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An e-commerce merchant is a unique type of business. They are built on top of a platform like Amazon, eBay or Shopify and as such there is a great deal of empirical data about their business. Which means that there is rich data available for lenders to feed into their underwriting models.
My next guest on the Fintech One-on-One podcast is Ricardo Pero, the CEO and Founder of SellersFi. He saw the opportunity for a lender focused on e-commerce when a friend of his with an Amazon store was looking for a reliable source of working capital. He realized that lenders were not serving this market segment well.
In this podcast you will learn:
- How Ricardo got the idea to start SellersFi.
- Why he started with Amazon and how they have evolved since then.
- The number of e-commerce platforms they work with today.
- The suite of working capital solutions they offer.
- Why they created a digital wallet for multiple currencies.
- How they gather the data to make an underwriting decision.
- When they use accounting data.
- The reasons they decline loan applications.
- The impact of Amazon closing down their own lending program.
- The different sizes of merchants that are connecting to their platform.
- The scale that SellersFi is at today.
- How demand is trending from e-commerce merchants.
- Ricardo’s vision for SellersFi.
Read a transcription of our conversation below.
FINTECH ONE-ON-ONE PODCAST NO. 499 – Ricardo Pero
Peter Renton 00:00
Welcome to the Fintech One-on-One Podcast. This is Peter Renton, Co-Founder of Fintech Nexus, and now the CEO of the fintech consulting company, Renton and Co. I’ve been doing this show since 2013 which makes this the longest running one-on-one interview show in all of fintech. Thank you so much for joining me on this journey. Now let’s get on with the show.
Peter Renton 00:23
Today, on the show, I’m delighted to welcome Ricardo Pero. He is the CEO and Founder of SellersFi, previously known as Sellers Funding. Now, SellersFi is a super interesting company focused on the e-commerce space, or e-commerce merchants, to be precise. They provide working capital and a range of different services to e-commerce merchants, we obviously dive into all of that. Now e-commerce, as you can imagine, is dominated by Amazon. SellersFi has a special relationship with Amazon, which we do delve into in some depth. We also talk about underwriting, because the great thing about working with these large e-commerce platforms is they’ve got a lot of data. They have APIs that make it available, make it really easy to use this data and plug all that into underwriting models to make lending decisions. So we go through that process. We talk about the scale that SellersFi is at today, and Ricardo’s vision for the future, and much more. It was a fascinating discussion. Hope you enjoy the show.
Ricardo Pero 00:35
Hey, Peter, thanks for having me here. It’s a pleasure to see you again.
Peter Renton 01:29
Welcome to the podcast, Ricardo.
Peter Renton 01:47
Yes, likewise, the pleasure is all mine. Let’s, let’s kick it off by giving listeners a little bit of background. Give us some of the highlights before you started SellersFi.
Ricardo Pero 01:59
So I was born in Brazil. I came to the US in 2000 working for Citibank, working sales and trading. Built my career there. Started with FX and rates, all the way to managing sales, trading desk, with covering multi asset classes. Left Citi in 2007 and moved to Merrill Lynch. You know, a little crisis hit the financial markets in 2008 and then I was kind of rescued by JP Morgan, where I spent the last eight years of my career working in New York for a big financial institution. Then in 2016 I left. I wanted to build something new for myself, something that I could leverage my experience, but also learn something new. And that’s when SellersFi came, first the concept, and then we launched the company in 2017.
Peter Renton 03:03
Okay. Let’s dive into that process a little bit. You were working on Wall Street. You decided you wanted to build something. How did you settle on the idea for SellersFi?
