Ricardo Pero is changing the landscape for how and where small to medium businesses find capital funding. In 2016, he left JP Morgan to start SellersFunding. We got a chance to sit down with Ricardo on the latest episode of the Payments Innovation podcast to learn all about his inspiration behind starting his company and how his product will transform funding for these important enterprises.
You spent many years working for big banks. What are some of the biggest issues you noticed with the more traditional financial institution model?
Ricardo: I believe we had one financial industry before the 2008 crisis and a completely different industry after the crisis. If you look at the U.S. specifically, the industry has changed a lot over the years. Regardless of the size of the financial institution, I think their biggest challenge is breaking the internal silos they have.
This is especially true when you work for international companies and investors like I did for my entire career. For example, you’ll find silos where the corporate bank doesn’t talk to the investment management team. And the investment bank has a hard time working alongside the wealth management team. This means they look at their own business unit and their own PnL without leveraging what the bank as a whole has to offer. It’s really problematic.
Is that what drove you to leave the banking industry in 2016?
Ricardo: It was a personal decision that was driven by two things:
- I saw an industry that was changing. One that was hugely backed by technology and new commerce.
Most of the big banks were trying to come up with solutions internally but I thought their innovation would take too long to be implemented. I felt like I was on the wrong side of the trade. That was the biggest reason why.
- The second reason was I noticed I had been doing the same thing for over 15 years. When you can watch Bloomberg news and know exactly which client is going to call you and already know how you’re going to solve the problem, you’re missing something. It wasn’t a challenge anymore.
I wanted to learn something new and gain some more skills. I did my undergraduate degree in economics with a huge focus on math, but I wasn’t able to apply that to my career at the time.
You’re doing some awesome things at SellersFunding to help small-medium businesses. Did you start SellersFunding as a response to something you saw in your early career?
Ricardo: When you look at the lending landscape here in the U.S., you have some big lenders. It all started for me when I was doing some consulting work for a friend of mine who was growing his business. He called me because he needed help raising working capital. And when you look at an industry that is growing on average 15-20% year over year, it doesn’t matter how good you are or how great your product is, you’re going to have an issue with your budget.
When I looked at the competitive landscape, I saw some companies trying to address this, but no one was working seriously to understand the working capital side. That’s why I thought having the right understanding and addressing the lead time from purchase order to sale would really help to bridge this gap.
Today, from a fundings-solution perspective, our rates are in between what a bank charges and merchant cash advances. So, they’re very reasonable.
You guys have a really cool risk model. Tell us a little bit about it.
Ricardo: We started our company with solutions to three main problems we wanted to tackle:
- Create an automated process for the application: We wanted to change the lead time from application to disbursement. It takes most banks three to six months just to say no. This is because they rely on traditional credit models so it’s hard for them to get a good grip on what the risks are. We solved this.
- Adjust risk assessment: Think about the client’s life cycle. Often times, these smaller businesses won’t have great credit scores because they’ve maxed out personal credit cards. This means banks won’t let them borrow money, so their only other option is a cash advance merchant who will charge them a high rate for a short period of time. We bridged that gap by creating a model that takes into consideration sales performance, seasonality, customer reviews and more.
- Provide global banking services: It doesn’t matter if you are a U.S. based seller or a foreign seller, we’re going to look at your sales and try to find a funding solution that will address your cash flow needs. A lot of these banks and cash advance merchants won’t work with you if you’re a foreign seller. We’ve made this possible through partners like you at CurrencyCloud.
If you’re a small business here in the U.S. looking for funding, you’re probably going to deal with a branch manager that is used to dealing with consumers and not businesses. And that person definitely has limited skills to work in foreign sales. You would need to rely on either a more expensive, larger bank or a money transfer company.
But even then, that company would be on the FX side, and not providing the funding solutions. So, you’re either working with the big banks who have tons of silos or with companies who only specialize in only one solution.
What we’re trying to do is build an integrative solution to solve this once and for all.