Happy to share #Finview's 2nd report on SME Financial Tools. A lot is going on at the moment in this market so I hope you find this report helpful.

1. FINVIEW
-
William Vermont | Investor @ ISAI
SME Financial
Tools

2. 1
The SME market represents a large opportunity in Europe while digital financial
tools still have a low penetration rate
NUMBER OF SMEs IN EUROPE BY SEGMENT DIGITALIZATION REMAINS RELATIVELY LOW
Source: Eurostat, Cegid, Fnfe, Fr gouvernement, PWC, EY
[1] There are 25 millions SMEs in Europe, including 3 millions in France.
[2] About a fifth of SMEs use cloud computing / Fintech services according to a survey from PWC & EY.
of SMEs use cloud computing services (in
Europe)
of SMEs in the UK use Fintech services *
20%
18%
* 63% of the panel is VC backed which may inflate
statistics v.s a national average

3. 2
Vertical players have emerged over the last decade and contributed to a growing
adoption rate of financial tools among SMEs
[1] The invoice management vertical appears to be the most crowded. It can be divided between account receivable, payable
and payable + receivable.
[2] Payment is excluded from this list because it tends to be natively embedded in most products of each vertical.
[3] Non-exhaustive list, mostly French & European players are mentioned. ERP (Odoo, Sellsy, SAP etc) are not listed but offer
some financial management tools.
Invoice
management
● Bill.com, Regate, Libeo, Ipaidthat,
Tipalti, Plooto, Roger, Holded, Melio,
Billie, Upflow, Trackpay, Dunforce,
Kolleno, Yooz, ReceiptBank,
Routable, Tim, Tipalti, Chaintrust
Expense
management
● Spendesk, Expensya, Mooncard,
Amex, Jenji
Treasury
management
● Kyriba, Agicap, Exabanque, Fygr,
Rocketchart, Concila
Accounting
tool
● Xero, Quickbooks, Pilot.com,
Sevdesk, Pennylane, Tiime, Sage,
Ibiza, Cegid, Freshbooks
FINANCIAL SME TOOLS CAN BE SEGMENTED INTO 4 VERTICALS THE INVOICE MANAGEMENT SEGMENT CAN BE DIVIDED INTO 3 SUBPART
Recovery & mgmt
of account
receivable
Account payable Account
receivable +
payable
Upflow, Dunforce,
Trackpay, Kolleno
Libeo, Roger,
Yooz, Melio,
Tipalti, Holded
Bill.com, Regate,
Ipaidthat,
Routable,
ReceiptBank
(Dext), Plooto,
Roger, Tim

4. 3
This rise is supported by a favorable environment
● On the B2C side, consumers are used to the new standards set by neobanks (quick onboarding,
clear & transparent pricing, seamless user experience and add-on of services). They are digital
ready.
● This usage in B2C sets high standards & expectations for B2B consumers, mostly SMEs (same way
it happened in e-commerce) and this speeds-up the B2B digital Fintech adoption.
Technology
● Open ecosystems driven by API first approach facilitating new distribution channels and embedded
finance.
● Smartphones, KYC/B, payment solutions (Swift GPI), data etc are available at scale and reduce
entry costs for new players.
Clients
● Open banking forces financial institutions to open up to 3rd parties via PSD2 regulations.
● By 2025, B2B/G invoices will have, by law, to be fully digitized in France and soon within the Eu.
● Regulators open up to Fintech companies and start providing a favorable regulatory environment.
● SEPA wires.
Regulatory
Source: PWC Avocats

5. For this upcoming decade, early signs show that a new era could shift towards
horizontalisation/bundling
[1] 4 main segments try to capture this opportunity, each penetrating with a different USP / core product.
[2] Given an invoice flow, SMEs start seeking “all in one” tools to manage the entire pre-accounting flow (and sometimes the
accounting as well on top). Some companies offer that although they have a different starting point (Pennylane, Regate, Sevdesk etc).
[3] By adding multiple data sources (AR/AP, expenses, payment, accounting) “all in one” softwares could become the Systems of
Intelligence of SMEs and potentially add other financial services on top of their core offering (insurance, credit scoring, factoring, loans
etc). As a result, it would create a greater value for the end clients.
Invoice generation /
collection
Payment Bank reconciliation Accounting tool
Account
receivables
Account payables
Expenses
Account payables
&
Expenses
- Link
- CB
- Wire
Account
receivables
- Dunning
- Follow up
Tax declaration
Balance sheet
Income statement
Reporting /
Treasury mgmt
Cash flow
P&L view
Forecast
Digitization (OCR)
Bookkeeping
automation
Approbation
Invoice + expense mgmt module Accounting module Treasury module
4

