House calls is a series of profiles of some of the committed and enthusiastic members of the team that is driving Reap forward. We want to know why they are with Reap, what roles they play and how they see the company now and in the future. We first sat down with one of the people who turned an ambition into reality.
Who is Kevin Kang?
Kevin and his co-founder Daren Guo are, between them, the public face of Reap. As well as appearing on the company website, Kevin has fielded questions and put his point of view on such platforms as Asian Entrepreneur, Business Digest and TVB, a major broadcaster. However, these opportunities, good though they are for the company and for putting the name of Reap into the public arena, do not give a real insight into the direction Kevin and Daren see the company heading, and what the challenges and attractions are just over the horizon. We hope that this account that Kevin gave provides a thoughtful guide to the question, where next for Reap?
How did Reap start?
Kevin says that, in 2018, he knew that he wanted to start a company. He was uniquely placed to do that, having a background in banking, investment and deal-making. With that experience, and with the knowledge acquired in an MBA degree course at INSEAD, Kevin knew the pain points that small and medium enterprises face as they look to establish and develop their businesses. Daren also knew these difficulties from his time at Stripe. The founders knew that they had found their niche market, and that the foundation for their venture was to facilitate SMEs in their search for credit. Kevin says that no-one in traditional financing was really applying lenses to these pain points and focusing on the problems. In using this description, Kevin shows that he and Reap fully understand the obstacles that conventional credit suppliers put in the way of those with innovative approaches and good business plans.
Cashflow is the life-blood of SMEs
In helping fledgling business people to use the credit that they already had, rather than trying to put them in touch with funding opportunities that were usually at a level that hindered rather than helped, Reap provided SMEs with the life-blood that they desperately needed. To misquote Karl Marx, capital which is not used is not capital. By facilitating the owners of SMEs to use their credit cards to pay business expenses incurred with people and businesses who did not accept such cards, Kevin and the new company enabled new entrepreneurs to move past the roadblocks that have so often caused new business to crash.
Kevin points out that while many groups prioritise SMEs and vow to ease their paths towards self-sufficiency, SMEs, bankers and governments are not talking the same language. SMEs are handcuffed by the rules that apply to all businesses, and there is a disconnect between intentions and actions. The problem arises from a lack of understanding. Governments, regulators and bankers are fixated on the risk-reward gap. In other words, the risk that these institutions are being asked to fund and share should be matched by the reward that their investments bring in. However, SMEs usually have little or no income streams, only a promise that they have a bright future ahead and that the rewards, when they arrive, will be great. Institutions therefore deem the ratio of risk to reward to be too great. Banks do not wish to incur bad debts; governments and regulators do not wish to put the financial system and framework at risk of damage or even collapse. The problem faced by SMEs is therefore a systemic one and one that cannot be corrected by tinkering with some parts of the framework. This is a real-life catch-22 situation. SMEs offer brilliant, inspirational ideas as capital; banks and other institutions want to see real monetary returns. SMEs need real capital now in order to turn their dreams into hard returns; banks want to see those real returns before they are willing to extend credit.
Janet Yellen, the newly confirmed Secretary for the Treasury in the Biden administration in the US put it succinctly. She said, “Access to capital is important for all firms, but it’s particularly vital for startups and young firms, which often lack a sufficient stream of earnings to increase employment and internally finance capital spending”.
Reap’s Business Model
Reap’s business model addresses this dilemma in a simple and elegant way. Kevin says that this market is so new and so much of a niche area that regulation is straightforward. A money exchange or money remitter has to be registered with the Customs and Excise Department under the Anti-Money Laundering and Counter- Terrorist Financing (Financial Institutions) Ordinance (AMLO), but, at present, there are few other requirements. This, however, does not mean that the business can cut corners and ignore best practices. Kevin says that, “We hold ourselves to a higher standard even if we are not regulated yet”.
More importantly, the elegance of the business model enables Reap to concentrate on its customers rather than on administration. Kevin says that in setting up Reap, he and Daren did not want to be in a field where the technology is in advance of the finance. Indeed, when Kevin and Daren were launching their product they ran advertisements on FaceBook setting out what they could do for SMEs and offering to “drop by”, as Kevin says. They followed up with face to face discussions and were able to convince customers not only of the utility the product offered, but also of its safety. In this way, Reap developed a network of customers who were convinced that they needed the product but who also trusted the young company and its founders.
As the business grew, the technology grew with it. Reap moved to automate its offerings and now has a dedicated team of enthusiastic coders and programmers in Vietnam. The pace of business has accelerated in the last 12 months and the online model with automation at its core has kept up. In this way, with a small but hard-working team of 16 in Hong Kong and Singapore, Reap has dealt with over $1 billion in payments and is now looking to the future.