Ricardo Pero 03:16
For six months or so I did a lot of research, in different segments. I looked at lending, looked at reg tech and wealth tech. And one day I got a phone call from a friend who was selling wholesale and moved his business to Amazon. His sales quadrupled in six months. He called me and said, “Look, I’m looking for a reliable source of working capital, because if I keep up with this growth, I won’t be able to finance all that with his own capital. And he also, he said, I need to reorganize my finances. I need I need to have a better understanding of all the fees that Amazon charges me from, like advertising logistics and commissions and so on. In my mind, I thought, Okay, this must be like piece of cake, right? E commerce, multi billion dollar industry, Amazon, who doesn’t know Amazon? And I went to talk to first my former employers, like Citi, Bank of America, JPMorgan Chase, and to my surprise, they had no clue, because most banks, they lend to SMEs, and they’re like a predefined box, and you rely on personal guarantees. You rely on physical assets as collateral, like receivables, for example, and then E commerce changed the whole thing, the whole dynamics, because with Amazon, you don’t need a warehouse. You can have all your fulfillment done by Amazon, I learned later, I mean in time, that most of our clients, they start their business financing themselves based on their own personal available credit lines. So you have, like, a credit card that you’re purchasing goods. And once you start scaling to a point where you need, like, serious money, your personal credit score is worthless because you’re already maxing out your available lines. And so a FICO score, or, like a VantageScore, it’s not a good indication of of your credit worthiness, and banks don’t, don’t get that now they are learning, after seven years in the making, some banks have been doing great work on that space, but still, there is a lot of room for for improvement and understanding of the sector. And then when you look at E commerce in general, after figuring out a solution for my friend, I did some more digging into SMB lending, and one of the biggest challenges for small business lending is how reliable the data is because if you if you go to a QuickBooks, if you go to a Xero, if you go to any accounting software, you can go prepare a P&L, prepare a balance sheet and share with a lender, and 30 seconds later, you can unsave all the work and change all the data. Right? It’s not it’s not standardized. Is not reliable, and with the marketplace, it is actually something quite interesting, because once you have your API connected, you have access to standardized data that cannot be corrupted by the applicant. The data comes straight from the marketplace or the e-commerce platform to us, and that’s a big advantage, because you can create a credit model based on that data, based on the KPIs that you know that you’re gonna upload from from the platform. And that was a big plus for us. So when I started the business, the first three hires were like data scientists. The idea was to build a credit model that we could rely mostly on the e-commerce data, unless it was less about personal credit scores or bank account information and more about e-commerce data. And that’s what we did.
Peter Renton 07:41
Well, I do want to dig into the underwriting in a little bit, but before I do, let’s just talk about how you’ve kind of grown the business you’ve, you know, you obviously, you started just with Amazon, right? Just funding Amazon businesses. How have you evolved over, you know, the last seven, eight years since you started.
Ricardo Pero 08:01
One thing that I realized was we wanted to work with on a relative basis, larger business, more well structured business, and I soon realized it was about client lifecycle. Most of our clients, they start with Amazon, but once they’re they start building their presence, and they start building a presence for their brand, at some point, they will look to diversify into other channels. How you look at Walmart now is probably the fastest growing marketplace in the US. You have Shopify. You have other omni channel platforms where you can leverage and start selling outside of Amazon, right? And my idea was okay, if I rely only on the Amazon data, I’m going to be living out a lot of data and a lot of sales from other platforms, especially for this merchants that are like white label guys that are building their presence elsewhere. The other the other thing was a way for us to to differentiate ourselves from Amazon lending. Back then Amazon landing was our biggest competitor, right? But they only had access to the Amazon data. They had no clue of you know, Shopify data or Walmart data, eBay data. So the idea was, I’m gonna create value to my customers by connecting to multiple platforms. I’m creating value to my shareholders because we become we have more data to perform a better underwriting, and that’s how, how we did it. So that was, I would say, the first wave of innovation that that we establish here in the company. Nowadays, we work, we have connection, connectivity with about 10 platforms. Okay,
Peter Renton 09:55
