Global Startup Cities Podcast: Paris fintech offers embedded lending

Keeping up with expenses can be difficult for small- and medium-sized businesses, which may not always have cash on hand or ready access to capital. 

Paris-based fintech Defacto is seeking to solve this by offering cash advances to SMBs through embedded lending, co-founder Jordane Giuly tells Bank Automation News during today’s edition of the Global Startup Cities Podcast from “The Buzz.”  

“We believe that there’s a huge opportunity to distribute credit and distribute financing differently,” Giuly said. SMB customers can access financial services through fintech platforms they use on a daily basis. 

For example, Defacto, founded in 2021, has partnered with major European fintechs and financial institutions including neobank Qonto, French bank Banque Populaire and accounting platform Libeo, which provide products to SMBs. 

Listen as Giuly discusses the benefits of open banking in Europe, the rise of startup culture in Paris and how French President Emmanuel Macron has made entrepreneurship “cool.” 

The following is a transcript generated by AI technology that has been lightly edited but still contains errors.

Victor Swezey 0:01
Hello and welcome to a special edition of the buzz, a bank automation news podcast. Today is August 1 2023. My name is Victor Swezey, and I’m the editorial intern at Bank automation News. Today is the fourth episode of our global startup cities series, where we take you to some of the most innovative tech hubs around the world to give you a look at these startup cultures and the markets they serve. Along the way, we’ll be talking to FinTech founders from these cities about the products they’re bringing to market. This episode, we’re stopping for an aperitif in Paris, to see how the City of Lights became one of Europe’s prime entrepreneurship destinations. We’ll be talking about open banking, securing VC funding in the current economy, and how President Emmanuel Macron made startups cool in France. Joining me today is the founder of defacto. A startup using open API’s to offer embedded lending to small and medium sized businesses. Please welcome Jordane Giuly.Jordane Giuly 1:00
First of all, thank you very much for having me today. So my name is Jolene, Judy. I’m co founder and CEO a de facto. As you can tell, I’m French, I’m a Paris based French engineer. I’ve been working in startups for the past 10 years. And prior to defaqto, I was co founder and head of product at spendesk, which is a span management solution for SMBs based in Paris. So I’ve been I’ve been evolving in this, FinTech that startups, Paris seen for the past eight years now. Maybe about a word about de facto. So we launched defecto, a bit more than two years ago, with my two co founders, and we are now 18 people in the team. Basically, the problem that we’re solving is the following. So SMEs in Europe are kind of stuck in the middle between their large customers who are going to pay them in 3060 90 day terms. And the large suppliers who are asked to be to be paid very quickly. And this creates huge working capital issues for these SMEs in Europe. And we are basically, basically want to solve this. So we are offering short term financing to SMEs via our embedded lending, I would say, approach. So so first of all, what why are we doing an embedded lending to start with. So we believe that there’s a huge opportunity to distribute credit and distribute financing differently. And we are huge believer of these of the embedded finance trend, where you as as an SMB as as a customer, you can access financial services, financial products, not on your bank, I would say web interface, but from products that you’re using on the on a daily basis. And in that context, we are offering lending through different types of platforms, different types of SMEs platforms, for example, we’re working with b2b marketplaces, neobanks accounting software, financial software for SMEs and SMEs can access those financing solutions directly from their preferred solutions.Victor Swezey 3:19
And who are some of these fintechs that you partner with? Maybe say a little bit about how you embed de facto into these platforms from a technical side, and then what benefit it can provide to customers, existing customers for these fintechs?

Jordane Giuly 3:34
Yeah, so so so for the end SMBs, the the end cost customers as well as worldwide to the borders, basically, the value proposition, it’s instant eligibility results. So instead of having to go to your bank, upload your your past financial statements, which are documents that that can be like one or two years old, and wait for a few weeks. For manual reviews from your bank, with defaqto embedded in your favorite solution, you can have basically lending in seconds. And so this instant response for SME, it’s a huge differentiation because they can pilot their business and their treasury on a real time basis for the platforms that we are working with. For example, we’re working with malt with the leading freelance marketplace in Europe, they put in relationship freelancers on the sell side, and cooperates on the buy side. So we’re working with them. We are working with contoh with the biggest b2b neobank In continental Europe. We’re also working with Penny Lane, and nibio. Were accounting software and compatible software for SMEs. So what are these guys, those platforms? It’s basically differentiation they can offer have a wider set of features to their end customers, its retention and its monetization. Because they can, either they usually put these, I would say lending solutions in premium plans. So for them, it’s, it’s an upsell opportunity.

Victor Swezey 5:22
I see. And how has this notion of embedding lending into these existing FinTech platforms grown out of the open banking movement in Europe?

Jordane Giuly 5:32
Yeah, so just a word of context before. So in Europe, you have these payment service directive to which which is commonly called Open banking. That is live since 2019, I guess, in basically asked banks to expose the financial data of their customers via API. And you and following this, you have like, I would say, a huge industry, huge number of players that that got built. On top of those, you have like payment aggregation players or payment initiation players, who are basically offering to the ecosystem, access to bank data via API and also payment initiation via API. So that’s one thing on the on the one hand, and so second, so how we leverage that this de facto. So credit is not new, right? There’s always been a need for credit, there will always be need for credit. But I would say the two assumptions that we’re making is that we can innovate in terms of distribution. And in terms of scoring, so on the distribution side, we are leveraging, we are making the bet of embedded lending. Because these drives with, say, user experience to the next level. And on the underwriting side, thanks to open banking, there are huge levels of automations in terms of the data that you can access to the data that you can process to build your scoring and run your your models.

