Navigating B2B Payment Challenges Insights from Hokuto’s Louis Carbonnier

Episode Overview

Louis Carbonnier is a prominent figure in the fintech landscape, co-founding Hokodo in 2018. As the co-CEO, Louis leads the commercial strategy and product development for Hokodo’s innovative Buy Now, Pay Later (BNPL) solution tailored for B2B transactions. His journey into fintech began with a robust foundation in strategy consulting at Oliver Wyman, where he served as a Principal in the Financial Services practice. His strategic acumen was further honed during his tenure at Euler Hermes, now part of Allianz Group, where he founded and led the Digital Agency, focusing on trade credit insurance and risk management solutions.

Louis’s educational background is as diverse as his professional experience. He holds a bachelor’s degree in philosophy, which has equipped him with unique problem-solving skills and a keen ability to view business challenges through multiple lenses. This philosophical approach to business, combined with a master’s degree in finance, has made him a versatile leader capable of navigating complex financial landscapes and fostering innovation. His time at Oliver Wyman saw him globetrotting for various projects, enriching his multicultural perspective and ability to adapt to different business environments.

Episode Transcript

Kevin Rosenquist: Hey, welcome to Pay Pod, where we bring you conversations with the trailblazers shaping the future of payments in fintech. My name is Kevin Rosenquist. Thanks for listening. Today I’m chatting with Louis Carbone, co-founder and CEO of Hokuto. They provide a buy now, pay later platform for B2B transactions, helping SMEs provide their clients with better payment options while also giving buyers more financial flexibility. He’s an incredibly sharp and engaging person. We talk payments, travel, and even philosophy. I’m sure you’ll enjoy listening to Louis as much as I did. Please welcome Louis Carbone. One of the points made on your website is that Hokuto wants to ensure every company has access to the financial tools they need to run their business. What was it you saw in the financial world that led you to co-found Hokuto? Hokuto in 2018?

Louis Carbonnier : Yeah, it’s a tough name to pronounce.

Kevin Rosenquist: I don’t know why I always want to say Hidoko. Maybe it’s because I was. I grew up on Street Fighter two. But anyway,  yeah, a good.

Louis Carbonnier : One. , so I think, you know, in a way, B2B payments are relatively fucked up today. They are fucked up for the merchants, but they’re also fucked up for the buyers, and it’s probably important to take a little step back and rewind and remember what specific about B2B payments, and at the core is that a lot of companies, when they sell and they trade between each other, they give each other payment terms. So company A gives 30 days or 60 days to company B for company B to pay for the goods. And that thing is really specific to B2B and it’s hard to bring online. So it’s fucked up for merchants because they don’t really have the tools they need to offer payment payment terms when selling online. So they’re really underserved by the payments industry because it’s very credit card focused. In B2B, You don’t want to you cannot settle very large invoices by credit card. You’re going to hit a ceiling very quickly. And on the other hand, it’s not fit for purpose for the buyers. So when you have a professional buyer today, it very often happens in e-commerce that they don’t get the payment terms that they would deserve otherwise. So it’s hard to quantify, but it’s about depending. In most advanced economies, it’s less than 50% of professional buyers get offered payment terms today online. So you can see how this creates, you know, in the best case it’s inconvenience. But in the worst case, it’s going to be an impact on my working capital. So we’re out there to give merchants the best payment method to sell online, but also to give buyers the payment terms that they deserve.

Kevin Rosenquist: Okay. And you’ve said before that the financial industry has failed to cater to the needs of small businesses. Is that is that kind of in line with what you’re saying now?

Louis Carbonnier : Yes, it is, because of the way the financial services industry serves those, those needs. So if you’re a very large business with a huge, you know, finance department, you will get access to tools such as, you know, factoring letters of credit, credit, insurance. But you need to be quite sophisticated for that. Whereas if you’re a small business, well, number one, no broker, no, no bank is going to go after you. If you do less than 50 million in turnover. It’s just not you know, that’s the sad , the that’s the sad, , expression, the out of bed premium. So a banker is not going to travel, take their car to meet you. If you’re if you’re a tiny SME, they won’t be offering financial solutions to you. So that’s where it breaks down on the you know, I would say on the banks and insurance side. And then for SPS,  a lot of the industry revolves around credit cards, but in B2B trade, what people need is actually more like bank transfer, direct debit. And the industry is not geared towards these settlement methods.