interesting. And so what are the the suite of products you offer? Exactly. Today, can you just run through, obviously, you have, like a working capital line of credit, is it or is it alone? Tell us about what you
Ricardo Pero 10:07
have. Yeah, we have a suite of working capital solutions, from lines of credit to term loans. We have daily payouts, daily payout solutions to Amazon sellers, maybe soon in the future, extending this to other marketplace. So it’s less of lending solution and more of a payment solution in a sense. We are automating, looking at previous day sales, discounting any fees and potential write offs that the client has, and we advancing that money on a daily basis, resetting the clock on a bi weekly basis or monthly basis, depending on the cycle that marketplace pays the merchant. We offer a digital wallet and a digital bank account. We have established that digital bank account in partnership with Citi to offer our clients a banking platform so they can receive marketplace payouts in dollars, CAD, euros, pounds. Citi has a global network of digital accounts that we can leverage. And the digital wallet, in a way, addresses, it addresses two things, first, our ability to automate and and scale in a very structured way, where we can mitigate our operational risk. That was the initial goal when we established the digital wallet, and kind of you aim for one thing and you end up hitting another thing, we soon realized that about, I don’t remember the source, but I think was marketplace post that put something together. But about 50% of merchants selling in the US are foreigners, and in a way, when we offer the digital wallet, we are offering a solution to these foreign sellers selling in the US, they can receive the marketplace payout and close the FX, repatriating the proceeds from their sales back to their home based country, and also they can pay their suppliers in different currencies using our platform, and this is all integrated with our working capital solution.
Peter Renton 12:28
Interesting, interesting. So, so it’s mostly the international people that are using this. Like, do you find the is there any advantage for an American business using this wallet, or is it really for the International vendors,
Ricardo Pero 12:40
the US business, they can benefit because they have an integrated working capital solution.
Peter Renton 12:46
Ah, gotcha,
Ricardo Pero 12:47
They will probably be paying less in FX rates with us than they pay with their bank or other provider. We can bundle the working capital solution with their facts and be extremely competitive there, right?
Peter Renton 13:03
Okay, so I want to dig into the underwriting here, because I think it’s interesting. You mentioned that lot of businesses, they’re on Amazon, you know, they might be on eBay, they might be on Shopify. Tell us a little bit about how you gather up the data in order to make an underwriting decision.
Ricardo Pero 13:21
When someone comes to us to apply for a business loan or line of credit, they connect their store. It can be like multiple connections. Can be Amazon, eBay, Walmart. They can connect with Shopify, so on. So they connect all the platforms that they work with the moment that they connect, we upload the data and we consolidate the data, so we assign a risk scoring per marketplace, and then we consolidate that. That risk scoring points to indicative terms, meaning amount, maximum term in indicative pricing. One of the biggest concerns that I had was how I could balance the usage of technology, and in this case, AI, because it’s a it’s a machine learning model that suggest the pricing without losing the aspect of the human interaction. Most of our competitors, they have, and you see that left and right when you when you have like you see airlines, you see banks, you see every everywhere you go. The first interaction is with a chat bot, like you’re talking to a machine. But here, when we started, we started assigning a credit, a success manager, to that relationship, so the person knows that there is someone else looking at their application, and there is, it’s a phone call away. If you look at our ratings, ratings on and comments from clients on Trustpilot and so on, there’s a lot of mentioning about our sales team and the support that the sales team provides. So the underwriting leverages a lot of the of the marketplace data and historical payouts that the marketplace has to offer. But we also look at, we have integrations with with credit bureaus like Experian, TransUnion and so on, to check additional data from the market, from from the owner and from the business. We have a partnership with Experian, where we we provide data of all the good payers, in a way, we are helping the company to create a better credit scoring for themselves, detaching the company’s credit score with the owner’s credit score, so the company will be down the road able to to secure additional funding, additional financial services without having to rely on the owner’s personal credit score. Right, right?
Peter Renton 16:20
So you haven’t mentioned accounting data. Are you still are you pulling, like the QuickBooks, NetSuite, Xero data in the underwriting process as well, and are you doing that in an automated fashion?
