London-based Populous differs from other cryptocurrencies in that it focuses on the niche of invoice financing. Its beta, which launched May 1, 2018, combines blockchain technology, XBRL data, and the Altman Z-score for an in-house credit rating system to assess debts and create an auction platform.
To understand the possibility of success, we’ll need to compare Populous not to other blockchains (although The Hive Project and PayPie share similar goals), but to other invoice financing companies (of which, there are literally dozens).
Everyone from decades-old companies like Comdata to startups like Fundbox offer invoice financing options. Even PayPal offers PayPal Working Capital, which offers loans based on previous PayPal sales. Amazon FBA (Fulfilled by Amazon) sellers have both Amazon and third-party financing options available too.
In fact, Invoice financing (not to be confused with invoice factoring, which is slightly different) is a $3 trillion business with a lot of competition.
Does invoice financing on the blockchain make Populous closer to P2P crowdfunding marketplaces like Kickstarter or mortgage-backed securities, the financial product widely blamed for the 2007 financial crisis?
Before explaining the differences and exploring the potential value of Populous, let’s look at Populous Platform Tokens (PPT), Populous XBRL Tokens (PXT), and Pokens, the three native cryptocurrencies of the Populous blockchain.
Breakdown of Pokens, PXT, and PPT
On May 30th at 4pm UTC, PPT had a market cap of $465,281,233, which is based on a circulating supply of 37,004,027 PPT (from a total supply of 53,252,246) and an exchange rate of $12.57 per token. PPT (like Poken and PXT) is an ERC-20 token on the Ethereum blockchain and can be stored in any wallet that supports ERC-20 tokens.
PPT’s peak price was $73.45 on January 28, 2018. Tokens were distributed during the Populous ICO on June 24, 2017 (33,619.74 ETH was raised). The PPT tokens not released during the ICO were retained by the founding and development team (later, when discussing the budget for creating mass adoption of the platform, it should be noted that these tokens could theoretically significantly enhance the cash available for that aspect of the project).
PPT can either be held or used as collateral to invest in Populous invoices. In exchange for collateralizing, you’re given an amount of Pokens based on a percentage of market value. Currently it’s the lesser of 50%, or a 30 day market average. These are automatically used to purchase an invoice. If the invoice is repaid, you receive both your PPT investment and Pokens profit.
Pokens are the in-platform cryptocurrency used to transfer value from invoice buyers and sellers. They’re stable coins tied to the equivalent fiat currency value (i.e. Poken dollars, Poken pound sterlings, Poken yen, etc.). In addition to PPT, you can also directly purchase Pokens on Populous with four fiat currencies: USD, GBP, EUR, and JPY.
It’s unclear how many Pokens are available, but because it’s a stable coin, Populous World Ltd (the organization running Populous) needs to have enough fiat currency on hand to back the entire supply.
PXT (also called PXBRL on some exchanges) tokens are used as in-house cryptocurrency for the Populous XBRL Platform (PXP). This platform is the in-house credit rating platform like Equifax, Experian, and TransUnion. PXT is meant to be used by businesses and financial institutions to purchase reports from researchers on a customer’s financial history.
This separate crypto has 500,000,000 tokens (103,636,123.34 PXT are currently in circulation) and is a separate revenue-generating tool for Populous. PXT was airdropped to PPT holders (at a rate of 2 PXT per 1 PPT) beginning November 4, 2017.
None of the three Populous currencies can be mined. PPT can be purchased on Binance, and the others may be purchased directly on the Populous platform.
What Is Invoice Financing?
Invoice financing is a popular method for businesses (especially small- to medium-sized businesses) to get short-term capital. It’s typically used by B2B businesses because, while consumers pay up front for any purchases, business sales use longer payment cycles of Net 30, Net 60, etc.
What this means is if your business generates $1 million in sales this month, you won’t receive the revenue for 30 days or longer, depending on the contract terms. Invoice financing provides temporary relief, but at a cost much higher than a traditional loan, making it equivalent to a payday loan for businesses.
Using invoice financing, a vendor provides a loan for a percentage of your outstanding invoices (money owed to you). From that point, you make payments to the invoice financer on a schedule set by the contract. The vendor who owes the invoice still pays you, and you pay the invoice financing loan off.
Invoice factoring differs in that instead of a loan, the debt is purchased by a third-party for a percentage of the total due. That third-party is then responsible for collecting on the debt, which is paid directly to the third-party, removing you from the equation. Modern invoice factoring still leaves the person who sold the invoices responsible for the debt in the event the vendor defaults.
Rates, fees, loan amounts, terms, and qualification criteria differ for each company.
BlueVine, for example, pays 85-95 percent of outstanding invoices to provide loans from $20,000 to $5 million with an APR from 15 to 68 percent and loan terms up to 12 weeks. The customer who owes the invoice then pays BlueVine directly, and if they fail to pay, you’re responsible for payments. To qualify, you need a B2B business that’s been operating for at least 3 months with $10,000 monthly revenues and a personal credit score of 530.
Fundbox, on the other hand, loans 100 percent of outstanding invoices between $1,000 and $100,000 with an APR from 16.4 to 76.5 percent and loan terms of either 12 or 24 weeks. Qualification is based entirely on outstanding invoices, which are proven by linking your bookkeeping platform (i.e. QuickBooks, FreshBooks, Clio, etc.) and business bank account.
