SafetyDetectives recently had the opportunity to interview Andreas MjeldeI, CEO of Two, where he shared insights into the genesis of Two and its innovative approach to B2B payments. Andreas began his career in management consulting before founding Linio Group, a successful B2C product marketplace in Latin America. Drawing from his experiences at Linio, Andreas identified the inefficiencies in B2B payment processes, leading to the creation of Two. Two revolutionizes B2B payments by offering flexible net terms through an API, streamlining the purchasing experience for businesses and enhancing cash flow management. With a focus on providing a seamless cross-border solution, Two aims to empower businesses globally in the evolving B2B landscape.
Can you introduce yourself and share a bit about your background and how you came to found Two?
My name is Andreas MjeldeI, I started my career in management consulting and did that for some time. Then, in 2012, I founded a company called Linio Group, which is a B2C product marketplace operating from Mexico City in the north to Argentina in the south. We scaled the business to becoming a number 2 or 3 marketplace across the region, with well over $100 million in sales. In 2019, we sold the company to Falabella, a big bank and retailer based out of Chile, and I relocated back to Europe.
The background for Two stems from my time at Linio. What would happen was that if a business spent more than $1,000 when they got to the shopping cart, they would pause, pick up the phone, call us and say, “Hey, I’m calling on behalf of business X, can I get a discount/ Also, I can only pay in 30 days or I need 45 net days and net terms because that’s the company policy.”
What that meant for us is that from the sales side, it looked great; it was a big basket value of $2,000 or it could be $20,000 dollars. However, now it went offline. We needed the manual analyst to make a decision on whether or not we would approve this customer for 45 days.
We had to ask the buyer to send us multiple documents, pull out a credit report, do some math in the Excel sheets. The analysts make recommendations to the CFO, and when he had time, he would have a look at it. By the time we finally got back to the customer with an answer, which could take anywhere from 24 hours to as long as a week, half the time said yes, half the time said no. So, during that approval process, we lost lots of the sales. Then, of the 50 percent that we approved, half the time the customer said, “Well, it took so long or I changed my mind or I bought somewhere else,” and we didn’t get those sales either. We saw that about 1 in 4 orders actually ended up converting for us.
Our problems didn’t stop there because we gave an average 36 days for payment terms, but the customer paid on average on day 86. This was a huge gap between what we thought we gave them on payment terms and how much they took just by the nature of not paying on time.
Then, there were cases where we took losses. Not all customers paid; some went bankrupt, some turned out to be fraud, etc. So, even though at the outset the B2B sales looked very beautiful and easy. We had large baskets, good economics, but in the end, we lost a lot of these sales and the economics were pretty bad because we’re sitting on all this capital and all these losses. So it was with these experiences and learnings that, in a sense, informed us to start Two.
What is Two and what sets it apart from other B2B payment solutions in the market?
Two is a payment method for businesses buying digitally, primarily through e-commerce platforms, but it can be any type of digital transaction where the buyer at some point clicks a button or signs and says, “Yes, I want to buy.” We serve through an API, and through it, the merchant now has the ability to offer three types of net terms.
- Simple net terms: You buy, you pay 30 days or 60 days later. This is the most common way that businesses pay.
- Billing account: The buyer can place many orders against the billing account, and they get and pay a monthly statement.
- Installments: If a buyer makes a capital goods purchase, they can pay it back over 12 or 36 months.
What sets us apart in the industry is that we provide a better customer experience for the buyer. Therefore, the merchant prefers using us because we’ll help them convert more. Our true north is truly helping a merchant convert more and get more sales at a comparable lower cost to what they could have done on their own. When I say our customer experience is better, I mean it’s faster, requires fewer clicks and fewer inputs to be approved to buy on net terms.
We believe that we have the most sophisticated fraud underwriting engine in the market. This allows us to provide a frictionless customer journey. At the same time, we’re pretty good at picking up the actual fraudsters and making them break off the journey or not being able to complete their task.
What specific features of Two aim to fix cash flow challenges for businesses?
Let’s take a step back. The first known human language was a pre-Persian language in Sanskrit, and its purpose was to manage invoices. In fact, the first known written word is an invoice. This means that as long as humans have been able to write, we have been using invoices to manage business transactions. If you go back 2,500 years ago, what was a typical transaction? It was a farmer coming to the market and providing some corn. The person in the marketplace couldn’t pay up front, so they made an invoice and they got some payment terms on making these sales.
This type of business hasn’t fundamentally changed since then. 70 to 90 percent of business transactions or B2B commerce is done on some form of net terms. In some cases, it might be very legitimate reasons, but other times it can be avoided.
However, what that means is that if you are on the selling side of a B2B transaction today, you’re taking the function of the bank of your buyer. You’re expected to give 30, 60, or even 90 days and to sit on the risk that that customer doesn’t pay. Even if you’ve done your part, you built your product, you shipped it, it’s delivered, but you’re still now seeing some financial risk related to this customer that you bought.
It doesn’t make sense and it doesn’t allow for small, medium-sized businesses who sell to other businesses to reach their full potential because they get stuck deploying their own capital into their sales. They get stuck doing all these risk decisions that are not specifically good at. When you connect to our API, you don’t have to do this anymore. We will make all the decisions for you; we will pay you, and we will take care of the customer who now has net terms. The difference is that they’re going to pay it back to us, and not to the seller. What we do is help the seller get instant payout on all their sales that go through Two.
What are the key pain points for businesses in the traditional B2B payment process?
There are two main pain points.
- Capital: To deploy capital, the more you sell, the more you grow, the more capital we have to grow that you have to deploy into working capital.
- Risk: You have all these businesses making complicated underwriting decisions because their customer is going to be a small or a medium-sized business, which are the hardest ones to underwrite. They’re not a professional underwriter, a data science expert, or a risk officer. To put that in perspective, if you look at the balance sheet at Citibank, the largest non-Chinese bank, the total balance sheet, not their loans, is less than a third of the balance sheet that SMB businesses sit on receivables. This means that people in a small business, someone who is great at making vegan cheese but has never taken a finance class in their life, are in aggregate making more underwriting decisions than what Citibank does globally. That just doesn’t make any sense.
How does the integration of buy now pay later (BNPL) at the checkout enhance the B2B purchasing experience?
If you take the example I shared with you initially from Linio. If you wanted to make a large order with us and you wanted net terms, you would have to call us, send four documents, and wait for us to respond. It could take anywhere from 24 hours to a week before we could respond with an answer.
If you integrate with our API, that decision happens in 1 – 1.5 seconds, before you decide that you want to pay on terms. The moment you have got to the checkout and type in the company name you want to purchase on behalf because you work there, we already start the process of underwriting. By the time you have chosen to pay on net terms, we already know the answer for you.
All those purchases you had to wait for, or you have to fill in lengthy forms for company information, they’re gone. It’s actually faster for you to get net terms for your business through us than buying as a consumer, pulling up your card, and typing in a number.
Are there any future developments or enhancements that users can expect from Two in the coming years?
For us, the big theme going forward is cross-border. At the moment, we started enabling market by market, but as we see the current landscape, the world is incredibly global at this point in time, especially on the B2B side. There are many B2B businesses that don’t have customers in multiple markets. So a big focus for us is to make it as simple and seamless for our customers to use our solution independent of where the customer is.