Paul Melotto, CEO, AlRaedah Finance • Interview
AlRaedah Finance supports SMEs via cash advance systems, and was able to bolster resilience across the economy during COVID-19.
You have an offering to SME clients that is unique in the Kingdom. What advantages does it offer, and what has allowed you to innovate in this direction?
We are highly focused on point of sale (POS) financing, or, as it is known in the West, Merchant Cash Advance (MCA). We are the first to launch MCA in Saudi Arabia. This product allows small businesses to use their future POS transactions as collateral to gain access to financing. The repayment is a percentage of their daily sales directly through their POS devices. This system is perfect for the needs of SMEs. We could introduce this product because the Saudi central bank (SAMA) opened its regulations to allow third-party payment aggregators into the market, which are able to support the operational requirements of such products. In January 2020, we signed with Geidea and Sure Global Technology, which are both payment aggregators. Previously, the only payment aggregators were banks. SAMA’s new initiatives allow new products to be introduced to the market while remaining in a sandbox environment, allowing both the regulator and fintech an opportunity to test the market viability of their technology
How has the pandemic influenced your business, and what have you done to respond to the current situation?
We were impacted significantly as our core business is SMEs. When the shutdown occurred in Saudi Arabia, nearly all SMEs were shut down. The Saudi government’s response was amazing; we deferred payments to support those SMEs based on the mandates of SAMA and Monsha’at. It has also required us to look at the delivery mechanism of our product to our SMEs. It required the company to move plans forward on the complete digitalization of our merchant experience. Our product is well adapted to crises because if one’s business has to temporarily close, and has no revenue it would not have to pay until it was allowed to reopen. This is built into the product and was an immediate relief to customers during this pandemic. We have begun pilot tests and now have about 70 SME merchants on the MCA platform. Our expectation is to grow the platform exponentially going forward with an expectation of having 2,000 merchants on the platform in 2021.
Has the short-term impact for you been curbed by the SAMA interventions?
Many countries did not have a clear stimulus package until after lockdown, while Saudi Arabia had a proactive approach and announced a plan prior to the temporary shutdown, so the sequence of events was done properly. While there was anxiety amongst business owners, they felt relief that they would not have to pay their debtors or go bankrupt from their financing arrangements. That was extremely important.
What does your recent MoU with Mastercard achieve?
Our tie up with Mastercard provides an SME-in-a-box service. We can issue prepaid cards, so that people have access to financing or capital, immediately. Most of merchants are underserved, and we wanted to make sure they had access to capital when they need it the most. We are dealing with micro to very small businesses with a maximum of SAR5 million in revenue. That is why we are looking at the entire SME ecosystem, from payments to cards. Once we have access to data, it will be easy for us to expand digitally. In that sense, open banking is a requirement to expand lending to SMEs, personal finance, and have a thriving fintech industry. Fintech is driven by data. If you cannot get to the data, there are many limitations going forward, and this is a regulatory change we hope to see in the future.
BIO
Paul Melotto was appointed CEO and Board Member of AlRaedah Finance in 2015, bringing with him two decades of local and international finance experience. Prior to that, Mr. Melotto was a founding member of the management team of Deutsche Gulf Finance, one of the most successful mortgage companies in Saudi Arabia, where he served as CFO for five years. He started his career at MortgageIT in the US, which in 2004 completed its IPO on the NYSE. The company was sold to Deutsche Bank in 2007, and Mr. Melotto continued to hold various positions looking after residential mortgagebacked securities. He holds a bachelor’s degree in accounting from Quinnipiac University, US.