The exact terms of the invoice financing (or invoice factoring) on the Populous platform is unknown. Because it’s an auction-style marketplace, each invoice buyer can set their own terms, and because the platform is still in beta, there’s simply not enough data available to determine average rates, repayment terms, etc.
Does Populous Have A Competitive Advantage?
The Populous team (headed by Founder and CEO Stephen Williams) uses the terms “seller” and “buyer” to describe the transactions, but the payments are still ultimately made to Populous by the seller. So, you’re not actually “selling” an invoice, but rather taking a loan using the invoice as collateral.
It’s often described as “the eBay of invoice financing,” but that’s not accurate because bidders have their payments essentially held in escrow by Populous. When the auction is completed, funds are returned to losing bidders. This system means a “buyer” could have a lot of money held while never successfully winning an auction.
Populous depends on mass adoption, and it’ll have trouble gaining market share (or even search engine ranking) when competing against these other players. While the ~$10 million raised in the ICO seems impressive on the surface, Fundbox raised $107.5 million from investors like Jeff Bezos and Khosla Ventures. Behalf raised over $129 million from investors like Sequoia Capital and Maverick Ventures.
Each of these invoice-financing competitors has been around longer (2013 and 2011, respectively) and has a head start with big industry partnerships. Each has its own internal credit checks, and both XBRL data and Altman Z-Score tests are accessible to these much bigger, more established players. The only differentiation Populous has is its usage of blockchain, but it would need to convince these other large players to use its system, since they’re ultimately who would be “buying” invoices.
This also calls into question why the PXT coin was even launched, as it’s meant to purchase data these companies already have at their fingertips.
The biggest partnership announced for Populous thus far was in September 2017. Luxure Global Citizen, a luxury rewards company, offered 10 percent of its invoices to Populous in exchange for creating its own cryptocurrency. Luxure announced it terminated the agreement February 1, 2018 and instead launched its own LGC-Coin ICO.
And these aren’t the only problems Populous faces.
The Big Short and Regulatory Grey Areas
If you haven’t read the book or watched the movie yet, The Big Short is essential to understand when looking at a platform like Populous. In the interest of full disclosure, you should know I was working at Countrywide Home Loans at the time of this collapse and during its subsequent transition to Bank of America, so I saw much of this first hand.
The basic premise is several smart investors saw the flaws in mortgage-backed securities preceding the 2007 U.S. housing market collapse. People were investing in securities backed by subprime loans, meaning they were essentially betting whether people would pay bills they couldn’t afford.
PPT tokens are asset-backed securities identical in structure to the MBS market (which still exists, by the way). The integrity of the system depends entirely on the ability of debtors to pay their debts. Because they’re businesses, it may seem like they’re more likely to pay debts, but only 30 percent of businesses survive for 10 years.
That’s a 70 percent failure rate. To put it in perspective, subprime foreclosures and delinquency rates peaked at 25 percent during the worst financial crisis of our generation.
Also, because it offers two currencies (PXT and Pokens) and a security (PPT), it’s unclear who should be regulating Populous. Without proper regulation, investors in these securities risk falling victim to the same money pit that created the 2007-2009 recession.
Who these supposed investors will be remains the question. If companies like Comdata, Behalf, and PayPal (who already offer these services) don’t participate, it’s unlikely the general public’s combined power will make up for this deficit. If they do participate, they’ll have to give up a percentage of profits to Populous, which means rates are unlikely to be competitive with what’s already available on the market.
The only business reason to do this is if Populous can provide customers these companies can’t already reach. Performing a Google search of “invoice financing” shows results from NerdWallet, Forbes, LendGenius, and more, all of which are listicles including dozens of competitors, but not Populous. It’s going to cost more capital than Populous has available to raise awareness.
On top of all this, it offers its PXT token to insurance companies, lending institutions, and invoice financing companies. It’s meant to make purchases on the Populous Data Platform, but none of these institutions need that information. They can run credit reports, check the same data sources Populous can, and so much more.
The whole system feels like a Rube Goldberg machine that may be overly complicating an existing process. And it’s entirely unclear if there’s a market for any of its data, absolutely none of which is proprietary.
Still, the Populous team has liquidity and time to figure out how to get this two-sided marketplace built. Aside from the ICO funds, they have the tokens they held back, which have value on the crypto market. The road isn’t impossible, but it’s not going to be easy.
Populous (PPT) Summary
Populous has a specific niche, but that niche is heavily competitive with both legacy and blockchain-based companies. It has a long way to go to prove its value, but it hopes to do so with several key pieces in place.
- Populous is a P2P invoice-financing marketplace that lets businesses crowdsource loans based on outstanding invoices. If the invoice is paid, the buyer makes a profit for fronting the money.
- Populous has three ERC-20 tokens – PPT (invoice-backed security), PXT (internal cryptocurrency), and Pokens (internal cryptocurrency). Each is used for a different purpose within the system.
- The Populous network is currently in beta and has no known partnerships to date. It thus far does not have any significant traction in the $3 trillion invoice financing industry.
- Populous gathers XBRL data and uses an Altman-Z score to determine credit ratings without using the major credit bureaus.
If Populous gains several major partners, it can sustain for a long time. It’s competing for those partnerships with multi-billion-dollar companies like Amazon and PayPal, along with startups like Behalf and Fundbox.
Even the startups have massive investments and are worth 10x more than was raised during the Populous ICO. This blockchain needs a massive hit to knock out these established giants.