The Fintech product 🕳️ gap
Fintech has perfected B2C models but looking at B2B markets, including Agrifood, opens up many gaps.
Welcome back to the Agrifintech newsletter!
The Fintech product 🕳️ gap. Fintech has perfected B2C models but looking at B2B markets, including Agrifood, opens up many gaps. I'll illustrate this below and would love to know your thoughts.
📣 Plus... updates from around the world (you'll need your passport for this one!).
➔ Produce Pay 🇺🇸
➔ AFEX 🇳🇬
➔ Oxbury 🇬🇧
➔ Nile.ag 🇿🇦
➔ Verqor 🇲🇽
➔ Bharat Agri🇮🇳
The Fintech product 🕳️ gap
This is just a short piece with some thoughts I have presented privately, which I wanted to share with you.
It ties two recent issues together, borrowing from where I see tech gaps in Agrifintech - namely API's, IOT and Infrastructure - to develop vertical embedded finance.
The implication being that vertical embedded finance will use tools such as API's, IOT and vertical infrastructure to build these types of financial products which the Agrifood sector needs.
🆆🅗🆈 - It really comes down to the other components in the Financial stack presented above.
⦿ Distribution is cheaper.
⦿ Data allows better underwriting for risk and suitability.
⦿ Technology feeds the distribution, data and product engines.
⦿ Products are fine tuned to clients.
⦿ Capital costs become lower.
⦿ Regulators are happier with secure cloud technology
3 reasons this is important
❶ Embedded Finance currently has success in payments and working capital.
➔ However, these can still be tailored to workflows within any sector.
➔ ➔ Without tailoring these to sector workflows, they are, in fact, commodities.
❷ The white space really is white space. These are the product gaps.
➔ Some of this is being coloured in by industry agnostic providers (e.g. equipment is being tackled by Equipal) and some by vertical providers (e.g. Stable or AcreTrader).
➔ ➔ there will be many use cases and propositions developed for Ag specific problems which can still build on/with industry agnostic or vertical providers.
❸ Not all propositions add value and thats OK
➔ Propositions need a portfolio approach
➔ ➔ Those that add value will be sizeable opportunities in themselves and those that don't add value should be scrapped.
News
There are two themes here - Marketplaces and British investment! More below.
📊 ProducePay target $2bn in loans next year via their marketplace to suppliers in the U.S., Latin America and Africa according to this interview with the CEO.
ProducePay don't get enough recognition for what they are doing, especially from anyone interested in Agritech, Fintech and - obviously -Agrifintech as they may just be the first company to go public in this sector. 💭
Marketplaces in fresh produce are very difficult, but ProducePay have assembled some critical value adds. For example, the average produce rejection rate is 5% in the industry, but this is virtually eliminated to just 0.5% on their platform using their QA (quality assurance) technology.
In addition, Capital really does add fuel to the engine. By allocating $2bn to value chains, this is a higher capital book than existing lending from platforms such as Shopify ($719m in June 2023), and most originators in Agriculture Finance.
🏪 AFEX, the Commodity Exchange based in Nigeria, have secured a $26m commitment from British International Investment (The government investment arm) to build warehouses and soy processing in Nigeria, Kenya and Uganda.
Is this a good investment? Yes! There was a time when commodity exchanges in developing markets bought expensive trading and technology from major exchanges and thought it was job done. However, they had 🍩🍩's to transact.
Getting commodities into warehouses and grading them is a much better way to start. This transaction will bring the total number of warehouses managed by AFEX to 220 and increase capacity by 230,000MT.
Some funds will also be allocated to a soy processing in Nigeria. It doesn't break this number out or specify the processing capacity, but I expect this is also sizeable, given its proximity to Lagos, a city of 26m people.
Also securing investment from a British Government backed initiative...
🐂 ....Oxbury Bank have secured access to a £100m Guarantee facility from the British Business Bank, which allows them to include some existing debt and originate a further £45m within the UK agrifood sector.
Given the increase in interest rates over the past 16 months, this should be good news for clients, and the bank alike, as it reduces overall lending risk for covered transactions and potentially reduces rates for borrowers.
💵 Nile.Ag are the latest marketplace to offer inputs - and linked financing - after launching their input marketplace in the South African 🇿🇦 market. Nile outlined the horticulture inputs market as worth $2.7bn based on 2017 data and break this down by category below. 👇
I love this and will keep you posted with progress.
📦 Verqor, an Agrifintech based in Mexico, have raised $7.5m, split into equity ($4m) and debt ($3.5m). The pre-Series A round led by Yara Growth Ventures, included early investors SP Ventures and impact investors Accion.
Verqor CEO Hugo Ortega previously cited 9 out of 10 farmers in Mexico are lacking credit and this opens up a huge opportunity for them, especially with input companies (and explaining Yara's interest in opening up this huge market).
On the other side, the company also structures offtake agreements with the large buyers, such as AB Inbev and Heineken.
🌾 Bharat Agri, Indian agri inputs marketplace have raised $4.3m in Series A funding.
Bharat Agri focuses on an advisory led model and is aiming for a GMV of just under $10m this year in a market worth reportedly worth $44bn in India. A Bharat Agri founder sounded bullish on their positioning for the market citing in this article:
In the next three years, over 50 million farmers will use the internet for the first-time and we want BharatAgri to be their bridge to the digital era of agri that is now dawning…With this investment, BharatAgri aims to further strengthen its rural supply chain, expand the user base and become the largest and the de facto e-commerce platform for farmers
The company currently serves over 10 million farmers annually, which seems like a large number of farmers and a low average value per farmer of just $1. For context, DeHaat, a later stage platform serves 1m farmers and has a GMV of $236m.
Also reading
📖 Alex Johnson's first principles take on SME lending. This neatly lays out some of the challenges I discuss above for the move from B2C to B2B models in fintech.
And that is everything this week folks - did you enjoy? I'm always here for some feedback.
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