Hokodo, the UK fintech start-up, has been awarded €2m by Horizon 2020, the funding programme for research and innovation run by the European Commission.
Grants are awarded to “market-creating innovations” that demonstrate high growth prospects, and are highly competitive, only around 7.5% of the SMEs who enter are successful. Awarded to Hokodo’s French office, the funding will enable the launch of its API-based invoice insurance offering in Europe, to protect potentially millions of SMEs from unpaid invoices, one of the largest causes of insolvency.
Hokodo was co-founded by Richard Thornton, former CRO and COO at Aspen Insurance, along with Louis Carbonnier and Sami Ben Hatit, former CEO and CTO of Euler Hermes’ digital practice. Having grown increasingly frustrated with the outdated insurance industry, the trio set out with the aim of giving small businesses access to the financial and insurance services that were once reserved for large corporates – starting with invoice insurance.
Research shows that more than 20% of insolvencies are caused by the late or non-payment of invoices, yet invoice insurance is traditionally only sold by brokers, for whom the commissions generated by SMEs are too low to justify the cost of sale. Hence, current market penetration for SMEs is only 0.25%.
Hokodo is making invoice insurance accessible for SMEs in two ways. Firstly, it has applied data science and machine learning to enable SMEs to protect single invoices, rather than having to insure their entire turnover, as required by traditional providers. Secondly, using APIs, Hokodo is distributing its products via the platforms that SMEs use on a daily basis, such as accounting, invoicing or sales tools – in much the same way as travel insurance is offered on airline websites.
This means that customers can take out invoice insurance at the point of need, in real time, when they are accepting a purchase order or raising an invoice, rather than spending time sourcing cover elsewhere. And by bypassing the broker channel, Hokodo is able to dramatically reduce the cost of cover.
Hokodo launched its technology in the UK in October 2018 and has already established a range of partnerships, including one with Centrifuge, a trade finance platform and CountingUp, the challenger bank. The company has also developed its own credit scoring algorithm, HokoScore, allowing businesses to check the credit ratings of their clients and suppliers, and make informed decisions about credit terms and the need for invoice protection.
The Horizon 2020 grant will enable Hokodo to launch invoice protection and HokoScore in France and Germany within the next 12 months, as well as helping it to develop two new trade credit products for the SME market, which are due to go live by the end of 2019.
Louis Carbonnier, Co-CEO and Co-Founder of Hokodo said, “Every year across Europe, hundreds of thousands of companies are driven into insolvency because of late or non-payment of invoices. Trade credit insurance exists to mitigate this issue, yet SMEs have effectively been blocked from the market by an old-fashioned broker model, which doesn’t suit their needs. Hokodo is on a mission to rectify the situation, giving businesses the ability to protect their invoices when it suits them, and greatly reduce the risk of insolvency.
“Receiving the grant from Horizon 2020 is a huge boost for the business. Not only does it enable us to offer invoice insurance across Europe sooner than we would have otherwise, but we estimate we’ll be able to protect over €200 million worth of B2B trade over the next two years. It is also a huge vote of confidence for the importance of what we’re trying to do, and the role we have to play in supporting SME trade and success.”