Large banks are stepping up their game when it comes to new services and the technology that underpins them, and in many cases they are borrowing straight from the tech world's playbook: Instead of building in-house, to speed things up, they are tapping third parties that have already found a fix for a tricky problem, integrating their breakthroughs by way of APIs.
In the latest development, a startup called Able has built an engine to speed up the processing of documents and other data required for commercial loans (typically $100,000 but sometimes up to $100 million in value), which it sells as a service to banks and other lenders. Today, it's coming out of stealth mode with $20 million in funding and a launch into the wider market.
The Series A is being led by Canapi Ventures -- a specialist fintech investor -- with participation also from Human Capital, which also led the startup's seed round. Diego Represas, the CEO of Able who co-founded it with Andrew Hurst, noted that there are also a couple of strategic investors -- financial services companies that are already using Able's tech -- but they are not disclosing those names currently.
I write that it is launching into the wider market because although it's coming out of stealth, Able's actually been around since 2020, and the customers it has picked up are already using Able's technology -- which involves RPA, computer vision and other forms of AI to ingest and process data related to loans as part of their evaluation process.
The section of the loan market that it is focusing on is larger commercial endeavors and so are being done at much higher values than the typical small business loan. That also means more parsing of paperwork related to a loan application, a cumbersome process that Able is aiming to reduce by up to 30% on a typical application.
Represas said he came to the idea of fixing this after a meeting with a cousin of his who worked in business finance and told him about the painful process that went on behind the scenes.
Represas and Hurst at the time were engineers at another fintech, Digit, and so Represas's natural inclination was to think that there was likely already a solution in the market to cut this down.
It turned out there wasn't. He couldn't believe it, he said: Business loans are a $6 trillion annual market, but globally banks were spending about $60 billion annually to process those loan applications.
Perhaps the bigger market size has kept a lot of incumbents from wanting to fix what didn't really seem broken. But we know how this song goes: There are a number of companies now also building to address this, and so perhaps it was just a matter of time before they would get their inefficient stranglehold on business loans disrupted.
"So we dove into solving this problem," he said.
The company is picking an interesting moment to announce funding and open for business. Inflation is on the rise, and interest rates are getting hiked up in a bid to contain it.
That means it's a complicated, but potentially interesting, time to be a fintech startup building technology to power commercial loan services for major banks and other large lenders.
On one hand, higher interest rates and the presence of inflation might make getting loans and taking any business leap or risk less attractive; on the other hand, it may be precisely the right time to have a product out there that takes friction out of the process and therefore speeds up the transaction and lowers the costs around it.
Companies, meanwhile, will still be in need of funding to grow, and in some cases you'll have companies investing in that because their products are breaking through, maybe because of the current state of the market. (As people in tech love to point out, Google and Airbnb after all were both launched during recessions.)
You could say the same for Able. Its own product crosses into a couple of different competitive spaces. There are a number of startups out there already either working directly with businesses, or providing their tech to embed elsewhere to power business loans with new approaches that leverage AI and big data analytics. (Some like Kabbage eventually do get snapped up by incumbents: Amex acquired the SoftBank-backed startup back in 2020 after it struggled hard through the first year of the pandemic.)
Alongside that, there is a wave of companies out there targeting fast-scaling companies and making it easier to secure revolving credit and debt facilities as an alternative to the equity-based funding that they might typically consider. They include the likes of Hum (formerly called Capital) providing services directly to businesses; Sivo, which provides debt-as-a-service; Clearco and Wayflyer both targeting e-commerce and online businesses; and more.
I should also point out that there is another fintech startup called Able, although it focuses on personal money management and is not connected to this Able at all.
Represas notes that Able's focus is on the tech that is used for processing, but not decision-making or risk-profiling (which Represas told me is just a small aspect of loan approval and not where the pain point is); the fact that it focuses on commercial loans and not SMB loans (too small an opportunity, he said); and that it does not directly interface with borrowers itself but works through banks, all make it distinct from the rest of the pack (why create new channels when those banks already have those deep relationships, was Represas' rhetorical question to me when I asked why not). All in all, Able is disruptive, but it's not a threat, to its customers.
And that makes it one to watch.
“Able is a game-changer. Their team is already working with several banks in the Canapi network on use cases that span the entire loan lifecycle,” said Neil Underwood, general partner at Canapi Ventures and president of Live Oak Bank, in a statement. “Able cuts the time and resources needed to process any business loan. Lenders get better economics and a scalable platform for growth. Everyone gets a modern digital experience. It’s a win-win situation for all parties involved.”