Defacto automates orchestration and reconciliation of its transactions thanks to a banking API

Defacto modernizes and simplifies short-term loans for businesses. The fintech integrates via API into the tools that businesses use to manage their finances: accounting software, treasury management software, ERP… When a business requests financing from Defacto, within seconds, Defacto’s systems access the company’s financial data, analyze its maximum borrowing capacity, and, if applicable, automatically trigger the financing transfer from Defacto’s accounts.

Just twenty months after its establishment in 2021, Defacto has already distributed €280 million in short-term loans to 8,000 French and European businesses. The company, experiencing rapid growth and having raised €15 million in June 2022, closed in July 2023 the creation of a new €167 million debt fund, thereby increasing its financing capacity for SMEs to €1 billion per year.

To distribute loans, Defacto secures financing from investors, such as debt funds. This liquidity provision must follow the increase in the number of clients and enable Defacto to continue the growth of its business.

In 2023, Defacto’s teams wished to establish a new financial structure to multiply the fintech’s financing capabilitiesand lower its financing costs: a securitization common fund (SCF). This legal structure allows investors to buy back loans granted by Defacto while leaving Defacto operationally in charge of their repayment and recovery. Thanks to its performance and the reliability of its solution, Defacto attracted leading investors, such as Viola Credit and Citibank.

The creation of this fund required Defacto to continue developing its operational and financial infrastructure while maintaining the company’s key principle since its inception: to automate operations and financial management as much as possible, through APIs. This means:

• Real-time access to account information (incoming and outgoing transactions, balance, etc.) via banking API(webhooks), with the ability to configure personalized alerts.
• Automate bank reconciliation: Defacto’s technology, combined with innovative features like virtual IBANs, allows Defacto’s finance department to reconcile transactions and manage its portfolio in real-time.
• Orchestrate transfers and withdrawals 100% automatically. Defacto manages the daily repayment of thousands of loans by direct debit. Through a banking API, Defacto wanted to be able to automatically orchestrate the creation of direct debit mandates and the execution of direct debits. This operation ensures the fastest and most reliable service to clients, reduces operational risks (by avoiding manual entries or the sending of SEPA transfer orchestration files or SEPA direct debits), creates simple audit trails, and facilitates management control.

However, the creation of an SCF project posed a new challenge. Firstly, setting up an SCF is more complex, involving a significant number of stakeholders (such as a management company, a depositary bank, etc.), all of whom must participate in Defacto’s infrastructure and be “API-compatible”. Secondly, creating an SCF requires the opening of a specific account that only credit institutions can open: the specially dedicated account for securitisation funds The status of the specially dedicated account for securitisation funds guarantees that the funds in this account belong to the SCF and delegates to Defacto its operational management.

Therefore, Defacto needed to find a new partner who:

1. Is capable from a regulatory standpoint of opening a special purpose account, meaning they are a credit institution.
2. Has developed a comprehensive offering of innovative features that allow Defacto to operate with a high level of automation and reliability.

In France, only Memo Bank was able to open specially dedicated account for securitisation funds with the comprehensive offering of features Defacto needed, entirely manageable via API. Another option would have been to partner with several entities (a bank and one or more fintech companies), but this would have complicated contractual arrangements and SPA management. The multiplicity of actors would have mechanically increased risks — and costs.

Memo Bank offers a special purpose account and API-automatable features.

Firstly, Memo Bank is a credit institution, allowing its clients to open third-party accounts, ring-fenced accounts, and specially dedicated account for securitisation funds.

Secondly, Memo Bank offers a comprehensive package that combines on a single account all the features Defacto needed for its SPA, automatable via API: virtual IBANs, SEPA direct debits, instant transfers, and real-time notifications via webhooks.

By opening its specially dedicated account for securitisation funds at Memo Bank, Defacto did not need to contract with multiple actors: Memo Bank’s offering is comprehensive, unique, and entirely automatable via API.

(1) Banking API managing all the features Defacto needed

Memo Bank has developed a modern, multipurpose, and unique banking API that allows Defacto to execute all the features it needed.

Defacto’s engineers, who worked on the implementation of Memo Bank’s API, found its documentation extremely readable — allowing them to integrate this API in just a few days.

(2) Real-time information reception through webhooks

Defacto’s finance department accesses real-time information through webhooksincluded in Memo Bank’s API. Webhooks are real-time and automated notification systems, allowing Defacto to continuously monitor account balances and be alerted to events (receipt of a specific transfer) or exceeding certain thresholds. If necessary, these webhooks can automatically trigger fund reallocations between Defacto’s operated accounts.

(3) Automated reconciliation with virtual IBANs

For Defacto, virtual IBANs are one of the most important innovative features that Memo Bank provides access to. Virtual IBANs enable the fintechto ensure that its systems automatically recognize all transfers from clients and associate them with the corresponding financings, thereby facilitating reconciliation automation among other benefits.

Instead of assigning a single IBAN to all its clients, Defacto assigns each client an alternative and unique IBAN (the virtual IBAN), which becomes associated with that client in both Defacto’s and Memo Bank’s systems. Regardless of the account from which the client repays their loan or the reference provided by the client, the origin of the transfer and the underlying loan operation will be automatically recognized.

(4) Payments through instant transfers and SEPA direct debits

Memo Bank offers instant transfers at no additional cost. The time between a client’s first interaction with Defacto on a partner platform and the arrival of funding in their account can be as short as a few minutes, provided the client’s bank accepts instant transfers.

Memo Bank also provides SEPA direct debit collections, whether for CORE or B2B direct debits. As Memo Bank’s direct debit solution is integrated into the bank account, Defacto receives its direct debit collections within a maximum of 48 hours.

At Defacto, Charlotte Gounot, the Finance Manager, and David Gautard, the Operations Manager, worked on establishing the securitization common fund and finding a new banking partner for its creation.

During the initial discussion phase, Defacto’s management appreciated the clarity and readability of Memo Bank’s offering: which solutions and features would be implemented, within what timeframe, and under what pricing conditions. Subsequently, during the project implementation phase, they valued the quality and responsiveness of the teams working on the project, both on the technical and banking sides.

Just a few weeks after the initial discussions between Memo Bank and Defacto regarding the establishment of the securitization common fund, the special purpose account was opened, and incoming and outgoing flows began arriving in the account. Within a few months of the securitization common fund being established, tens of millions of euros in flows had already passed through the special purpose account, without any incidents.

David Gautard highlights the quality of Memo Bank’s customer service, capable of providing a response within a few hours at most, and sometimes within minutes. Regarding daily support, he also mentions the attentiveness and responsiveness of Defacto’s dedicated account manager, Arthur Bourdillon. When David Gautard submits a problem or request to his account manager, he knows that the issue will be addressed promptly, and he will receive a clear response.