Kevin Rosenquist: Yeah. The point about credit cards is interesting too, because I feel like, you know, I’ve known people, plenty of people who were small business owners that just max out as many cards as they can, just so. And then with the hopes that they’ll be able to, you know, start raising, they’ll use that to raise more money or to to earn more money. And then they can start paying them back. But it’s not a very sustainable model.

Louis Carbonnier : Certainly it’s not. It’s not. And it’s also not very good for, for merchants ultimately, because if you like a lot of my by the way, disclaimer to your audience, a lot of my numbers are going to be anchored into the UK or Europe because that’s where we’re based today.  and in those geographies, if you sell through, you know, using credit cards as a settlement method, oftentimes you’ll be paying a processing fee of 1.5%, can be close to 2% when people are using Amex to to buy. And that’s, you know, in B2B the margins are sometimes not that fat. You know, industrial goods or commodities, what have you. And paying out 2% of your margin just for processing fees is just insane. It’s even higher here, right? Yeah.

Kevin Rosenquist: There you go. So. Totally. Yeah, I totally see what you’re saying.

Louis Carbonnier : Yeah. And if imagine if you can, you know, take your e-commerce website and out of the GMV that’s currently going through credit cards, move some of it to direct debit, then processing fees going to be 25 Bips.  or you move it to bank transfers or account to account payments. So I don’t know how you know how that would be working in the US, but in Europe there’s a lot of the regulator is pushing account to account quite a bit. And this is a super economical way of settling a transaction. So going forward, because of those issues around acceptance rate hitting the ceiling of a credit card and just the cost of the processing fee, I think other payment methods that are more adapted to B2B will gain ground against credit cards.

Kevin Rosenquist: There’s so many small and medium sized enterprises out there. Why? Why is it why is there such a huge gap?

Louis Carbonnier :  Well, number one, I’d say it’s still relatively recent that B2B commerce is moving online. So we’ve had that. You know what? It looks like it’s been around forever. But mobile phones, they started in 2007. You know, the iPhone.  and before that, online e-commerce was only really ten, ten years before that. And that was B2C, where we’re selling something that’s, you know, off the shelf, no customization whatsoever. And it’s only very recently that B2B trade has started to take off. The great news, you know, glass half full B2B trade is about 3 to 4 times the size of B2C trade. So that’s super exciting. But when you look at what percentage of it is actually digitized, it depends a bit on the economy, but it’s somewhere between 8 to 18% of B2B commerce that’s done online. So it’s still fairly recent, but it’s accelerating. And around Covid, there was really a kind of tipping point where, for the first time, online sales took over in-person sales in B2B and that, you know, that trend is only accelerating.

Kevin Rosenquist: Yeah, yeah, yeah, that’s a good point about Covid too.  Obviously that comes up a lot on this podcast because it changed. It changed so much about the way we do business and the way that I would change a lot about everything. But as far as the podcast is concerned, it changed so much about business and finance. So speaking of you, you have a master’s in finance, but you also have a.

Louis Carbonnier : That’s right. That was a long time ago.

Kevin Rosenquist: It was. But let’s go back even further. You have a bachelor’s in philosophy I saw. Yeah. So do you find your background in philosophy helps you in being an entrepreneur?

Louis Carbonnier : That’s I mean, man, you’ve done so that’s you’ve done so much research. , and you’re not that much against me now. So it’s funny that you say that because actually, you know what all the finance stuff was like, you know, relatively high gene useful. Yes. You know, knowing accounting. Yeah, that’s great marketing the way I learned it, , you know, in the early 2000. So 20 years ago, marketing now with online social media and so on is totally different. So let’s say all my marketing classes can go straight to the bin.

Kevin Rosenquist: Yeah, exactly. I totally know what you mean. Yeah, I did the same thing. So.

