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API-Enabled Invoice Protection in Europe

Periodic Reporting for period 1 - APIIP (API-Enabled Invoice Protection in Europe)

Reporting period: 2019-06-01 to 2020-05-31

Every year across Europe, hundreds of thousands of companies are driven into insolvency because of late or nonpayment of invoices. Trade credit insurance exists to mitigate this issue. However, the SMEs who could benefit the most do not currently have access because it is traditionally distributed by brokers, for whom the commissions generated by an SME are too low to justify the cost of sale.

Our vision comprises three pillars:
• commercial innovation - to make our Invoice Protection product available to SMEs by offering it at the point of need, as orders are accepted or invoices raised on the cloud accounting platforms or B2B marketplaces that SMEs use daily;
• analytical innovation - cutting-edge data science for superior credit analytics;
• technological innovation - real-time and automated pricing, underwriting and policy administration engines.

With current penetration only 0.25% today, we are creating the credit insurance market for SMEs.

Our three founders (ex-COO of a global insurer; ex-CEO and ex-CTO of the innovation unit at the world’s leading credit insurance co.) have the deep industry expertise and commercial insight required to make this project a success.
Prior to the project start, we had signed a deal with SCOR (the world’s 4th largest reinsurer) giving us risk capacity; launched our technology in the UK (demonstrating TRL6; our first policy was sold via a trade finance fintech); begun onboarding another three partners in the UK; and built up a strong distribution pipeline with prospective European partners.

Work in this project allows us to protect German and French SMEs for both their domestic trade and exports to the UK, Spain, Italy and the USA by integrating with our distribution partners, building credit analytics models and establishing insurance infrastructure. The project is a platform for further international and product expansion. SME instrument funding will enable us to realise €55M revenue within five years.
During the past year, Hokodo demonstrated the ability to expand the concept of API-based insurance across borders, with a successful launch in France, and the imminent launch in Germany. We built automated pricing and underwriting engines for both countries, which enable us to price trade credit insurance risks in less than 1 second, and we adapted our API integrations to meet the needs of a wide variety of distribution partners.

In addition, Hokodo launched some landmark deals in France, including:
- With the largest domestic accounting platform: this partnership means that all customers using the cloud invoicing functionality can protect their invoices in real time, as they are created
- With one of the largest domestic digitally-native banks: allowing the bank's customers to protect invoices created in the banking app in real time
- With one of the largest French B2B marketplaces: allowing business buyers to purchase on credit terms, rather than having to pay cash at point of purchase.
We believe that the credit insurance underwriting engine we have built to price and underwrite transactions in France represents a significant advance on the status quo. Our engine is highly configurable so that it can meet the distinct needs of each partner. On average we make 3-4 changes to our underwriting footprint every week. By contrast, the handful of insurers who have automated their credit decision engines (recognising that most still rely on manual credit assessments) would adjust underwriting rules only every 3-12 months.

We have also built the foundation of a differentiated ability to evaluate credit risk, as we combine the traditional discipline of insolvency modelling, we the wealth of data we accumulate on late and non-payment of invoices.

Finally we believe that the breadth and richness of our APIs is unmatched in our sector, and allows us to accommodate the wide range of uses cases needed by our distribution partners.

We are already seeing the Hokodo's B2B2B approach is allowing us to access a wide variety of SMEs who would never normally encounter credit insurance. This has been further emphasised by the COVID crisis, which is bringing a renewed focus on the risks of non-payment.