6. Two main paths for horizontalisation have surfaced
[1] Vertical players either integrate modules (via APIs) or develop them in-house whereas horizontal players architect their tools
from the beginning by developing the various modules in-house.
[2] Some players opt for a hybrid path by developing a horizontal product and a marketplace enabling developers to offer their
apps as add-on features. Xero is known to do it extensively (700 apps through their marketplace) or Bill.com with a less open
app ecosystem.
Vertical
players
Horizontal
players
Build new modules
Integrate existing
modules from other
vertical players
Build in-house all
modules
PROS
● GTM: entered on a specific niche and
expand the existing clients with new
modules.
● Control on the technical development of
new modules.
● GTM: same as above
● Immediate value for end client.
CONS
● Tech development is costly and takes
more time because the product is not
designed to be an “all in one”.
● No control over the tech and user
experience.
● Total control on the technical side.
● Ability to leverage multiple data sources.
● Better pricing and value for end clients.
● Tech development is rather long and
costly.
● GTM: horizontal positioning which may
imply for the end clients a more
systemic change.
5

7. 6
In any case, distribution will be a key success driver. Accounting firms appear to
be the cornerstone of this digital shift
DUAL DISTRIBUTION CHANNEL
[1] According to a survey done by the French Chartered Accountant Association, 80% of the SMEs trust their accountant to
assist them towards their digital shift.
[2] Financial digital tools can either be directly sold to the end client or through partnerships, notably with accounting firms
which is likely to be the most capital efficient channel. Given the high level of trust of SME owners toward their chartered
accountant, relying on a partnership is key to (i) distribute the product (ii) “outsource” the software’s set-up.
[3] Xero has 73% of its new customers coming from partnerships in its core market (NZ & Aus) v.s 38% internationally.
Source: Xero, Harris Institute
DUAL PRICING
1. The accountant distributes the software and the
end client pays the bill.
2. The accountant pays c.5-10€ / month (about
10-20% of catalog price) per client to offer them a
new service (with limited features). The end client
can upsell and pays directly to unlock features.
Catalog price of X€ per month
Direct sales for medium & large SMEs
Partnerships with accounting firms, softwares and
financial institutions

8. Overall, there are 3 main challenges to consider : competition - distribution &
positioning
7
Competition
● The SME financial digital tool market is heavily crowded, more specifically in the invoice management segment.
However, looking into the details, some players address different typology of customers which does not require
the same type of product features. Addressing customers from 5 - 30 people (usually pre-CFO) with a little or a
reasonable amount of invoices will likely require one or more vertical products. However, once addressing
companies with 30 + people (usually with a CFO and in-house accountants) and a more significant amount of
invoices then a horizontal product could make more sense in order to have a full overview over the company’s
financial health . As a result, in the short / mid term, players targeting different type of SMEs will likely not be
competitors.
Distribution
● As proved by successful foreign players (Xero, Bill.com), indirect sales through partnerships with chartered
accountant firms seem key as it represents c.70% of their new clients. On top of that, SMEs follow their
chartered accountant’s guidelines for product adoption meaning that the latter truly are at the center of it. Yet,
chartered accountant firms likely have many requests from SME financial software providers - so it will be
essential not only to have a good product, but also to find the right business model/incentive with them.
Positioning
● A vertical positioning will smooth the go-to-market as it will solve a more precise pain point, usually well
identified by the end-client. As a result, it is easier to be identified as an expert, as for example in France :
Agicap (treasury management), Libeo (payment), Expensya/Spendesk (expense management). On the contrary,
horizontal tools will likely leverage partnerships on the distribution to convince more easily SME owners to shift
toward such a solution as the adoption requires a major change for the SME owner. Will each of their module
offer the same quality as the expert - verticalized players ?

9. FINVIEW
William Vermont
-
06.04.2021