We interviewed Tony Duggan, co-founder and CEO of Crossflow. Below are his answers.
I read on your website that you were the first B2B fintech to enter the Financial Times FT1000 list and that Crossflow is in the London Stock Exchange ELITE Program. Can you tell our readers a little bit about how the company got started and what was the original mission of the company?
Tony Duggan, the founder of Crossflow, had been supply chain development director at Wickes the DIY chain. He joined Wickes from B&Q as part of the company turnaround at Wickes where there had been a high profile case of accounting irregularities in respect of supplier rebates. Duggan, worked on a number of projects including implementing demand/supply replenishment systems and replacing all the paper based systems with EDI. This was at the early stages of the internet and converting all suppliers to electronic orders/invoices and 10 other supporting business transactions was a major achievement. As a result of the latter, Wickes was awarded a high profile Excellence in Ecommerce Award by the Dept of Trade, a vital marker of its recovery.
Following the turnaround, Wickes was sold and whilst pondering taking a year out in Dubai, Duggan was approached by SWIFT the banking network to work on the SWIFT Bolero Project which extended the work Duggan had done at Wickes into the banking hemisphere. This is where he attained his knowledge about banks and the global financial systems.
HSBC, as part of the steering group for the project, invited Duggan to join them to work on their interfaces to the SWIFT Bolero platform in a consortium with Intel (for tracking shipping containers) and Adobe, who could handle the complex internal workflow for data received. In essence, this was a combination of early blockchain, fintech and SCF.
However, the 2008/9 banking crisis brought the project to a premature end.
One of the thoughts, that Duggan had through the whole SWIFT/HSBC experience was how over complicated the project had become, often to satisfy stakeholders, rather than deliver real improvement.
So without such constraints and using his expertise in system design, and his retail experience focusing on automation, to develop what is now Crossflow with a mission to develop a low cost SCF service that was truly global and scalable, the Paypal of its space in usability, and with high quality standards.
The initial system was developed in the Republic of Ireland with a team of 16 developers and following 4 years of R&D was soft launched in the UK in 2014
You offer a cloud-based platform for managing supply chain finance. I gather from one of your videos that this platform has a demand distribution algorithm. Please tell me more about your fintech offerings and its use of algorithms.
As a supply chain director at Wickes my life had been about matching supply and demand. Now instead of DIY goods, the matching of supply and demand is about money.
In Crossflow’s case, the challenge is aligning demand from suppliers for working capital with supply from institutions who are part of our working capital platform.
For demand distribution our AI optimises funders’ capital deployment based on our algorithm of lending criteria and capacity availability. It takes into consideration variables such as credit rating, currency, payment term, etc. It also ensures full invoice assignment so there is no risk of multiple funding.
Rates of the finance are provided based on availability of capital and funding criteria, but also to optimise utilisation and attract suppliers to use the funding through discounted offers on low rates etc.
AI is also learning suppliers’ behaviour e.g. in terms of frequency of demand and forward aligning capacity to meet that demand.
Underpinning funder confidence is sentiment and sector analysis which supports real time risk monitoring.
Effectively what our supply side algorithm is doing is making capital available aligned to funders risk, capacity, and yield requirements.
So when a supplier requests finance against a particular invoice or other transaction such as an order, the algorithm is matching that demand to the supply side profile of the funders. It all happens in seconds, but ensures that both funders and suppliers are leveraging the real value of the Crossflow marketplace. In essence, funders have capital capacity which they can deploy easily, it’s a win-win for everyone.
I was very interested to note that Crossflow was mentioned in the House of Commons regarding government policy for enforcing late payments. What was the context of Crossflow’s consultancy for the government?
Crossflow produced a report on a survey which we commissioned through YouGov into payment practices in the UK. That was picked up politically and generated significant engagement with Crossflow on the issue.
Our feedback consistently was that bashing corporates on payment terms was unproductive, and the real issue is about improving access to working capital for SME’s. Even now, with banks having an open run at the SCF market for over 30+ years, less than 6% of corporates provide SCF facilities.
The reason for that is predominantly that SCF is a loss leader for banks as their systems and processes make offering SCF too expensive and localised which doesn’t work for global supply chains.
