Following in the trend of big banks partnering with fintech firms in an effort to offer more innovative solutions to customers, Merchant Capital, a SME lender, has announced a partnership with Standard Bank.
Their partnership will see them working to provide a working capital solution for SMEs by enabling them to access upfront cash advances which are repaid via their incoming point-of-sale receipts.
Merchant Capital was launched in 2012 by serial entrepreneur, Dov Girnun, as an alternative funding provider, addressing cash flow and working capital restrictions of retail SME business owners.
A mutually beneficial partnership
The conversation about the potential of working together started three years ago, says Girnun. In 2017 they ran a pilot which was successful, he adds.
The partnership is leveraging off their respective strengths, says Girnun with Merchant Capital gaining access to Standard Bank’s established infrastructure and large distribution network.
“We were really attracted by the track record that Merchant Capital has built up in the retail cash advances space, which is quite a well-known financing solution for SMEs in the US and the UK but is still a nascent form of financing in South Africa,” says Andrew Wilmot, Head of Merchant Solutions at Standard Bank.
“The agility of Merchant Capital Advance will bolster our ability to serve business clients by providing a new transactional solution that further complements the success we’ve achieved with SnapScan.”
Retail cash advance financing solutions are particularly suitable for businesses that are exposed to cyclical cash flow challenges
Initial onboarding and sales will be done by Standard Bank enabling the bank to offer it to its point-of-sale business clients, says Girnun.
The partnership will exponentially improve the customer experience as what used to take up to three days for funding approval will now only takes hours, says Girnun. Funds are now accessible within 24 hours of providing the necessary documentation to Merchant Capital, which will underwrite the cash advances.
Girnun described the agreement as “a transformational deal in South Africa’s nascent fintech industry. Standard Bank is an established, trusted brand that offers a large-scale distribution infrastructure and decades of experience with deep-rooted client relationships. Merchant Capital brings agility, speed and innovative products to the table. I think that this model of co-creation of value, by leveraging off one another’s core strengths, is going to become more prevalent in the South African financial services sector as institutions look to take advantage of technological innovation and expand their service ecosystems.”
The new financing solution is targeted at retail SMEs with a point-of-sale device and twelve months of trading history.
Addressing cash flow challenges
Financing will be linked to the monthly point-of-sale transactions of qualifying SMEs, with Merchant Capital permitted to take an agreed percentage of all future card sales until the initial advance amount has been fully paid.
Retail cash advance financing solutions are particularly suitable for businesses that are exposed to cyclical cash flow challenges due to the unique business cycle of their particular sector, this includes the restaurant trade which can be highly seasonal with customer volumes dropping off during winter, resulting in a drop in income even as electricity, rates, water and staff costs remain constant.
“Another example is the beauty and hairdressing sectors, which use a lot of imported hair and beauty products,” says Wilmot. “These businesses often buy large consignments of stock before annual price increases kick in, which can adversely impact their cash flow. The agility of Merchant Capital Advance means these businesses can get access to a cash advance in a very short space of time in order to fund an investment, which can then be paid off over the remainder of the business cycle.”