Autobooks & Fundbox's New SMB Embedded Lending Autobooks Capital

Autobooks and Fundbox have launched Autobooks Capital, an embedded lending platform aimed at streamlining short-term working capital access for small and medium-sized businesses (SMBs). Autobooks Capital is powered by Fundbox’s embedded capital infrastructure and will be offered directly inside financial institutions’ digital banking platforms, including those of over 2,000 banks and credit unions.

Key Features and Product Details

• Embedded directly within digital banking platforms, eliminating the need for third-party apps or separate accounts.

• Offers fast, flexible financing for SMBs, aimed at covering short-term cash flow gaps such as invoice payment delays.

• Utilizes real-time underwriting and rapid fund delivery, leveraging Fundbox’s infrastructure.

• Designed to complement, not compete with, traditional lending products of partner financial institutions.

Alternative Lending Industry Effects

Immediate Competitive Threat: Banks and credit unions now offer fintech-speed underwriting without the overhead, neutralizing alt lenders' biggest advantage. Businesses can get approved for working capital directly in their banking app, making it harder for alt lenders to compete on convenience.

Distribution Reality Check: Over 2,000 financial institutions provide significant distribution power. Unlike alternative lenders who spend heavily on acquiring customers, these institutions leverage existing, trusted customer bases, offering a customer acquisition cost advantage that alternative lenders can't match.

Underwriting Intelligence: The key is they're using live banking data for underwriting. Alt lenders analyze bank statements and tax returns to see real-time cash flow, payment patterns, and transaction history, making their risk models sharper unless smart lenders find better data sources.

Pricing Pressure: Banks can price more aggressively because they make money on the relationship, not just the loan. They can take thinner margins on lending if they're keeping the deposit relationship and selling other services. Lenders need loan margins to survive.

What This Means for Alternative lenders’ Strategy:

1. Alt lenders need to get more specialized. Generic working capital loans are becoming commoditized.

2. Speed alone isn't enough anymore. They need to offer something banks can't or won't do.

3. Vertical specialization becomes more critical. Banks serve everyone, they should focus on industries with unique needs.

4. Partnership opportunities. Maybe they should be talking to smaller banks about white-labeling their products instead of competing directly.

This confirms the market's shift toward embedded finance. If alt lenders don't integrate their lending into platforms their customers use, they’ll be squeezed out.

The news basically tells us that the easy money in general SMB lending is about to get much harder to capture.

What is the Risk Model of Autobooks Capital?

Autobooks Capital's risk model is underpinned by Fundbox's embedded capital infrastructure and advanced data analytics, designed to offer fast, flexible funding to small and medium-sized businesses (SMBs) directly within their existing banking platforms.

Key aspects of the Autobooks Capital risk model include:

• Powered by Fundbox's Infrastructure: Fundbox is the external third-party provider of offers and funding for Autobooks Capital. This partnership leverages Fundbox's established capital infrastructure and expertise in SMB lending.

• Embedded and Seamless Access: The system integrates directly into financial institutions' digital banking platforms, allowing SMBs to access capital without leaving their familiar banking environment, requiring no redirects or extra accounts. This embedded nature allows the model to analyze data from where businesses already manage their finances, such as invoicing, payments, and bookkeeping.

• Fast and Automated Underwriting: Autobooks Capital is characterized by its "fast underwriting" and "fast approval times," with decisions often delivered in minutes. Fundbox's underlying infrastructure supports "real-time underwriting", reportedly with a median time to underwrite customers of "1 minute or less". This speed is facilitated by leveraging data science, machine learning, and cloud-based transactional data analysis.

• Alternative Data Utilization: The risk model heavily relies on alternative data, which is crucial for assessing SMB creditworthiness, especially for those with thin or no traditional credit files. Fundbox partners bring diverse datasets, including:

  • Accounting ledgers.

  • Bank account transactions.

  • Invoices.

  • Retail and B2B payments.

  • Data from the Autobooks product suite, such as digital invoicing, payment acceptance, automated bookkeeping, and financial reporting. This broad use of data provides a more comprehensive, real-time view of a borrower's financial health beyond traditional credit reports. Fundbox specifically uses "big data analytics" to enable quick access to loans and lines of credit.

• Soft Credit Pull: The application process involves only a soft credit pull, which does not impact the small business customer's personal credit score, distinguishing it from traditional loans.

• Focus on Cash Flow and Operational Needs: The funding is designed as flexible, short-term capital, with repayments that adjust based on the business's cash flow, reflecting its use for everyday operational needs like stocking inventory or covering payroll. This indicates a model sensitive to real-time business performance and liquidity.

• No Operational Burden for Financial Institutions: The Autobooks Capital team, supported by Fundbox, handles the entire process from application to servicing, reducing the operational "lift" for the financial institution itself.

• AI and Machine Learning Expertise: Fundbox leverages AI and credit expertise to make "pinpoint decisions" and has developed extensive data and machine learning infrastructure to process and analyze diverse and often real-time data sources. Fundbox's CEO, Prashant Fuloria, highlights the complexity of providing small business capital, including the challenges of data and underwriting, and notes the potential of AI for tasks like data cleansing and categorization, though caution is advised for explainability in highly regulated spaces.

• Capital Fee Structure: Instead of an interest rate, Autobooks Capital charges a "Capital Fee" as part of the repayment, which customers see before confirming their draw. This alternative fee structure aligns with the product not being a traditional loan.

Overall, the risk model for Autobooks Capital, powered by Fundbox, represents a modern fintech approach to SMB lending that prioritizes speed, seamless integration, and the extensive use of diverse, real-time alternative data sources, enabled by AI and machine learning, all while aiming to complement existing financial institutions.

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