suppliers hike up their prices by 10% to 20% to sustain the marketing and administration fees charged by marketplaces, as well as to manage cash flow while they wait for these platforms to transfer funds back to them — which can take one to three weeks depending on the contract.

In all cases, the paper trail can be very hard to follow. When a CFO or someone in a company’s finance department is tasked with making a payment, they may not have access to the full history of transactions. They could be dealing with a purchase order initiated three or four months ago and which went through many adjustments, but all the CFO or someone in a company’s finance department has is an invoice with the amount that needs to be paid, with effective limited or no visibility over what happened before the invoice was sent for payment. Moreover, any discrepancies in documentation could prevent buyers from clearing the goods from the shipping agent or customs.

Powering B2B procurement for European SMEs

Many in the trade finance space are eagerly awaiting block chain developments to bring more security and visibility to transactions, with the hope that this will unlock liquidity for SMEs; but shared ledger technology has already been in use for years. Octet Europe is a Fintech franchise of Octet Australia, which has been facilitating digitized trade through shared ledgers and card payments for the past 10 years. The Octet Australia platform handles over US$2bn in annual supply chain transactions between more than 100,000 members in over 68 countries. Now, Octet Europe is offering to bring this tried and tested model to European businesses.

Intra-European trade alone is worth €3.5tn, €2tn of which is done by SMEs. Add imports from outside the European Union, and the procurement volumes conducted yearly by European businesses reach €5.5tn, of which almost €3tn is done by SMEs. And yet, small companies are the segment most underserved by traditional financiers. There is a tremendous opportunity to power SME procurement in the region, but we need to rethink the way we serve this segment.

First, we need to help SMEs with their KYC and AML processes: upon registration of a new member, Octet makes a full KYC/AML screening of the company, and when the vetting is successful, the member receives user-based rights with a two-factor authentication access. This means that all the companies in our community are KYC-verified, and only authorized personnel can access the platform to make transactions.

Users with access to the Octet platform can only make payments to pre-approved sellers, which bring more control and discipline into the procurement process, adding a layer of comfort for members.

Octet is not a marketplace, so once they are registered; buyers and suppliers are connected on a one-on-one basis, which gives both parties the comfort that no competitors can have access to the valued relationships they have created through hard work. Parties then agree on which documents will be compulsory in the transaction: invoices, shipping documents, delivery notes, inspection certificates, or anything else. All documents are presented electronically on a secured shared ledger, meaning that the information is available to both parties in real time, and any modifications are tracked and time-stamped. Without presenting all these documents digitally, the seller cannot claim payment.

Being able to transact on a secure platform like Octet Europe, with all KYC/AML checks completed for them, and with instant access to the full history of trade documents, removes many of the risks that can sometimes take SMEs out of business completely, especially on the international stage.

For financiers — banks, card issuers or others — there are many benefits to using such a platform for business: access to qualitative information on the ways each company spends and reimburses credit, as well as visibility over each transaction’s documentation thanks to the shared ledger. This is expected to increase the limits available to SMEs, by making transactions more secure and transparent for funders.

New opportunities for cards in the B2B space

Then, there is the question of payments. In the consumer world, payment habits are completely different from what they were a decade ago. In Europe, cards have replaced cash. So why is it that B2B payments are still executed through slow and cumbersome bank transfers? Imagine if a CFO or someone in a company’s finance department could pay for procurement the same way he or she pays for a TV at home — by card offering various repayment options. For SMEs in particular, this would be a game changer.

Currently, cards in the commercial space are mainly used for travel and entertainment, to pay for fuel, hotels, flights and dinners. But recently, card schemes have recognized their potential in procurement spending. In Turkey, cards in the B2B space are already seen as credit tools: card issuers incentivize commercial users to do their procurement through designated portals, and when they do so, the card issuer enables credit, with repayment in several installments and in up to 12 months.

With Octet Europe, card payments are initiated on the platform, through a 3DSecure merchant facility which authorizes the debit of the card and transfers the funding to the client’s account and from there, to the seller.

Increased competitiveness

The cost of transacting online can make SME trade a lot less competitive: companies tend to raise their prices by anywhere between 2.5% — if they use an Open Banking facility — to 20% on an e-commerce or marketplace platform. By conducting transaction on a dedicated trade platform such as Octet, SME’s can regain competitiveness. First registration is entirely free and gives firms instant access to a state-of-the art supply chain platform. Second the fee applied to transactions is lower than the costs of sustaining a market place or e-commerce presence.

On top of a secure environment to transact, where counterparts are KYC and AML-checked and payments are protected by several layers of authentication, Octet Europe can give companies room for commercial negotiations within the procurement process, adding to the savings for both buyers and sellers. This model has been successfully applied in Australia, but it is new to Europe, where it has the potential to revolutionize SME trade finance.


To learn more, join the Webinar on April 16