“Only the players with the best tech and a unique proposition survive in the end”: Interview with Hokodo

01/04/2021 - Ciaran McCrickard / Hokodo - Hokodo conference and brand launch, The British Library, London.

The payments sector has undergone a lot of change in the past few years. From a movement away from cash and the BNPL boom, it’s a space full of innovation and exciting new developments. Fintech startups are very much at the forefront of driving this innovation and fueling the payment transformation. One such startup is Hokodo – a pan-European B2B BNPL provider shaking things up since 2018. 

From its London headquarters, Hokodo is active in France, Spain, the Netherlands and beyond – and they’re expanding fast. Founders Richard Thornton, Louis Carbonnier and Sami Ben Hatit are on a mission to modernise the way businesses buy from each other by making it easier and safer to sell to business customers. The startup raised an impressive €37.8 million in June this year to double down its efforts to become the B2B BNPL category leader in continental Europe. 

We chatted to Louis to find out more about Hokodo, what makes them stand out from the crowd, and what’s next for the BNPL space. 

A lot has been happening in the Buy Now Pay Later payment sphere in the last few years. What distinguishes Hokodo from the rest of the BNPL providers, and what are the main advantages for the small B2B e-commerce buyer?

 There are three key factors differentiating Hokodo from other B2B BNPL providers. The first is that our proprietary tech, credit and analytics stack was built and continues to operate in-house. We have no reliance on third parties, meaning we can make decisions quicker and accept more buyers at a faster rate. Ours is the only BNPL solution that meets all requirements of B2B merchants, including credit scoring, fraud detection, payments, collections, financing and credit insurance. Merchants benefit from an end-to-end solution with maximum flexibility, latency and uptime.

The second differentiator is that Hokodo is the only B2B BNPL provider with a truly international footprint – we’re currently operational in the UK, France, Spain, Belgium, Germany and the Netherlands. Hokodo is a pan-European business with offices in London and Paris, and remote employees all over Europe. Meanwhile, our competitors are all restricted to just one or two locations. This ability to reach customers across Europe gives us a key competitive edge and is especially pertinent to marketplaces which need to do pay-ins/pay-outs in different geographies/currencies.

The third thing separating Hokodo from many other BNPL providers is the fact that we guarantee payment in full upon delivery of goods. Merchants benefit from full protection against the risk of non-payment and thus the opportunity to channel their energy and cash into business growth.

The main advantages for buyers – other than the obvious benefit of being able to defer payment and improve cash flow – are also threefold. First is all around the seamlessness of our solution. There are no tedious forms to print, fill out and send off, and buyers are able to access credit terms instantly, even on their first purchase.

The second key advantage for buyers is simple: there are no fees or costs associated with using our BNPL solution.

And, finally, buyers are able to access tailored support when they need it. We support buyers at each step of their journey, whether they’re at the checkout, have questions about their credit eligibility, or need help completing their payment.

Was Hokodo based on a pain any of the founders had in previous positions? Or was it an opportunity that you identified and decided to develop?

Yes, in a way. Richard (Thornton, co-founder and co-CEO) and I had been working together for several years in the embedded finance space, helping big banks and insurers to sell financial services at the point of need.

Then I joined Euler Hermes, the global leading provider of trade credit insurance i.e., the insurance against unpaid invoices. This product is great for supporting credit terms but it suffers from two major shortcomings.

First is the fact that it’s a very complex product, meaning that only large corporations with sophisticated finance departments can access it, usually through brokers. Paradoxically, the SMEs who would benefit the most from protection against bad debt are not able to access this product, thereby creating a massive insurance and financing gap!

Second is that it’s a product designed for traditional offline trade. It works on a 48-hour cycle which means that it can’t support the reality of e-commerce, where buyers need real-time answers to support an instant and seamless checkout. 

As I became increasingly excited about this opportunity, I was joined by Sami (Ben Hatit, co-founder and CTO) to prototype some BNPL APIs and then had a beer with Richard who was also grappling with the red tape of corporate life. At first Richard didn’t believe that an opportunity like B2B BNPL hadn’t already been capitalised on. But after many days of research, we concluded that it had not yet been invented, and, with Sami on board, the idea to build Hokodo was born.