Louis Carbonnier : Then things like pricing and option, Black-Scholes formula or stuff like that. Honestly , I don’t use it in my day to day life where, you know, it’s much more simple.  so at the end of the day, the stuff that we did in business school wasn’t that, you know. Yeah, it’s a good foundation, I guess maybe the networking was the most useful thing in it after all. But the, the, the stuff in philosophy was more around how do we look at a complex problem like what is justice or how does one become happy? And you have a very thorny issue that can be looked at through various lenses, different angles, and you try to find one wedge into the issue and to structure a framework that’s going to be useful to crack this issue and cast a light that will be just insightful for your reader. And at the end of the day, this thing around taking a problem, finding one way of addressing it, and peeling the onion. And then once you’ve done that, reconstruct reconstructing an articulating an answer that can be digested by someone else is a skill that you use a lot as an entrepreneur. So from a long way of saying that my degree in philosophy wasn’t that much of a waste of time.

Kevin Rosenquist: Despite what so many people say, right? Yeah, yeah.

Louis Carbonnier : Yeah, yeah. But it’s all, yeah, this problem solving thing at the end of the day and then selling it back to a new to an audience because you’re always pitching to a customer and investor, a partner, what have you. This is actually quite pretty useful. Yeah.

Kevin Rosenquist: Yeah. Totally. That’s what I figured. I mean it’s like you said the, the concepts, the larger concepts and how you, how you attack them. What did you want to do when you, when you, , visually chose philosophy?

Louis Carbonnier : Yeah. So I was totally lost to, to be honest.  when I was like 22, 23 because like, I also did a BA in law. Oh, wow. And then and then, you know, I didn’t go into the master’s because I realized I would be a terrible lawyer, that that sounded like an attractive career, but certainly not one for me. Yeah.  so I ended up joining the military, and because I wanted to be, like, in the French Special forces. Oh, wow.  and , you know, passed all the physical tests. And two weeks in, they discovered that I just couldn’t see in 3D. For some reason, I had never noticed it because I, you know, played many sports at uni and so on. But turns out I don’t have a good three divisions, which was, you know. You know, I just within 24 hours I was sent home packing and I was like, you know, 22 something like that and didn’t know what to do with myself. Oh my God. So yeah, what rescued me was,  I joined a consulting firm, Oliver Wyman, as an intern for just the summer internship program, and I loved it. I ended up loving it because it’s like, you know, you get a new assignment, work on something for two months, and it’s a bit like a little commando. You have that mission where you have to help your clients solve a big problem for their company, be it cost cutting, launching a new product, you know, acquiring another company or whatever. And, and, you know, every three months you move to another topic, another engagement. And that was very formative and also suited my personality quite well. So I ended up staying for eight years and,  diving into financial services. One thing led to another. And that’s how I became, you know, familiar with this topic of payments. How do we embed finance into the at the point of sale? And the rest is history.

Kevin Rosenquist: As they say. The rest is history. That’s so are you were you always like a tech guy? Kind of. Were you interested in fintech or just technology in general?

Louis Carbonnier : Oh, I, I’d say tech enthusiast. So I’m pretty good at maths. And , that side of looking at the world in a very logical way and always figuring out what’s going to happen if I apply this tool to this problem or, you know, bringing things together and trying them out. But I’m not myself the, you know, the coder or the developer. One of my co-founders said he’s much smarter than me and he’s the one actually building the platform, you know, and luckily it’s it’s semi doing it, not me.  But, , what’s for sure is that, you know, when I go into a new area, I’m, like, always going to be fiddling and trying to see how this could be streamlined. Why do we have this process or questioning things and going back to first principles and then they, you know, I guess my, my main skill is about bringing people together and, and thinking, you know, for that type of problem. My guy Sammy is really good at creating an API that’s going to abstract all the complexity that we have in payments and serve it in a nice way to a merchant. We need Sammy on this project. He’s going to do wonders. My other co-founder, Richard. He’s a genius when it comes to legal finance structuring. There’s a lot of that because our solution at the end of the day combines payments, lending, credit, insurance, and we had to craft a new product not only in terms of, you know, what’s the UX, what’s the UI, what’s the tool, but also in terms of what’s the financial plumbing, what licenses do you need? How does it work with the banking monopoly in France, how do we deal with Brexit? You know, you cannot passport your solution from Europe into the UK or vice versa.

