How Monto helps SME lenders make smarter credit decisions

Published March 10, 2023

Stockholm-based Monto is determined to reshape the Nordic SME lending landscape. Through its credit intelligence platform, the company enables both banks and fintech lenders to gain a real-time understanding of their borrowers.

First published in: Nordic Fintech Magazine

For small to medium enterprises (SMEs), access to adequate funding is key to maintaining operations and investing in growth. However, lack of access to financing continues to be a major hurdle for many businesses, as lenders are reluctant to give loans to SMEs that may not be able to repay them. This dynamic has resulted in a €1,000 billion SME funding gap in Europe.

According to Monto’s CEO Leonard Schreij, the funding gap is largely driven by an information chasm. Lenders have historically lacked access to the data that’s required to make accurate credit decisions and run efficient underwriting processes. As a result, the financial incentives among business lenders have been tilted towards serving large corporations.

“The industry has lacked quality data on how SME companies are performing. When you go to the bank to get funding for your business, the credit agent requests records of your past performance – information that’s often up to 18 months old. That’s actually quite insane. It’s little wonder, then, that banks have focused on serving bigger corporations with plenty of public financial information available, leaving SMEs at a disadvantage,” says Schreij.

This is where Monto comes in. The company’s credit intelligence platform provides direct, consented access to financial data from SME companies’ accounting systems.

“Our mission is to provide lenders with the data and tools they need to understand and delight SME businesses. We use a proprietary scoring model to evaluate SME companies based on a host of factors, taking into account not just their last annual report but also how they are performing now, ” says Leonard Schreij.

"Our edge is that we don’t just deliver data — we also keenly understand the SME credit scoring and underwriting process from both sides."

- Leonard Schreij, Monto CEO

Propelling Growth of SMEs

Covid-19 has had far-reaching consequences in the SME sector. For Monto, the pandemic underscored the importance of fresh financial data in credit decisions, especially for SMEs who were heavily affected. Because they play such a vital role in society, Monto believes that facilitating access to SME financing is one of the best ways to help society as a whole.

“While big businesses receive the lion’s share of attention, small and medium enterprises are the true job creators today. According to Swedish statistics, 80 percent of new jobs since the 1990s have been generated by SMEs,” remarks Schreij. “We are committed to empowering lenders to extend the credit entrepreneurs need to grow and create jobs – starting in the Nordics.”

Since it spun out of its sibling company, direct lender Capcito, in 2021, Monto has been working to help businesses and lenders simplify access to financing. The company’s technology is giving lenders the insights they need to make informed decisions through fresh financial information.

“Our platform uses AI-based algorithms to assess the performance of companies in real time. We have been validating this solution in Sweden through Capcito for the past six years, and are now ready to scale the underlying technology to lenders everywhere. Partnering with Monto, lenders will no longer be blindfolded when it comes to understanding how their portfolio companies are faring, a competitive advantage especially during times of volatility,” adds Schreij.

Facilitating Fair Financing

Monto’s ultimate goal is to enable the SME sector to prosper by facilitating fairer credit decisions. The key is removing information asymmetry from the underwriting process. “For us, fair financing means being assessed on up-to-date performance, rather than being judged based on data that doesn’t make justice to the hard work that entrepreneurs are putting in. Fresh financial information empowers lenders to onboard more business, while giving borrowers higher chances of getting the capital they need – when they need it,” remarks Schreij.

The demand for real-time borrower data is evident among Monto’s partners. One of Sweden’s largest banks, SEB, partnered with Monto to leverage this data in order to improve their lending decisions.

“Our edge is that we don’t just deliver data – we also understand the credit scoring and underwriting process from both sides, because we’ve done it ourselves. Capcito has leveraged Monto’s credit intelligence technology to lend SEK 2.5 billion to date. This gives us a unique perspective and in-depth knowledge of what it takes to successfully serve businesses. And it puts us in a strong position to help our clients achieve their goals,” says Schreij.

Tom Turula, PR and Marketing Manager of Monto, highlights that the pandemic helped accelerate expectations for financial services that are instant, online and embedded. “As embedded financing becomes a bigger trend, businesses are looking to access financing in the places where they spend most of their time. For example, accounting systems or e-com platforms. Open banking and the increased sophistication of financial services towards small businesses are other important trends that lenders should stay on top of,” adds Turula.

Partnerships and Acquisitions

Monto (and Capcito) was recently acquired by Fortnox, the leading accounting software provider in Sweden. Besides serving the financial ecosystem through its API and credit intelligence dashboard, Monto is helping Fortnox become a one-stop shop for business services.

Both companies share the vision of delivering easy-to-use business services to small businesses – and Monto’s technology will power many of the new financing services Fortnox is launching. This means that Fortnox’s 450,000+ business customers will soon be able to get invoice-based financing with a few clicks, based on real-time accounting data.

“Fortnox is a publicly-traded company with an ambitious strategic objective of expanding from accounting services into integrated financing. We’re excited to have an owner with such a massive scale, allowing us to build and grow embedded financing services. With their vast access to data, we can make financing as easy and straightforward as possible for our customers, so they won’t need to go anywhere else,” says Turula.

“As we look to the future, we see companies from all corners of the industry striving to provide smarter and faster financing services. Our focus will be on helping lenders both big and small achieve sustainable business outcomes through improved efficiency, increased margins, and reduced portfolio risk. By doing so, we can create a much better financing landscape for everyone involved,” concludes Schreij.

Author: Marria Qibtia Sikandar Nagra / Nordic Fintech Magazine