For years, banks and specialty lenders have struggled with the question of how to service small- and medium-sized business (“SMB”) customers. On the one hand, SMBs represent a large, lucrative, and important market opportunity. But at the same time, the sheer size and diversity of the SMB landscape make it difficult to profitably develop, refine and deliver the products SMBs need, when they need them. Unlike the FICO score for consumers or the Moody’s rating for enterprise, there are no standard data sets or generally-accepted scorecards for SMBs. Moreover, most SMBs use a wide range of ERP, practice management, e-commerce and business software suites, making it virtually impossible to get a full picture of the business from the outside-in. This lack of accessible, reliable and real-time data on SMB customers leads to antiquated underwriting and decision-making processes reliant on outdated, inaccurate, or incomplete information.
The problem seems daunting, but we believe the solution is relatively straightforward.
With one API, Codat’s technology seamlessly grants banks, fintechs, and technology companies access to a comprehensive suite of small business data. From improving access to credit to providing clearer business insights,
Codat serves as the key infrastructure layer allowing the financial services industry to more profitability and better serve this critical segment of our economy. An untapped opportunity for banks
There are over 30 million SMBs in the United States accounting for 99% of businesses in the country. SMBs are crucial to our economic health – according to the CFPB, SMBs employ over 1 in 3 working American adults, and from 2010 to 2019 created twice as many net new jobs as large businesses.
Despite their importance, SMBs remain largely underserved by financial institutions and struggle to get access to credit and other financial products, proven by the fact that SMB loans represent less than 2% of banks’ balance sheets.
Even when they are served, SMBs often undergo hours of painful administrative work to compile the information required from their bank. The collective cost on SMBs to process manual application submissions and perform other mundane administrative tasks runs into the hundreds of billions a year.
Nonetheless, expanding relationships with small businesses is a major priority for banks given the size of the market – according to McKinsey, SMBs represent $850 billion of global banking revenues. In a recently conducted internal survey across our bank LPs, better serving SMBs was consistently a top 3 near-term priority. Serving these clients requires a comprehensive view of their financial health, a requirement that is easier said than done in the small business segment. The data often lives across a myriad of accounting, banking, and e-commerce providers and for banks and fintechs, building and maintaining integrations with these various platforms one-by-one is a prohibitively massive undertaking.
Building the internet for small business data Codat co-founders Peter Lord, Alex Cardona, and David Hoare know all too well the difficulties financial service providers face in acquiring the data needed to serve SMBs. The three met working at an invoice finance provider, where they helped the millions of underserved small businesses in the UK gain access to credit.
Leveraging their experience helping SMBs, the team at Codat built an infrastructure layer that underpins the flow of data in real-time from SMBs to banks, fintechs, and other technology companies. With a single API, Codat customers can streamline the collection of data from disparate sources, such as accounting data from QuickBooks, POS data from Square, and e-commerce data from Shopify.
Codat spent years building deep connections into the critical platforms SMBs are using to power their businesses. Codat already has over 30 integrations with plans to build hundreds more across the major accounting, e-commerce, and payment platforms, and is best-in-class in terms of the depth and breadth of its API connectivity.
The use cases for Codat’s infrastructure are endless, whether it’s a corporate card start-up or bank leveraging real-time financial data to increase access to credit, a neobank building a cashflow forecasting tool in their app, or a payment provider enabling merchants to sync transactions with their accounting software, there is a use case for Codat in almost every fintech serving SMBs.
At Canapi, we were particularly drawn to the numerous use cases we found relevant for our bank Limited Partners. To name a few:
Loan and credit card underwriting: Access to complete, real-time financial data leading to a more streamlined credit approval and monitoring process Merchant reconciliation: Ability to automatically reconcile merchant transactions with sales transactions in a client’s accounting system, reducing administrative burden Accounts payable reconciliation: Ingest payee and bill information and automatically match and reconcile with accounting system Business insights: Holistic view of an SMBs financial health, allowing customers to better understand their business and bank advisors to provide better financial advice Cash flow forecasting: Codat’s robust, consolidated data set allows banks and customers to more accurately forecast the future and prepare accordingly Transition management: Switching banks is a pain for a business. With Codat, SMBs, alongside their new bank, can better understand which customers are still making payments to old accounts and ensure a smooth and quick transition. A bright future for small business banking
Codat has quickly established itself as the global leader and go-to solution for small business data, with nearly 250 employees serving over 200 clients across the US, Europe, and the rest of the world. Clients include several of the world’s largest banks as well as rapidly growing fintechs such as Brex, Jeeves, Pipe, Clover, Rho, and many more. Altogether, these customers conduct millions of API calls per month via Codat and this is just the beginning.
Codat’s product is also very strategic to our bank Limited Partners who collectively serve millions of SMBs. Multiple Canapi LPs are already using Codat’s powerful API, and we’re excited to help Codat partner with more banks in the coming years.
We envision a future where Codat is the default method by which small business data is communicated across the economy, making life dramatically easier for financial institutions and the small businesses they serve. We couldn’t be more excited to be investing in Codat’s Series C financing, alongside J.P. Morgan, Shopify, and Plaid, to build a better financial future for SMBs.