Victor Swezey 7:15
So you know, given the existence of this open banking ecosystem, and in Europe, and you know, this, this growing startup scene in France, maybe we can zoom out a bit. And can you tell me a little bit about the startup ecosystem in France, maybe compared to the rest of Europe? And then maybe also compared to the US and maybe draw some contrast there?

Jordane Giuly 7:36
Yeah, sure. So obviously, very proud of what’s going on in France nowadays. If we put this out, if we put aside all the riots and stuff, due to some I would say, you know, necessarily political reforms. I think it’s been it’s been a few years since France, in Paris, is the second hub in terms of startup investments in Europe, London, London being the first and I think Balinese one is winning against the Berlin has been winning against London for the for the past few years. So the startup scene in in Paris is pretty young, right? When I launched my first startup 10 years ago, it was like a very small ecosystem, very few French VC firms, very few investments, no accelerators, or like incubators program. And now you have like, the biggest names in terms of VC like, I don’t know, Sequoia XL index a16z, just to name a few. We’re investing more and more in Paris. They don’t have Paris offices, yet. They still kind of based in London and operating from there. But still, it’s promising. In Paris, now you have the biggest incubator of startups in Europe. It’s called stache wife. And I think it’s the it’s, it’s, it’s a place where you can have like more than 1000 startups. So so so the there’s a real ecosystem that is also maturing, you have more and more I would say, Li cons in in France. And you have I would say, more and more of a second or third time founders will manage to exit their first company. reinvest a bit as angel investor on the one hand, and launched new startups on the on the other end. So it’s both a growing ecosystem and the maturing ecosystem, which is very exciting. Yeah, and

Victor Swezey 9:46
I think, you know, from from a government perspective, President Emmanuel Macron has been involved in trying to to add some fuel to that fire in terms of France’s startup, eat Also some and that’s kind of been one of his campaign promises and something that he’s made as a as a policy goal. Can you say a little bit more about some of his policies and maybe the ways that the government has helped create and grow France, as you know, what he calls a startup nation?

Jordane Giuly 10:17
Yeah, so so. So first of all, President Macomb kind of what I say, made startups, you know, be cool, right. And so he evangelized I would say, working in startups, you know, taking risk, entrepreneurship, all these kind of values. That before him was not that was not, I would say, the preferred carrier path for friendship engineers, or business guys, etc, the preferred career paths, were more doing bank or consulting, etc. And now, I would say, being an entrepreneur, and aiming for success, ending for monetary success as well is, is more broadly accepted in France, on the one hand, and second, I think prison, Miko contributed to build, to increase confidence in terms of form investors in France. And that’s that that’s really a big part of it, right? You need to build long term confidence from investors to attract investments, to develop projects, and to kind of have this the whole ecosystem maturing. And lastly, there are more and more firms from either like the French public bank, that’s called BP and also more and more investment firms, French investment firms that are dedicating, I would say, first add funds and investments to startups and to innovation. So all of that is contributing to going the ecosystem.

Victor Swezey 12:13
So what’s the what’s the environment like in Paris now for entrepreneurs? And you know, maybe what is that? What does that have to do with you know, Paris’s rich cultural history legacy? How does that history plan with the current startup environment?

Jordane Giuly 12:29
Yeah, so. So I’ve been, I’ve been based in Paris for the past 10 years, but my, my co founders, I’ve both had some pretty extensive international experiences. So they can definitely compare Paris today, compared to Paris like 10, five years ago, and a few things we see more and more, I would say, French guys will have been to working in the US in the past few years, or in London, etc, coming back to friends, actually, and kind of importing or their knowledge or their experiences in the, in the Silicon Valley or in New York or in other startup hubs, and contribute to bringing back knowledge, expertise experience, to Paris, that that’s one thing. Another thing that I can say is that compared to other places, the cost of hiring engineers, it’s is much cheaper in Paris compared to the US. And so you can see companies that have their I would say, r&d hub in Paris, although they are there, they have their their sales and marketing, you know, functions in the US to basically sell on the on the in the US market.

Victor Swezey 13:50
So, you know, looking forward into the future, what are some fintechs coming out of Paris that you think our listeners should be watching? What are some fintechs that you think are pretty exciting coming out of Paris right now?

Jordane Giuly 14:03
We are so super, at defaqto. We really like the fintechs that allow us to bring automation to a next level. And in that context, we are working with two, I would say banking providers, which are Swan, and Mimmo bank. So swan is a banking as a service provider, and mobile bank is actually a bank, they have this credit institution license, but they build their I would say bank banking offering with an API first approach. And I think I think it’s great. And the last one that will actually mention is one of our earliest partners spinny line. We are basically you know, building I would say QuickBooks, in France and they are kind of innovating in this accounting space.

Victor Swezey 14:56
Thank you for that. Um, and you just raised a one interesting See 7 million euro securitization, in partnership with Citi and viola credit. So tell me about what you’re planning to do with with that new race.

Jordane Giuly 15:10
It’s a so it’s. So basically, we’re super happy to be partnering with Citigroup, which is one of the largest banks in the world. And we’re also working again with Viola credit, which has been our partner since since day one. And most basically, the the announce was 167 million, you’re up to 167 million your debt facility that will allow, basically de facto to originate as much loans to our end customers and refinance those loans with the two partners that we mentioned. So it’s basically for us the opportunity to lend up to 1 billion euro per year to the European SME ecosystem that we that we like a lot and work on this on refinancing those loans with the two great partners that

Victor Swezey 16:08
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