• Populous Invoice Finance Using Blockchain Cryptocurrency

    A new invoice finance company called Populous has just raised money to pilot its invoice finance platform that uses Blockchain cryptocurrency in support of an invoice financing model, according to an article in Pymnts.com.

    I read the 21 page white paper on the Populous site, with some interest, to understand what the benefits might be.

    In essence there seem to be 3 key points to draw from this white paper:

    1. Use of Ethereum cryptocurrency - the platform apparently functions using its own tokens (called Pokens). Users have the ability to introduce and withdraw both normal currencies (or flat currencies) and crypto currencies into, and out of, the platform. These flat or crypto currencies are then exchanged for Pokens, and vice versa.

    2. Use of smart contracts - these are self executing computer codes that are triggered when certain events occur. These are used to automate aspects of the process.

    3. Use of complex business data mining - complex analysis of companies house data is being undertaken to credit rate businesses, based on a probability of failure model.

    Each is explored below:

    1) Blockchain Cryptocurrency - Ethereum

    You may have heard of Bitcoin, which is one of many newly emerging "cryptocurrencies". Cryptocurrencies are digital currencies which use encryption techniques to regulate the generation of units of currency and verify the transfer of funds. They are enabled by complex cryptography, and you do not need a bank account to hold this kind of currency. It effectively stands alone, as an ever evolving, encrypted electronic record of transactions, or blocks (hence the term "blockchain").

    These currencies operate independently of a central bank, unlike traditional currencies (GBP, USD etc). The term "blockchain" refers to the ever growing chain of transaction blocks that are stored on a decentralised basis. There is however no safety net with cryptocurrency transactions, no one to help you get your money back if something goes awry.

    Ethereum is one type of cryptocurrency, similar to Bitcoin. Ethereum has the advantage of allowing complex contracts and programs to be executed within the blockchain.

    The advantage of using cryptocurrency, from an invoice financing perspective would seem to be if you want to use cryptocurrency, rather than flat currency like Sterling, you can use it in conjunction with the platform. Whilst I can imagine the future may bring an increasing demand for this, my sense is that the scope is limited at present - and I would suggest that the financiers will need to be very much focused on avoiding any criminal element wanting to use this kind of currency due to its anonymity.

    2) Smart Contracts

    Yes, I can see how these could be helpful in regulating some transactions within an invoice financing scenario. One example put forward in the white paper is avoidance of the risk of duplicate invoices being funded. This is an important issue for invoice finance companies. Other invoice finance systems that I have been involved with have this kind of risk detection measure built in as standard.

    3) Data Mining

    The white paper sets out a very complex methodology for using companies house data in conjunction with predictive models for both business failure and the use of invoice finance. Identifying potential invoice finance users will be of interest to many - although my understanding is that many are already heavily mining this data. Perhaps not in such a targeted way, but by a blanket approach. I have seen examples of users saying they have had several calls from factoring companies that same day. I can see the biggest advantage being identifying new prospects that are similar to the existing users, although this has been attempted by data mining agencies in the past.

    The main draw back I foresee is the nature of the companies house data. It is, by its nature, always a historic record, and there are many companies that don't have to provide full disclosure e.g. not filing a profit and loss accounts due to size etc. This is likely to create limitations in its use, that bodies such as credit reference agencies, supplement with additional up to date data, such as payment histories.


    Overall, it is an interesting idea that Populous are pursuing, and it will be interesting to watch how it develops. My feeling though is that we have not yet had a client ask for any type of cryptocurrency functionality, so I suspect the demand may be limited to start with.

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