How does Hokodo streamline the payment and the collection experience for the B2B e-commerce shop owner?

Unlike many of the BNPL providers out there, Hokodo meets all requirements of B2B merchants. This means that there’s one provider taking care of the entire process from the checkout, through credit scoring and fraud detection, to financing, payment and collections. 

Merchants don’t have to spend time and money on the resource-heavy processes of conducting credit checks on all their buyers and chasing debt from late payers, as we do all the leg work for them. This frees up resources to be spent on what really matters – business growth.”

How much have you raised in investment rounds so far? Can you tell us an indication on which verticals you spend those funds – is it more on product development, team or marketing?

Just last month we announced a $40 million Series B fundraise led by Notion Capital. We’re planning to use this new funding in a few key ways. Firstly, we will continue our geographic expansion across Europe. To date we’ve taken our BNPL solution to 6 European countries. Secondly, we will invest in new BNPL products for instore and telesales transactions. Thirdly – and the first two points help feed into this – we will use our new funding to fulfil our mission of enabling 1 million businesses to access a better way to pay by 2025.

One year prior to this announcement we raised a $12.5 million Series A round, and before that a seed round of  €2.2 million. In our early days we were also awarded a €2 million Horizon 2020 grant from the European Union’s Innovation Council.

Hokodo´s internal credit decision engine makes decisions instantly. It also developed APIs so that partners can onboard the solution in their platforms. What is your view on the API economy – and do you think paytech will be more and more going towards aggregation?

In recent years we’ve seen lots of B2C marketplaces and e-commerce sites turn to various forms of embedded finance in order to satisfy the various financial needs of their customers in the most streamlined way possible. Think about embedded payment options like digital wallets and PayPal alongside the more traditional methods like credit cards and direct debit; embedded lending options such as Buy Now, Pay Later; and embedded insurance products, such as those found on airline or events tickets websites.

These embedded financial tools are all options that we, as consumers, are used to seeing and using at the point of purchase, and they’re now becoming popular in B2B trade also. Often, these tools are connected to the marketplace or e-commerce site checkout using APIs. 

Because of the way embedded finance works – coming in at the point of need and piggy-backing another buyer journey – online checkouts have become a key place to introduce ancillary services. In other words, payments have become the entry point for lots of additional financial services, which are served to customers right when they need them.

Therefore, paytech is growing in importance and is gradually embedding more and more services. Take the example of Hokodo. Most buyers only see the BNPL payment method. However, under the hood, we aggregate many services. In order to manage deferred payments, we need to provide: instant credit checks, fraud detection, collections, insurance against non payments (aka credit insurance) and financing. All these services are actually standalone products in the offline world. We chose to rebuild some of these building blocks in house (such as the credit decision engine) and partnered with third parties for some other blocks (we’re a Lloyd’s coverholder and our products are backed by SCOR, the 4th largest reinsurer in the world). At the end of the day, Hokodo exists at the intersection of paytech, insurtech and lendtech.”

Can you tell us about your plans for the future of the startup? Where do you think Hokodo will be in 3 years? 

Hokodo’s mission is to enable 1 million businesses to access a better way to pay by 2025. So far, 32,000 businesses have already benefited from our Buy Now, Pay Later solution, so in 3 years I hope we will have achieved our current mission and be gearing up to help even more B2B buyers and sellers. Ultimately, we envision a world in which every company has access to the financial tools they need to buy, sell and do more.

What is the one piece of advice you would give to fintech founders about the BNPL space?

We’ve seen a lot of saturation followed by consolidation in the B2C BNPL space in recent years. Only the players with the best tech and a unique proposition survive in the end. So, my advice for any fintech founders entering the BNPL space is to ensure that you invest in your credit, analytics and tech stack, and make sure that the product you’re taking to market has a unique edge which pushes it to the top of the pack. At the end of the day, any fool can lend money, the hard bit is to recover it and make sustainable profits throughout the whole credit cycle.”