Louis Carbonnier : And you know Richard’s the guy who’s going to be able to thread the needle and craft the product. Also from a financial point of view and not just the, you know, design or what is the customer experience. And in that particular niche where we operate, I find that the most successful startups are going to be the ones that can bring together terrific engineers and people with subject matter expertise so that, you know, you don’t have to reinvent, you know, without recourse, factoring from scratch, or reinvent how a credit card scheme actually works. And if you only have the people who are the 25 year old engineers, it’s going to be hard to disrupt an industry where, you know, people have lawyers and small print for a reason. But if you only have the lawyers and the, you know, the 50 year old subject matter experts, you won’t be reinventing it from a blank page. It really takes the two bringing them together and helping them to communicate with each other.

Kevin Rosenquist: Yeah, that’s that’s I’ve heard that so many times that the team is everything the team you put together is, is for I mean it’s got to be it’s got to it’s got to it’s got to hit. It’s got to hit.

Louis Carbonnier : Yeah, yeah. And it’s, it’s funny to break the silos between. So for us we have quite a few silos that we manage to bring together. So you have the engineers, then you have the risk people, and then you have the payments people and then yeah, that you need to amalgamate. And then as a business we have like Richards English. Sam is Belgian and I’m French. So, you know, it starts a bit like a joke with an Englishman, a Belgian and a French.

Kevin Rosenquist: You all walk into a bar? Yeah, walking.

Louis Carbonnier : To a bar. What could go wrong? Um. But that, you know, that means that about half of the stuff is in England and another half is in France. And, you know, the beginning, back in the days when it was pre-COVID and we didn’t have, like, you know, people were wondering how it is to work remotely and so on. We had VCs questioning why we were not all in the same garage, in the same room and garage. Yeah. Yeah, exactly. With that kind of vision that everyone has to be sleeping on the same couch. Yeah. Um h. But I guess now, post-Covid, there’s much more appreciation that people can do good work still being, you know, not being in the same room 24/7.

Kevin Rosenquist: Very true. And speaking of so when you worked for Oliver Wyman. Wyman yeah, for eight and a half years, I was looking when I, when I was creeping on your background,  did you move around all that to every place like I saw London, Paris, Zurich, Sydney, back to Paris. Did you have to move around?

Louis Carbonnier : So, yeah. On every project.  we used to. We used to move so we. You could have a mission in Madrid then? I actually had one in a couple in New York. So like every other month you basically pack up and, you know, move to a different city. So Monday to, , to Thursday you work in Frankfurt and then you fly back to wherever your home office is.  so I actually joined them in London,  then moved to Zurich at some point and with a friend. We worked on building the insurance practice in Australia. So I was based in Australia for two years. And the funny story or sad story is that like my dream country, Switzerland, I’m a mountain guy. That’s what I really love. , you know, climbing, skiing, ski touring, whatever. But my wife loves the sea. So she never wanted to follow me to Switzerland. So she said, no. Fuck off. No way. I’m not moving to Zurich. And,  so I said, well, what about Sydney? There’s a nice project. We could be building the insurance practice there with Anthony, and, , so that worked. So we did that for two years. And then when you’re down under, I mean, you know, the time difference is massive. The distance, it’s 24 hours to fly back to Europe. So at some point we were like, okay, maybe time to get married, have children. And you can see that when people move to Australia or New Zealand, there’s a kind of tipping point after three years where your network, in your local network in Australia starts to be very strong, You’ve lost your network in Europe professionally, so and then it’s after four, 4 or 5 years you can get permanent residency. And then the Australian nationality life is really good and you just end up never and never going back. So we were really on the cusp and decided to go back to Europe, because that’s where the family and the roots were.

Kevin Rosenquist: Yeah, like like that’s such a long, such a long way. I mean, that’s the, the problem with Australia. I mean, I’d love to. I’ve never been I’d love to visit, but it’s just a lot. It’s a lot of travel. Yeah.