In an interview in August 2020, Kevin said, “We want to go broader. We began with familiar, painful things, like access to payments and cash flow. We want to demonstrate our value and then go into lending, payments collection, accounting, and expenses management”. This means that into the next year customers may have to re-evaluate the way in which communications with Reap take place, with revenues collected through software. For this year, Kevin is very proud that Reap plans to issue its own card. There are challenges to overcome of course. When asked how this expansion of the business model will affect Reap’s existing relations with, for example, Stripe, a company with which Reap presently partners, Kevin explained that any Reap service that expands into what appears to be the territory of another partner provider would be a layer on top of the offering of such provider. In this way, the partnership will continue and will not turn into rivalry.
There is the obvious major problem that fintech companies face as they seek to grow by helping customers to avoid the heavy, and sometimes unnecessary, weight of regulation. As Daren said himself, in an interview also in August 2020, “We’re a channel for banks to grow their business. They provide an allocation of capital, and we distribute it.” If the banks withdraw their support, or try to move into the same enterprise space, the opportunity that attracts the fintechs will disappear. It is encouraging for companies such as Reap, however, that the banks that have made cautious attempts to take away their markets have noticeably failed to change their conservative mindsets that created those markets in the first place. There is the old saying about putting lipstick on a pig. Companies such as Visa, with which Reap also partners, have been wiser in supporting fintech companies to bring their flair and dynamism to the market. In this way the more established company gains access to new markets without having to try to alter their established public face. Companies such as Reap bring trust to the customer relationship. More forward-looking established companies are happy to benefit from this through partnership, and will be content to allow reputable fintechs to keep their independence and market share.
We also put it to Kevin that if a company such as Reap grows as its management hopes, it may attract the attention of those such as PayPal. The latter, together with other established facilitators, may think that the newcomers pose a threat and try to sideline them. Alternatively, the established companies may go down the Apple, Microsoft and FaceBook route and simply buy them up. Kevin seems unfazed by this scenario, saying that Reap is, and will continue to be, more software-focused compared to the more established players. Indeed, Kevin is upbeat about Reap’s plans for expansion. Reap is eyeing new frontiers in Asia, such as Australia, continuing Kevin’s firm belief that the future lies firmly in Asia. He acknowledges the uncertainties caused by the pandemic but makes it clear that Reap will become a force in the continent. He describes Hong Kong and Singapore as “shining beacons” in regional and global financial arenas and is confident that each has a great future.
Kevin is rightly proud of the team that he and Daren have built at Reap. Surprisingly, for a dynamic city like Hong Kong, Kevin finds that it is no problem finding potential colleagues who are passionate about the business in which Reap is engaged, but many disqualify themselves by wanting immediate returns on commitment. They are as risk-averse about joining innovative and enterprising startups as the banks are about providing credit lines. The team at Reap consists, therefore, of those who have passed Kevin’s tests: they are all highly competent, enthusiastic and willing to take a chance. These are words that could also represent Reap’s own strategy plan.
The Next Step
It is interesting that, again in August 2020, an equally new company that could be viewed as a competitor of Reap stated in an interview that, “The fintechs in our industry need to be focused on the next level of innovation, or by the next 24 months we’re all out of business”. It is clear from talking with Kevin that he and Daren have no intention of being content with their present achievements. Impressive as those achievements are, Reap is clearly moving not merely to the next level of innovation, but to the next concept. The desire to upscale is impressive and inspiring. To coincide with the launch of the Reap card, the business is looking to rebrand itself. It is using professional branding practitioners to do this, a far cry from the sketches and exercises roughed out on a table in Daren’s apartment.
No matter how big and successful Reap becomes over the course of the next one or two years, Kevin is determined that it must never lose sight of its mission. He and all the team are conscious that the SMEs that gave Reap its start must remain at the core of what they do, no matter what business model they adopt. As Kevin says, “What do we want our customers to think? We want them to think that they are bigger than they actually are”.
Kevin says that there is so much more that is possible. He and his colleagues at Reap are clearly in for an interesting couple of years. They will not be able to take it easy and relax; the worlds of finance and fintech are changing and the rate of change is accelerating. It is also clear that if anyone can change minds, and alter conservative perceptions in those worlds, the team at Reap are the ones to do it. The team is fully behind Kevin and Daren and their ambitions. As Hazel, who discussed the branding narrative, says, “We aim to fuel small businesses with ambition”.
Reap is proud of building its success on the foundations of making businesses think that they are bigger than they are, and fuelling small businesses with ambition. We have great staff and partners, but we never forget that our progress comes from giving you the best solutions that we can, and removing, not adding to obstacles in your way as you make progress as well.