How Galway's Luna Connect is taking the messy paperwork out of small business lending

Founder: Brian D’Arcy
Elevator pitch: platform for processing online loans
Funding: €200,000 from Enterprise Ireland, NDRC and others
Status: launched with its first customer in Ireland

BRIAN D’ARCY’S INTEREST had been piqued by transformation in the financial services sector, an area more fondly referred to as fintech.

A software engineer by trade, D’Arcy spent 15 years at Hewlett Packard before striking out on his own.

The rapid pace of change in the collision of technology and financial services drew him in further but in particularly, it was the emergence of ‘open banking’, the regulatory change in the sector that saw the opening up of data for various uses in banking.

“There started to be real disruption in the fintech space,” D’Arcy said.

“We saw an opportunity to take advantage of all the new data that was coming through. The market wasn’t just for big banks any more. There are a lot of alternative guys in there.”

His Galway-based startup, Luna Connect, was founded in 2017 and is building an artificial intelligence-powered platform to help lenders process loan applications online.

It focuses on loans for small- and medium-sized businesses. It’s a space within lending that is high-risk and costly, with a lot of paperwork.

“The banks would have a lot of costs associated with having to process these loans. From the borrower’s side, they get really frustrated because you’re constantly back and forth, supplying documentation and things like that,” D’Arcy said.

“From one application to getting a decision can be up to six weeks, and that’s really down to all the paperwork and the manual processes that are in there.”

Luna Connect’s platform makes the processing of information quicker for the lender by automating many procedures, which helps the underwriter make a decision faster. This ultimately benefits the consumer who will get an answer quicker.

Customers

The startup’s business model is two-pronged. It employs a software-as-a-service (SaaS) model, charging subscriptions to the lender but it also charges a small percentage of the loan value.

“Our customers are the lender. That could be traditional banks or credit unions or alternative lenders, there’s quite a lot of those in the SME lending space,” D’Arcy said.

He added that there’s a more vibrant market for SME lending now than several years ago with alternative lenders and peer-to-peer (P2P) lenders coming on the scene.

“When the recession hit, the banks pulled away from the SME lending market due to those (high-risk) reasons we talked about. There’s a lot of cost in there.”

D’Arcy said that the company has signed up its first customer, an Irish lender, with two more deals due to be closed in the near future.

“This year the plan is really Ireland and it’s getting those initial customers in place,” he said. “Then next year it will be to grow into the UK and then grow over 2020 to about 12 customers across the UK and Ireland.”

Welcome mat

D’Arcy added that banks are loosening up on their stance on working with small, nimble startups.

“When you go into a lender, (they’re) either looking at building something themselves or at outsourced consulting to come in and build a custom solution for them,” D’Arcy explained.

Brian D'Arcy

“We give them an out-of-the-box solution they can get up and running really quick instead of having to spend six to 12 months building something,” he said.

“We have a strong focus on the algorithms and the AI part of it. That’s a key differentiator that’s really hard to do yourself. If you’re a lender, you’re not going to go hire a team of software developers and data scientists just to build your own platform. That’s where we fit in.”

While the focus lies on the small business lending side of things for now, D’Arcy said the logical progression for the company will be looking at personal lending down the line.

The startup, to date, has raised around €200,000 from Enterprise Ireland, NDRC and EU grants. It is now on the trail for raising a seed round to the tune of about €750,000.

“That money will be used to launch the product across the UK and Ireland.”

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