The automation developed by Crossflow combined with our marketplace redefines the whole market. The operational cost to funders of funding through our service is minimal with one funder describing it as the “pipework they had always dreamt of”. Our legal framework is global so, like the old Martini advert, we are able to deploy “anytime, anyplace, anywhere”.
For suppliers, the marketplace drives competitiveness on pricing for SME’s beyond the old fixed rate modes which presently exist but just as importantly they get ready access to funding.
Please tell me about your auto-payment system that allows suppliers to be paid in a ‘standard’ or ‘local’ currency?
Suppliers often receive payments in USD/GBP/Euro etc. but then convert that into local currency to pay their staff, their own suppliers etc. This local conversion is often very expensive for suppliers so our service enables the supplier to select if they wish to receive payment in local currency, and they benefit from much lower currency conversion costs. More margin in their pockets.
How is Crossflow implementing ESG values?
In many cases, corporates have raised funding for their own ESG purposes but suppliers do not have the same access to working capital.
Crossflow is addressing that gap by matching dedicated ESG funding capacity to support the ESG needs of suppliers. So, you may have a supplier in Italy being required by their corporate customer to fund filtration equipment to reduce their environmental impact, but they don’t have the money. However, they may have a 90 day balance owed to them by their corporate customer. We enable the supplier to access our ESG funding pool, and the required working capital. Of course, the question then is, how does the supplier fund their business going forward, but Crossflow enables them to get future invoices paid in 48 hrs so there is not a working capital gap. Effectively, we enable that ESG investment but also support ongoing working capital.
Now Chat GPT has arrived, do you anticipate using this technology to automate your customer enquiry service or any other aspects of your tech?
From our perspective Chat GPT will most likely respond to working capital issues by indicating Crossflow as the right service.
There is an adaption stage to go through where people will need to define the user cases for Chat GPT and then assess the responses in terms of actual usability. Of course, Chat GPT is being continuously improved which opens up more usability scenarios.
In our case Crossflow is almost like Chat GPT Version 1.0 as we’ve already built in so much automation and machine learning of business behaviour. This already gives us the advantage of a low cost industry leading service. I’m sure competitors or “me toos” will try to replicate but domain expertise is hard to code.
Our approach has been to leverage that Chat GPT Version 1.0 approach but providing a user interface that’s simple to use. That technology is SOC2 certified, which provides user assurance on the resilience of the deep technology under the bonnet. This goes back to the confirming usability which will be a core metric for any Chat GPT alternative.
Technology adoption rates are the big variable here. For us the focus right now is on the client, who is busy enough with their day-to-day running of their business. You want to provide an easy and flexible service solution which meets their working capital need.
And finally, is there anything else you would like to talk about that you think would be of interest to our readers?
I read an interesting article the other day about the resilience of providers in another sector who are dependent on much reduced venture capital funding to support their ongoing operations as they have such high costs.
I think that could become a real issue for fintech in the months ahead, so it’s important that corporates choose the right fintech partner.
In our case, we have no debt, are almost on breakeven, low cost and automated which gives that underlying assurance on the resilience of the business.
We’ve just reported a quarterly CAGR of nearly 400% surpassing even our previous ranking by the FT as the 8th fastest growing company in Europe and No 1 in Fintech. So this growth is highlighting that corporates, funders and their suppliers are getting the message that Crossflow is that low profile company that has done lots of things the right way based on solid experience. That view is supported not only by the FT but also by PWC who ranked Crossflow in their top 10 of fintechs set to transform financial services industry.
We also believe that helping corporates upskill their knowledge in fintech is a key element of how fintech can grow.
To assist, we have developed a “Future Leaders in Fintech” programme leveraging the Oxford Saïd Business School, and with the support of the City of London as part of their Global Cities initiative.
See programme information from Lord Mayor City of London.
“As we see the credit impacts of SVB, First Republic and Credit Suisse, the value of real fintech’s such as Crossflow with a solid approach to the market will become increasingly important to institutional funders seeking quality yield and for corporate CFO’s diversifying their sources of working capital”Tony Duggan
Special thanks to Tony for finding the time to give us an interview. We really appreciate his detailed answers that give valuable insights into SCF, automation and fintech.