Ricardo Pero 16:32
We require that for larger applications, not for smaller ones. The one thing that we require is the connectivity with bank account, right? So we cross check the information from the bank account with the information from the marketplace. Are you
Peter Renton 16:49
looking at the expense side then? Because obviously there’s going to be different companies that might have very similar, you know, volume on Amazon or eBay or whatever, but run their business very, very differently, and one’s a good credit risk, and one is not. How are you doing that?
Ricardo Pero 17:06
Some of the information we can get from financials, and we have, again, depending on the on the size of the loan, we have a call with the applicant to understand better their terms with their suppliers and so on. So we can model and offer a solution for them that actually is suitable for their cash flow needs. So, if they need, you know the lead time is 90 days from purchase order to sale, we can offer them a term loan with a 90 days interest only, with no principal amortization during that process, because it’s even an educational process the new applicants, they’re getting to know us and getting to know the products and solutions that we offer. So in order to get that better understanding and offer the right solution. I mean, there’s nothing more important than having a dialog, right? You we can make estimates on cost of goods sold and terms on averages, but depending on the size of the transaction. I mean, a phone call is or a video call, in this case, is is more valuable than anything else.
Peter Renton 18:25
What causes you to decline a loan? Maybe you could tell us some sense of how, like, what is the approval rate?
Ricardo Pero 18:33
I would say reasons that makes us decline applications, probably low margins that don’t support a larger facility. When you have not you don’t have enough free cash flow to support additional debt, that’s probably the number one. Declining sales also play a big role. I mean, we’d like to see at least stable business. Sometimes there are reasons to see declining sales, but and we make exceptions, but at least stable to to growing business, we prefer to work with those. I mean, we have over 10,000 stores connected so we know how e commerce in general is performing and these stores combined, they represent about 1% of e-commercecommerce in the US already.
Peter Renton 19:26
Wow.
Ricardo Pero 19:27
It’s a large number, I would say. And the third aspect is any relationship with other lenders that puts us in a junior position against other lenders, if the companies are ready to leverage leveraged and we are too junior in the capital stack, that will put the the applicant in disadvantage for approvals.
Peter Renton 19:50
OK. So I want, I want to talk about the Amazon lending program that you actually mentioned before they discontinued this program. I imagine that was a good thing for you guys. I mean, what was the impact and how have you kind of taken advantage of that?
Ricardo Pero 20:04
We secure a direct relationship with Amazon now, where we are actually pre qualifying merchants in in in partnership with Amazon and offering our solutions inside the Amazon dashboard, sellers in Seller Central. So having this enterprise relationship with Amazon, of course, we gain a lot in terms of ability to have an open dialog with them, data sharing and so on. So that was a major improvement. Remember, like the first six years, seven years in the making, the company got the APIs. We got the APIs driven by customer demand. Right now we have a direct dialog with with the marketplace, in this case, Amazon. So Amazon is discontinuing their offering offerings, and we are stepping up. I think that they are doing a fantastic job in terms of managing our relationship with them, managing customers expectations on that transition from from an Amazon lending program to to a broader range of financial solutions provided by multiple partners. And I think was a very smart move on their way.
Peter Renton 21:32
I read, I think that you, you allowed to bump up your credit lines, right you now? I think was it 10 million is the max that as part of that deal.
Ricardo Pero 21:41
Yeah, we have worked with with different providers. So the idea is to to increase the maximum credit lines available per merchant. We’re working with now, it’s a broad range, I can tell you, like we are looking for merchants that sell as low as, I don’t know, 100,000 a year. To the other day, we had someone that was selling $400 million a year and connected to our platform. So it’s a broad, broad range of of merchants connecting to our platform. It’s a broad range of loans size that we can offer. But the combination of better data in the direct relationship with Amazon also brings some mitigating factors in our underwriting process. Right when merchants come our way, we are talking about merchants that are pre qualified based on parameters that are mutually agreed between us and Amazon, so it helps us, brings that new layer of comfort in our underwriting process.