Louis Carbonnier : Yeah. I think the flight from LA to Sydney is the longest flight globally, about 16 or 17 hours. But that’s the max that you can do with without having to refuel.

Kevin Rosenquist: Without. Yeah, without crashing into the sea. Yeah, yeah. Oh, wow. Well, speaking of mountains, I live in Colorado, so come out and visit sometime. We’ll go skiing.

Louis Carbonnier : Yeah, yeah, yeah, yeah. So I did ski in the Rockies quite a fair bit, but more on the Canadian side. And a friend of mine now lives in LA. And he’s telling me that you guys have got some good spots as well. We sure do.

Kevin Rosenquist: Do. We have some amazing spots here in Colorado. It’s pretty it’s pretty incredible. Did you enjoy the moving around? Did you did you enjoy that or are you more of a do you like being kind of having roots in one place?

Louis Carbonnier : I, I enjoyed it and I think that’s you know, we only have about 100 people at Hokkaido, but we were, you know, figuring out we had 24 nationalities. And that helps you living in another environment with people that speak a different language or have a different, , you know, way to see the world gives you a different, you know, allows you to be more open, more curious and to then I think it also makes you better at problem solving in the end.  so because it’s often about how do I put myself really in the shoes of my customer? And, you know, the thing I love the most is like I once had a few projects in South Korea I thought it was going to be, you know, when you get a due diligence in South Korea, sometimes it’s like, you know, it means I’m going to be working really, really hard. And on paper it doesn’t look like a the best staffing opportunity. I had the best time of my life and for me, the game is like, I’m going to spend two months in South Korea. How do I become Korean within that time frame and absorb as much as I can and come up also then with solutions that are going to be actionable by my Korean clients? Mhm.

Kevin Rosenquist: Yeah, that makes sense. Trying to understand different culture in that way. Yeah. Yeah. So when a buyer goes to the, to my, my cocoto platform. Yep. And place an order, it then goes to you guys, you run the credit checking offer the terms. Right. Yeah. Then you pay me in full minus a small percentage. I would imagine that you guys take and you take on the debt and the worry and assume all the risk, right? I’m. I’m clean. I don’t have any part of the transaction anymore. Right. It’s all on you guys.

Louis Carbonnier : Yeah, exactly. So this means that as a merchant, you’re going to have a payment method that’s super effective. Because if, you know, imagine your competitor is roughly selling the same product, but they’re asking their clients to pay upfront, whereas you’re giving your clients 45 days. You’re going to get the deal every day of the week. Very true. So this means, you know, as a merchant, you’re growing faster and then enjoying those benefits that you mentioned. So Hokuto is going to be helping you with collections if you need it, , advancing you the funds. So, you know, it’s great that you give 30, 45, 60 days to your clients for your clients to pay, but that’s going to hurt your working capital. And some of our merchants, not all of them, by the way, but some of them tell us, hey, can you advance me the funds? And we do it usually by buying this invoice off them and then doing all the, you know, all the collections process.

Kevin Rosenquist: So it’s a lot of risk for you. You’re taking on I mean, but but you’re doing a credit check so you feel confident in, in what you’re in the terms that you’re giving I would imagine. Yeah.

Louis Carbonnier : Yeah. So you have two different components of risk management. One is the credit assessment. So is this buyer eligible for payment terms. And the second component is fraud detection to make sure that the buyer is who they say they are. So imagine like in Europe you have Vodafone that comes to the website to checkout, you know, Vodafone, a massive company or Microsoft. Yes, of course they can have 30 days to pay. You know those widgets and I’ll give them millions of credit limit. But if it’s someone pretending to be Microsoft and you’re shipping the goods and that person disappears with the goods. And then when you call up Microsoft and ask them, what about my invoice? It’s time to pay. And they tell you, well, hold on, we never made that order. That wasn’t us. So impersonation account takeover in e-commerce and in B2B, they’re particularly dangerous because, like, you know, when someone spots a weakness in your system, then they will be doing it over and over again. So that can kill your platform or marketplace. So these are the two main components that you have initially. And then to your point, even with the best credit checks, every now and then a customer will be paying late, are running into trouble, whatever. Or they’re just being difficult and trying to see, you know, to try their luck. Then there’s a layer of collections that comes in. But even with the best credit checks and the best collections, sometimes you have bad debt. And that’s in the nature of doing B2B trade, I guess this part right now. So we we protect our merchants against these bad debt events so that when they sell something, they know that they will get paid no matter what, even if the the end customer goes insolvent and our ourselves in the background, we buy a reinsurance so that we manage the volatility of our business and we avoid, you know, piling up risks in our balance sheet.

