Partnership, Not Reinvention: How Trade Credit Insurers Can Achieve Revolut-Like Progress.
by Mike Holley Board Member, Strategic Advisor at SCHUMANN.

InsurTech’s hard reality in a niche market
In the last few years I have had the pleasure of business banking with Revolut. I found the experience was refreshing compared to legacy banks – the app is so fresh and easy to use. Here is an example of a successful FinTech.
I understand Revolut are entering the trade finance market, which raises the interesting prospect of us in the trade credit community working with them.
This got me thinking about Insurtech and FinTech in the short-term trade credit world. There are some niche FinTechs in trade finance, but they have struggled to capture real volumes, despite having frictionless and user-friendly interfaces. In the trade credit insurance space, it is unfortunate that some of our Insurtech start-ups have not made it, despite much excellent innovation. In contrast the other (non-Insurtech) start-ups in our industry over the past 15 years have all flourished.

The scale problem: high build costs, modest returns
It could be that the issue lies in scale. Revolut has a very wide canvas on which to operate, whereas we are niche. Revolut made a profit before tax of around £1 billion in their last published accounts, so they can afford to invest considerable sums in technology. That profit figure is roughly how much all players in our industry combined make.
In contrast to Revolut, a trade credit or factoring start up can at best hope for relatively modest profits, simply because the canvas is not so wide. Targeting SMEs may lead to an even slower build up. An insurtech or fintech may need to invest £20m in technology to launch innovative, frictionless solutions. It is hard to get the necessary return for investors with this balance of high cost against modest profit.
Even for legacy trade credit insurers, technology is a challenge. It is very expensive to maintain and update legacy systems, and to keep down the technical debt. It is also quite hard for any large company to display the agility in new tech that smaller companies can achieve.

 

Sharing the burden: the economics of platform models
At SCHUMANN we are very well aware of the cost of building new systems, and maintaining legacy ones, for our industry. The fact that the burden is shared across more than 100 customers improves efficiency, and we empathise with the InsurTech, FinTech or legacy insurer that has to carry the burden all alone.
I was interested to hear that there have been encouraging results in trade finance when FinTechs and legacy banks partner up. The FinTech provides the agility and innovation only possible in their environment, while the legacy bank offers the distribution and risk management that FinTechs may otherwise struggle with.

A model for trade credit: collaboration over duplication
Perhaps this can be a model for trade credit insurers too. It can be tempting to want to do everything on our own, but we really are stronger together. Partnership between InsurTech start ups and existing credit insurers could surely be beneficial. Meanwhile partnership between agile technology providers (like SCHUMANN) on the one hand and insurers, financiers, brokers and insureds on the other offers the prospect of faster innovation and growth for the industry. Another option is for groups of users to unite together to procure a system jointly. SCHUMANN has good experience of this where, for example, a whole trade association unites to procure jointly a credit risk management system. Trade credit brokers could perhaps benefit from a similar approach.

Perhaps, through cooperation, the trade credit insurance industry can produce its own Revolut-like progress. A burden shared is a burden halved.