Mikkel Velin, Co-CEO at YouLend, shares his thoughts on the future of embedded finance, YouLend’s latest achievements and many more.
What inspired you to get into fintech?
In the early days of my career at traditional financial services firms, I noted that after the 2008 financial crisis, a gap had emerged in financing offerings, and small and medium-sized enterprises (SMEs) had far fewer options when it came to accessing funding.
I also noted over time that there were alternative data points on SMEs out there that say a lot about their potential growth, but that are not considered in assessing their credit worthiness. Even more, these data points didn’t differ by country or company industry or even size. I knew there was a way to leverage this extra data – on top of traditional credit checks – in order to turn the SME financing taps back on through more accurate assessments.
What inspired me to get into the ‘tech’ side of fintech was meeting my to-be co-founder, Mark Ufland, who was capable of building a platform to extract insights from all this data, driving costs down through smart automation – ultimately creating a better and cheaper product for the end merchant. This is what fintech, and YouLend, is all about.
What’s the story behind YouLend?
YouLend was created to fill the bank-shaped hole in SME financing after the financial crisis of 2008. Bank balance sheets were unstable after the crash, and more constrained with new liquidity rules such as the Basel III regulatory accord.
Institutional investors pumped cash into medium-sized and large businesses, but SMEs remained underserved as they were mostly deemed too risky for financing.
This underserved SME market was the opportunity that Mark Ufland (our CTO and my co-founder) and I wanted to address. SMEs are key to economies, employing 61 per cent of the UK population and contributing significantly to GDP.
We began as seven employees, two computer screens, and one standing desk in 2016.
Funnily enough, Mark actually built the original YouLend platform in his bedroom from scratch. Our office in central London is often referred to as ‘Mark’s bedroom’ even today.
How would you describe your team in 3 words?
Operational excellence (that’s 2 words :))
What do you find particularly exciting about embedded finance?
At YouLend, we are all about enabling our partners’ end-to-end offering. In our case, facilitating funding to their merchants. What is exciting is the rise of platform businesses, like large e-commerce platforms, which are moving towards a one-stop-shop offering for their merchants. Online shop, payments, financing, logistics, insurance, advertising – everything they need. This is where embedded finance has so much potential and offers a better service to the end customer overall.
I think cheaper and more flexible financing options are the most important element of embedded finance for SMEs or smaller merchants. Embedded financing helps said merchants grow through those key early years, where so many usually falter. They are often overlooked by banks that care more about large clients, or penalise younger businesses due to over-reliance on traditional backward-looking data points, like annual reports.
Embedded financing also has real benefits for our partners, who can increase the lifetime value of their merchant relationship via merchant Gross Merchandise Value (GMV) growth, as the business funding helps increase sales and lower churn rates.
Why is it essential to focus on embedded finance now more than ever?
It is really a question of build versus buy. The rise of new tech and fintech companies with some huge valuations and rapid growth means that to stay ahead of the competition they need to continue to improve their offerings. Embedded finance is key to this, as through embedded finance providers like us, these new leaders in tech and fintech can offer tried and tested flexible financing services to their merchant customers within weeks, rather than build their own platform over years. It also means they have the ability to offer the same products across multiple geographies without having to untangle the regulatory restrictions behind that expansion themselves – as the right embedded finance provider can support that side of the business for them.
From your experience, what factors define whether a company is able to offer a successful embedded finance service?
Good technology is core to an embedded finance offering. You need a platform that is built from scratch and in an agile way – there is no room for legacy technology. Our technology helps partners of different sizes, from focused local operators to international tech giants, meaning we need to be able to scale up and down rapidly without issues. If your tech platform fails you, there is no embedded finance service.
Specifically in embedded financing, you need a credit risk system that is tested through different crises. YouLend was one of the few to continue offering revenue-based financing through the COVID-19 pandemic, which was the ultimate stress test seeing as it was something we had not experienced before.
Of course, no one can succeed in the competitive world of embedded finance without a highly talented team who can problem solve quickly and well. As to my two words answer earlier – they are indeed operationally excellent problem solvers!
How do you see the future of embedded finance over the next 10 years? Which sectors are in focus?
Post-2008 financial crisis, we saw the unbundling of financial services from the banks.
We’re beginning to see an acceleration of the re-bundling of financial services over the near- to mid-term. Large merchant-facing platforms with vast amounts of data – tech companies, e-commerce platforms and Payment Service Providers (PSPs) – are well-positioned to become the winners of embedded finance.
The vast amount of data they hold on their merchant or SME customers is key to analysing the ability for a merchant to access financing. Real-time data, that is objective (pure figures rather than manipulated by an accountant) means embedded finance platforms will process more and more data to become more accurate. The result will be better quality funding options for merchants of all ages.
It will be tech companies, e-commerce platforms and PSPs that will offer ancillary financial services that are embedded into their core offering.
As for now, YouLend’s major markets are the UK, Netherlands, Ireland, and Poland. Which other regions are you going to cover as well?
Our immediate plans, which are happening as we speak, are further expansion across Western Europe. We have just launched in Spain, and our Germany launch is imminent.
Thinking slightly more long-term, we expect to launch in the US in Q3 of this year, and most of Europe in Q4.
In your opinion, what was the company’s latest achievement?
Continuing to offer best in class service to our partners’ merchant, as illustrated by our Trustpilot ratings (something we’re very proud of).
As I mentioned, to succeed in embedded finance you must deliver on your promise of helping partners scale, and so scale yourself. Despite rapid growth, our offering quality has not been diluted.
Ultimately, we are not core to our partners, but they are core to us. We need to demonstrate this by showing we care as much about their merchants as they do!
Speaking of success, what advice would you give to yourself 5 years ago?
Try to be nice to people, always, no matter what is going on, and eat more vegetables.