Interview: “Fulfin Disrupts the Status Quo in Lending for E-commerce Companies”

Our portfolio company fulfin has made it its mission to support online companies in their rapid growth by ensuring access to uncomplicated and flexible financing. In this interview, one of the founders, Nathan Evans, explains how this works in detail.

Hi Nathan, we're glad you're taking the time to tell us more about fulfin. But before we start, please introduce yourself!

Hi, I’m Nathan. I’m originally from the UK but am now based in Munich, Germany. I studied physics at Imperial College and later business at Kellogg School of Management & WHU, and today I still apply a scientific approach to all business problems. I have 25 years of international experience across the finance and tech sectors, from investment banks to startups and first became involved in eCommerce in 2015. In 2018 Fredi (Dr. Alfred Gruber) and I founded fulfin to solve the problem of the lack of access to essential working capital for young eCommerce companies.

Who is fulfin, what is your business model and who is your target group?

fulfin is a Munich-based fintech with the mission to help eCommerce companies grow by providing them with the financial products and digital customer experience they demand. We currently focus on the most acute problem in eCommerce, which is access to fast and flexible working capital to drive growth. We take a software-first approach to lending, providing our clients with a suite of digital tools to help them improve their financial performance and manage their liquidity. We also digitalize the entire loan lifecycle, including underwriting, to ensure we can make better and faster decisions than banks and other less focused SME lenders. All our tools and calculators are free for our clients as we monetize our lending activities. We currently focus on young eCommerce companies based in Germany, the sixth-biggest eCommerce market in the world.

Why do you focus on the target of e-commerce companies?

There are many reasons we chose to focus on eCommerce.

Firstly, eCommerce has an inherent need for large amounts of working capital. Inventory, freight costs, and marketing all need to be pre-financed for a number of months before an eCommerce seller realizes any revenue. Secondly, eCommerce is perhaps the segment of the economy that is worst understood by banks. It is paradoxical that eCommerce as a segment can be so severely underserved in a country as overbanked as Germany. For a software-first lender like fulfin this presents a compelling opportunity to disrupt the status quo. Finally, taking a vertical banking approach and focusing on one segment allows us to build a superior customer experience and offer optimal products for our target market. From a growth perspective, eCommerce is the most exciting vertical of the economy having grown five times as fast as the broader economy over the past ten years.

How do you realize the fast and unbureaucratic provision of loans?

Our bottom-up credit scoring approach focuses on analyzing bank transactions and company data in an e-commerce context. Our proprietary algorithms enable us to assess the creditworthiness of our customers much faster and more accurately than our competitors. Over the last 4 years, we have analyzed over 2m unique transactions and several thousand eCommerce companies. This experience and the insights we have gained are key to us making both fast and accurate credit decisions. Furthermore, we obsessively focus on minimizing a client's time and effort on an application by combining a clear and intuitive UX with API integrations to harvest the majority of data points we need for a lending decision.

What criteria do companies have to meet in order to receive a loan from fulfin?

Unlike most banks, we can offer financing to companies at a very early stage. The following three basic requirements must be met by a company applying for a loan:

• the company must be registered in Germany.

• the company must have a minimum of 3 months of sales history.

• the company must generate monthly online sales of at least €5k.

Why do eCommerce companies require funding so quickly?

Ecommerce revenues are both somewhat volatile and highly seasonal. Online sellers are always testing and trying new channels, new campaigns, and launching new products to drive growth. When these measures work, they can quite quickly face a situation where they will go out of stock unless they can immediately reorder. Other times different events and effects will lead to opportunities to run profitable marketing campaigns, which also must be funded in advance. A two-week to one-month application process, which is still the reality for most banks, is simply incompatible with the reality of selling online. We offer the necessary fast working capital, which can also be used flexibly - without earmarking. Fulfin’s fast and flexible working capital loans can complement or replace more expensive or less flexible sources of finance, such as equity and long-term bank loans

How does your lending differ from that of a "normal" bank?

From the registration to the contract signing and collections, our client-facing process is fully digitalized and can be completed by our clients at home on the couch or whilst away at a workstation on the other side of the globe. We still provide access to an experienced account manager for each client who wants to speak to an expert, and we provide digital finance tools to help our clients better understand their business and manage their liquidity.

As a rule of thumb, within the e-commerce vertical, our better understanding of our clients combined with our product and contract design enables us to:

i) Have a higher approval rate for loan applications

ii) Achieve much lower write-offs than traditional competitors in the space

iii) Provide larger loans to clients

iv) Have a fast and frictionless customer experience

It almost sounds too good to be true, but our traction proves the combination of technology, financial expertise, and an obsessive focus on our target market make all of the above achievable.

What impact did the Corona pandemic have on your business model?

Our business benefited predominantly from the fact that a large proportion of our customers grew at an above-average rate. The main reason for this was that many purchases previously made in stationary retail stores shifted to the Internet.

We also benefited from the situation that many other lenders had very poor accessibility and simply failed to process applications or processed them too slowly due to a lack of staff.

Will eCommerce dominate everything in a few years, and does traditional retail even stand a chance against it?

Traditional brick-and-mortar retail, as we know it from the times before COVID-19, is "a dead man walking". In the U.S. and the U.K., where the e-commerce market is years ahead of the European one, we are seeing changes that are progressing at a much faster pace than they are here. Some long-established retail brands that have failed to embrace the eCommerce megatrend have already been forced to declare bankruptcy. The press sometimes presents the demise of traditional retail as a tragic loss for our cities and towns. Personally, however, I am curious to see what impact this creative destruction will have on our society. I don't believe that most people visit big box retailers to meet their friends and socialize, so I don’t believe the closure of such stores will be a great loss to our communities. The only part of offline retail that I can see thriving is experience or showroom shopping, and even that will be subject to challenges as VR technology and the metaverse become ever more prevalent.

Fulfin is a fintech company based in Germany. What do you think is the reason why there are so few successful fintech companies in Germany?

I don't believe that there are only a few successful fintech companies in Germany. Germany is actually a leading location for such companies in Europe. Nevertheless, it must be said that the seeds of fintech flourish most when they fall on fertile ground. In this respect, France and the UK should be mentioned as trailblazers in providing innovative state funding and reducing bureaucratic barriers. It is, therefore, hardly surprising that there has been a veritable "London Calling" for fintech companies in recent years. That notwithstanding, 53 of the more than 1,000 international tech unicorns have their headquarters in Germany. With companies such as N26, Trade Republic, and Scalable Capital, there are currently seven German fintech unicorns. Investment in this segment has increased tenfold since 2016.

Germany is overbanked, yet young digital SMEs are critically underserved. The lack of innovation in the German banking sector means that there are very exciting opportunities for young fintechs that are able to adopt and implement new technologies and business models. It's a great time to be a fintech founder in Germany!

That sounds promising, so the following question at the end: What three tips would you give to start-up founders?

1.   Understand your financing needs and the options available to you, which depend on the use of capital, your type of business, and the maturity of your company.

2.   Stay lean and move quickly. Your chance of success increases with the length of your runway. If you can bootstrap, then do so. Revenue is the ultimate validation of your startup, so try to achieve it as soon as possible.

3.   Be prepared to work extremely hard and develop a very thick skin. Most startups fail, and founders are far more likely to divorce than non-founders. Being well-prepared for tough times can help you cope with them much better when you run into them