Later this week, during our Venture Conference, one of the most prominent topics we’ll be tackling in FinTech. Technology is changing all aspects of the jobsite, including the way money moves around projects. With that in mind, we looked at some of the most powerful trends at work in the financial end of the built world.
1. Enabling better payment management for the contractors
As our recent research report “Managing Financial Risk In Construction” illustrates, subcontractors are particularly impacted by the industry’s bottom of the barrel payment uncertainty. An array of emerging tech companies are coming into the market to address the problem. Rabbet tackles contract terms, while companies like zlien help manage the lien waiver process.
2. Supporting faster payouts to subcontractors
Some subs are climbing even deeper into the banking relationship. Textura, one of the earliest players in the payment sector, touted an effort with Turner Construction and Greensill Capital to arrangement more prompt payments to subcontractors. On their website, Turner promotes the Turner Construction Accelerated Payment Process. We haven’t seen strong evidence of widespread adoption of this payment methodology, but it does seem to be an approach that continues to find support.
3. Helping banks manage their loan payouts to builders
Beyond attacking payment from the contractor perspective, players are also focused on the sector’s banks. BuildPay is one player inserting itself between owners, general contractors, subcontractors, and materials suppliers in an effort to provide more transparency and certainty in the payment process. The company’s website lists JP Morgan Chase as a partner. Built Technologies works on behalf of lenders to manage the process and cites successful partnerships with numerous lenders. Also, offering lending management tools are companies like BankLabs and Land Gorilla.
4. Online lenders are getting in the game
The building industry is full of small businesses Online lending groups that have disrupted consumer lending are targeting small business lending as well. Groups like Kabbage, Fundbox, and Ondeck are increasingly targeting loans to the smaller builders who make up the bulk of the industry.
5. BlockChain Technology is beginning to rear its head in the contractor payment world
While many people are still rolling their eyes at the mention of blockchain, the technology continues to take hold. As BIM becomes more standard on projects, and bills of quantities can be developed and verified in automated ways, smart contracts can increasingly support automation of payment and automated validation of completion of work. Brickschain and Intelliwave are examples of companies now working to provide more automated validations for progress payments.
6. Cryptocurrency for the industry, a phenomenon distinct from blockchain is also beginning to emerge
Concurrent with blockchain and smart contracting, cryptocurrency player like Etherium are working to create crypto solutions for the industry. Beyond the major players, companies like BOPTI and although it is not clear that this is a reference to cryptocurrency, per se, it has even been reported that Autodesk is looking at a form of digital escrow for contract payments.
7. Modularization will significantly disrupt the industry’s financial landscape
When emerging giants like Katerra and Prescient take entire swaths of the industry out of the field and into their factories, they will also be streamlining supply chains and payment processes for large segments of the industry. This will likely mean fewer, larger suppliers, more business for big banks that bank those bigger suppliers, and less for the smaller community banks. We could even see modular companies entering the project finance arena.
Downside Risks but Also Opportunities for the Industry’s Traditional Lenders.
When one boils these trends down, it seems to spell potential trouble for the mid-sized banks that serve the industry’s smaller players. Those firms may be more vulnerable to being squeezed as the supply chain is rationalized and their customers are pressured or as their customers increasingly look to alternative places such as online lenders or modular or traditional builders for more financing support.
In theory, bigger banking institutions could also face threats because if payments happen more quickly and with greater certainty, builders may be better able to fund their work on their working capital, alone. On the flip side, greater certainty around accounts receivable payments may also make builders better risks for their bankers. Either way, it seems that change is very much on the horizon for the industry’s financial players.