Peter Renton 22:50
Can you give us some sense of the scale you guys are at today? I mean, and how much is Amazon kind of dominating your business?
Ricardo Pero 22:57
Last time I checked, we were aiming to do like three quarters of a billion this year in terms of loan disbursement. Of course, the probably, there is a we need to rely on some standard variation based on on credit cycle, right, and our approval process has been impacted by by the recent credit cycle, negative credit cycle had some some bad news from some of our competitors. We’re taking a more conservative approach, but I would say that we, we will do probably close to a billion next year terms of of loan originations. Amazon represents a big chunk of it. And like I said, we were the other day, I was in a board meeting. We were talking about the Amazon concentration. I said, Well, e commerce in the US is 50% Amazon, how I cannot be concentrated, right?
Peter Renton 23:56
Yes, there is that.
Ricardo Pero 23:58
Yeah, there’s like a natural concentration that you cannot escape from.
Peter Renton 24:02
And Amazon’s not in any danger of going out of business anytime soon.
Ricardo Pero 24:05
No, no, I don’t. I’m not. I’m not concerned about that.
Peter Renton 24:11
Love to get your sense, because you’ve got a unique perspective here on the state of the E commerce merchant, because you’ve got 1000s and 1000s of merchants. So they are they gearing up for, for a downturn, or how like, because Amazon continues to grow, their numbers keep growing faster than the economy overall. So is that reflected in the in the merchants that you have on your platform?
Ricardo Pero 24:34
I think that e-commerce will naturally e commerce growth will naturally outpace retail growth. Amazon will benefit, and is the leader there. We’ve been witnessing a softer consumer demand, software sales, but resilient. I’m not talking about declining sales, but a softer. Of this year, right? I’ve seen and talking to other peers and credit funds and banks. I mean, in general, you see an increasing concern about delinquencies in the consumer side. And I mean, we are in a very intense and delicate year with elections coming in, and a lot of talk now about rate cuts. But should we see rate cuts before the election, after the election and so on? So it’s, it’s being a very challenging first half in terms of, you know, approval rates and seeing some softer sales. But I would say we are, I want to believe, and I really believe, that we are kind of at the end of this, this bad credit cycle that started when rates start to spike.
Peter Renton 25:55
Okay, I hope you’re right. So last question, then, you’ve built yourself a great platform here. But what’s your vision? The seller spy, where are you taking this?
Ricardo Pero 26:05
You know, when I started a business seven years ago, cabbage was one of my benchmarks, right? And cabbage started with eBay, and it was a very similar story, right? And at some point they, I guess they look at the market and said, Okay, I’m going to diversify into other industries. And they did. And then covid hit. They got acquired by American Express. When I look at our business, and I faced that challenge many, many times, and said, Okay, should I diversify into other industries, are, should I stick with E commerce? And our idea was, and my conviction is, I’m going to stick with E commerce. I’m going to expand the product offering other financial services, not necessarily working capital solutions, but payments or business intelligence or insurance, banking. So the idea is to diversify within the same the product offering within the same industry. Look, I wouldn’t be surprised if two or three years down the road, we become like a new bank with a full list of financial services and banking products dedicated to e commerce sellers.
Peter Renton 27:26
Okay, well, we’ll have to leave it there. Ricotta, really fascinating. Chatting with you. Congratulations on your success and best of luck in the future.
Ricardo Pero 27:35
Thanks for having me here.
Peter Renton 27:39
Well, I hope you enjoyed the show. Thank you so much for listening. Please go ahead and give the show a review on the podcast platform of your choice, and go tell your friends and colleagues about it. Anyway. On that note, I will sign off. I very much appreciate you listening, and I’ll catch you next time bye.