End-to-end payment automation and reconciliation via API for Defacto

Defacto is a fintech which modernises and simplifies access to short-term loans for SMEs. Through APIs, the fintech connects to the various tools that businesses are using: accounting and treasury management software, ERP, etc. Following a loan request from a business, Defacto will then access and analyse the business’s data to determine their borrowing capacity before automatically releasing the funds. 

Just twenty months after its inception in 2021, Defacto has already provided the equivalent of €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, completed 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 grant loans, Defacto receives financing from investors, such as debt funds. The amount of liquidity that Defacto holds should increase with the number of clients, ensuring their business can continue to grow. 

In 2023, Defacto was interested in establishing a new legal structure to increase its lending capabilities and reduce costs. This structure took the form of a securitisation mutual fund (referred to as FCT in France): it allows investors to buy back loans granted by Defacto, while letting them operationally manage loans repayment and recovery. Convinced by its strong performance and the reliability of its solution, Defacto attracted well-renowned investors, such as Viola Credit and Citibank.

The creation of the FCT required Defacto to continue developing its operational and financial infrastructure, while maintaining the company’s key principle: to automate and to manage financial operations as much as possible, through APIs. This principle is achieved through the following:

• Real-time access to account information such as incoming and outgoing transactions, balances, etc. via banking API (webhooks), with the ability to define bespoke alerts.
• Streamlined bank reconciliation: Defacto’s technology, combined with Memo Bank’s innovative features such as virtual IBANs, allow Defacto to reconcile transactions and manage its portfolio in real-time.
• Automated payment processing and collections: Through a banking API, Defacto manages the repayment of thousands of loans by direct debit and generate direct debit mandates. Defacto then delivers a great client experience, whilst in parallel reducing operational risks. This is achieved by eliminating the need to create and manipulate large data files for SEPA credit transfers or SEPA direct debits. Additionally, Defacto creates simple audit trails and facilitates management control. 

However, the creation of an FCT posed a couple of challenges. Firstly, setting up an FCT is more complex, involving a significant number of stakeholders (such as asset management firms, depositary banks, etc.), who’d be part of the FCT and be required to be “API-compatible.” Secondly, creating an FCT requires the opening of client accounts that only credit institutions can offer. In this instance, the client account in question was referred to as a specially dedicated account for securitisation vehicles, through which the securitisation funds can be owned by the FCT, and their management delegated to Defacto.

Therefore, Defacto needed to find a new finance partner who:

1. Was authorised to open client accounts, in line with French regulatory requirements
2. Was giving access to cutting-edge solutions, through which Defacto could automate transactions, securely and without volume restrictions.

In France, Memo Bank was the only finance actor who ticked all the boxes. Indeed, Memo Bank not only offered a full suite of client accounts, including the specially dedicated account for securitisation funds, but also a Premium banking API, through which accounts can be managed and transactions processed. Another option, which have been disregarded, would have been to partner with several finance partners (a main bank and one or multiple fintechs), but this would have over-complicated Defacto’s ecosystem and mechanically increased risks — and costs.

Memo Bank offering is fully aligned to Defacto’s needs for two reasons: 

Firstly, Memo Bank is a credit institution, allowing businesses (SMEs and larger organisations) to open client accounts tailored to their industry and types of funds.

Secondly, Memo Bank offers a complete and centralised solution through which Defacto is able to manage client accounts by performing the following tasks via API: banking reconciliation through virtual IBANs, collecting payments through SEPA direct debits, executing SEPA instant credit transfers, and receive real-time notifications via webhooks.

By opening its client money account (CMA) with Memo Bank, Defacto did not need to partner with multiple actors: Memo Bank offering is comprehensive, unique, and features an API through which businesses can fully automate their processes.

(1) Banking API with the features that Defacto needed

Memo Bank has developed a modern and comprehensive Premium banking API that enables Defacto to execute their tasks in an automated way.

Defacto’s engineers found Memo Bank’ API documentation super clear and easy to understand — which explains why they have been able to integrate the API in just a few days.

(2) Real-time notifications through webhooks

Defacto’s finance department have access to real-time information through webhooks, included in Memo Bank’s API. Webhooks are real-time and automated notification systems, allowing Defacto to monitor balances and be informed when specific events occur (such as incoming transactions, payments about to be made, etc.) or if certain amount thresholds have been exceeded. If necessary, these webhooks can automatically reallocate funds across Defacto’s accounts.

(3) Automated banking reconciliation via virtual IBANs

For Defacto, virtual IBANs represent one of the most important features from Memo Bank. Virtual IBANs enable the fintech to automatically recognise transactions from their clients, and assign these against the relevant loan, thereby facilitating the banking reconciliation process.
Instead of assigning a single IBAN to all its clients, Defacto assigns each client a virtual IBAN, which is 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 recognised.

(4) Payments through SEPA instant credit transfers and SEPA direct debits

Memo Bank offers SEPA instant credit transfers at no additional cost. Subject to all parties accepting and processing instant payments, it is only a matter of minutes until funds are transferred into the relevant account. 

Memo Bank offering also features a solution to collect payments via SEPA direct debit, whether for CORE or B2B transactions. Fully integrated into Memo Bank’s platform, this solution enables Defacto to receive its payments within 48 hours. 

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

During the initial discussion phase, Charlotte and David appreciated the clarity of Memo Bank offering and quickly understood which solutions and features would be implemented, within what timeframe, and at what price. During the project implementation phase, they valued the quality and responsiveness of the teams working with them, both on a technical and commercial levels.

Just a few weeks after the initial discussions between Memo Bank and Defacto, the client account assigned to the FCT was opened, and incoming and outgoing transactions started to flow through the account. Within a few months of establishing the FCT, tens of millions of euros have successfully been processed through the client account. 

David highlights the quality of Memo Bank’s customer service, able to respond within a few hours at most, and sometimes within minutes. Regarding Memo Bank’s ongoing support, he also mentions the listening skills and responsiveness of Arthur Bourdillon, their dedicated relationship manager. When David sends a question to or shares an issue with Arthur, he knows that his request is in good hands and will be addressed and sorted out promptly.