Kevin Rosenquist: Okay. That makes sense. How do you guys use machine learning in your process?

Louis Carbonnier : It’s mainly in these first two stages of credit assessment and fraud detection. That’s where you can, you know, analyze the signals, the content of the baskets, the device fingerprinting. And that’s where we have data and the algorithms that essentially predict a probability of default and the probability of having a fraud.

Kevin Rosenquist: Okay. All right.  What’s next? What do you guys do? You look, are you looking to branch into other areas of fintech? Do you want to advance in other places? Are you comfortable where you are? Do you want to move back to Australia? Like what’s going on?

Louis Carbonnier : Yeah, I guess there’s two, two main trends that we’re going to be going to. , one is , product depth. That’s there’s still a few things that we want to we want to do. So we recently acquired,  a different type of license where now an electronic money institution, which is some kind of payment institution in Europe, but that allows us to go much deeper in the payment stack. And we still keep those good things about, you know, credit risk assessment, financing and insurance. But we can do much more by way of payments. So we started with just a pay later offering, and now we’re adding pay now. And the way it happened was like merchants were coming to us and like, hey Louis, we really like your payment method. That looks like the most powerful one. I’m sure our professional customers will love it. And hold on, what’s, by the way, what’s the acceptance rate that you have? And we’re like, oh, you know, we’re the only player that rebuilt its risk and data platform. We have a market leading acceptance rate of 8,590%. That’s great. But what about the remaining 10%, the ones that are not eligible to payment terms? And then we were letting our merchants down. We were telling them, well, sorry these guys, we cannot process. You have to find another PSP. And that was very, very inconvenient because the client had to do two integrations instead of one, and we had to share the GMV with another, another merchant, sorry, another PSP.

Louis Carbonnier : So we’re now having this payments institution licensed its EMI license to be precise. We’re now able to address the whole GMV of the merchant and give them one single comprehensive checkout for all their B2B customers. And, you know, that’s going to be the one direction of travel product product wise. , and then there’s the other dimension I was referring to, which is, well, very present in Western Europe right now. So it’s, you know, France, UK, Germany, Spain, Italy. But we want to continue growing and adding more countries. So this year, the objective is to be able to cover the rest of Europe. And there are some very important geographies like, you know, Poland, Scandinavia that we need to cover. And that’s vital because imagine you have like a large client in Germany. They’ll be like, yeah, I like your payment method. But by the way, I have some clients in Poland. Can I use your payment method with those clients? And we’re like,  sorry, mate, not not really. You can’t. And we just launched a partnership with a company that’s us based called balance, , with. It’s a bit earlier this year. They have a similar offering to ours, but in the US, so that when they have a multinational client exporting into Europe, we can help them and vice versa. When we have a client that sells into the US and like that’s a great all, all the large ones will, will, will have, then we can basically neutralize and join forces.

Kevin Rosenquist: That’s awesome. That’s a great way to do it. Definitely. Yeah. Join forces like that. Yeah. Well well Louis, with, . Hokuto, thank you very much for being here. I appreciate it. If you ever find your way to Colorado, look me up. I’ll, , we’ll go skiing.

Louis Carbonnier : Yeah, I will. Well, if you’re into skiing, definitely. I’ll. I’ll do the pit stop next time. Yeah. For sure. You got to.

Kevin Rosenquist: Yeah, I love skiing. I don’t get up in here as much as I’d like to, but I do. I do love it.

Louis Carbonnier : Thanks a lot, Kevin.

Kevin Rosenquist: Thanks. Thanks. I appreciate your time. Cheers.