Earlier this year, Fortress announced a £750 million forward flow agreement with Tabeo, a software company that helps dentists and vets manage payments, and makes primary care more affordable for patients.
The financing agreement with Fortress is helping Tabeo to grow: as a software company, Tabeo needs stable financing partners who commit to purchasing the consumer loans it originates at scale, helping keep the company's balance sheet geared towards software development and innovation.
"We often encounter debt financing providers that like the mix and quality of our loan receivables, but they will only lend to us if we act as a balance sheet lender," said Tabeo CEO Paul Ebert [LinkedIn]. "Fortress stood out because its team understood our business model and structured a balanced deal that aligns the interests of all parties."
Paul Ebert shared insights into the Tabeo business model, competitive positioning and growth prospects. This interview has been edited for clarity and flow.
What services does Tabeo provide?
Paul: We help dentists and vets manage payments and make primary care more affordable for their patients. Tabeo is a sector specialist, by which I mean that our payments platform is specifically designed around primary care vendors. We integrate with the practice management systems (PMS) to automate important financial and administrative tasks. So, the people who use our platform are typically support staff, such as receptionists or practice managers. And from the patient's perspective, we deliver a seamless check-out experience, including options for cards, direct debits, and retail finance, which is different from what traditional lenders might offer.
You talk about how Tabeo is differentiated from more traditional lenders. Can you explain how?
Paul: The biggest difference is that Tabeo is a software company, so we create our own code, processes, and designs around the needs of our users. This means we're not constrained by off-the-shelf tools or policies designed for the likes of mortgages or car leasing rather than primary care.
Our average users process 50 card transactions for every financing application. We simplify this switch in payment option by making it only two clicks for a receptionist to create a new, custom finance offer for a customer standing in front of them. They don't need to switch between different, clunky tools. They don't need to populate the same fields each time. We even automate the reconciliation of payments. All of which are usually time-consuming manual tasks.
Our average loan is £2,500 compared to £75 for buy now pay later (BNPL) providers or £7,500 for a personal loan. Our average loan is repaid over 18 months, compared to 60 days for BNPL loans, or 60 months for a personal loan. We comply with strict financial regulations and never charge fees or additional interest for late payments.
Why is a forward flow structure advantageous for Tabeo as a software company?
Paul: Balance sheet lenders must invest £5+ million in equity capital for every £100 million of new loans they extend. We prefer to invest our capital into new features that help attract new or retain existing users.
The forward flow structure allows Tabeo to focus on maximizing finance application flow without worrying about the certainty of funding. With Fortress, we more than doubled our capacity to lend. This is a game changer for Tabeo. We can now work with more practices and every large group in the UK primary care sector. We can continue our prudent approach for underwriting and optimize our credit performance while steadily expanding our network. Importantly, Fortress agrees in advance on the eligibility criteria for each loan and the covenants for the portfolio as a whole. In turn, we split revenues derived from lending activity with Fortress.
With our retail-finance-as-a-service offering we can also grow our channel to distribute other products to our users. This accelerates our mission to be the payments software platform of choice for primary care in the UK. And from an enterprise valuation perspective, software companies like Tabeo benefit from 2-3x higher revenue multiples in today's markets compared to traditional fintech lenders.
What is your total addressable market? Where do you see further opportunities to scale?
Paul: We currently work with 6,000 dental practices in the UK. Across dentistry and veterinary, we see potential to more than double our current number of active users and application volumes, which would equate to Tabeo making about £30 million in revenue per year with retail finance.
Across the UK, we can serve up to 30,000 primary care providers including dental, hearing, optical and veterinary care. In aggregate, I expect that demand for retail finance linked to primary care will double and grow to £1 billion a year by 2030. This presents a significant opportunity for Tabeo to expand into new markets.
Within the EU, we consider Germany, France, Ireland and Spain as important markets for our business with, in aggregate, 100,000 more, relevant primary care providers. The US would be the single largest market for Tabeo with 200,000 relevant providers.
The more local providers use Tabeo for card payments, the more volume in retail finance we'll capture. The more products each provider/user adopts, the more revenue we make.
With that expansion into new sectors and new countries, how do you plan to maintain your competitive edge?
Paul: At present, competition is limited within our vertical. And new entrants that might want to replicate our model face significant barriers to entry. First, our existing network and brand. Second, our access to funding at a scale that no existing competitors have been able to match. Third, our track record and ability to manage sector-specific risks.
In short, I am confident that Tabeo can retain its competitive edge by staying focused on meeting the needs of our users and by addressing each of our opportunities deliberately and methodically.
As we gain traction and confidence in markets, we may consider acquiring incumbents to expand our local networks more quickly. Since Tabeo is not a consumer or international brand, we have the opportunity to operate the same technology under different brands for different sectors with minimal effort.