Michal Smida, Founder & CEO, Twisto
- What are the key trends you’re seeing in lending?
Q2 was characterised by a conservative approach and a very proactive reaction to managing credit risk. There was substantial tightening in approval rates for onboarding new clients – this in part is due to the uncertainty of the potential impact of unemployment, as well as the increased challenge of gaining access to capital markets. We saw as much as 50% reductions in approval rates across the industry.
There was also a bigger focus on collections and managing risk in the existing portfolio, this includes more proactive and frequent communication with clients. Q3 has seen an easing of the above measures as prime client portfolios in the EU have recorded positive non-performing loan (NPL) performance. In some cases, customer payment behaviour has improved vs. pre-COVID, with some lenders recording their best performance to date.
- The 2008 financial crisis was the catalyst for alternative lenders. Do you think the current pandemic will be a similar agent for innovation and change, and if so, what might it look like?
The shift to digital has been an ongoing theme since 2008, which gave rise to many great fintechs, but also pushed banks to digitalise rapidly. What the current crisis has brought is increased customer adoption of what has already been in the market for some time. So we don’t see the change in the product offerings of financial institutions, but rather a change in customer behaviour and their willingness to use digital channels, which are not only much more convenient, but also safer and quicker to use in comparison to traditional offline processes.
- What are the biggest challenges for lenders in the next 12 months?
Maintaining and further managing risk performance. Q4 will be critical in proving the resilience of the customer base. As governments have stepped in to support businesses and the wider economy, the possible impact on unemployment has been delayed.
This in turn can lead to credit deterioration once the support stops. Venture capital and debt markets effectively shut down in Q2, with reopening noted in Q3. As many lenders require additional capital to sustain growth momentum, the key challenge will be attracting capital from investors who became even more selective and cautious.
- What do lenders need to prioritise to deliver a better customer experience?
It’s mostly about finding a sweet spot between a smooth customer journey and all the requirements coming from different stakeholders around areas such as risk factors.
Many financial institutions are not so brave in terms of challenging the status quo of the current financial conditions. We are doing our best to make bold decisions that might make a difference at the end of the day.
- You have already started to make the transition to lending 3.0. Why did you want to build a card programme?
Creating a payment card was the logical next step in fulfilling our vision of simplifying daily payments for customers. We started with simple deferred payments “Buy now. Pay later” for e-commerce, but in an age when the overwhelming majority of payments still occur offline, it was necessary to also enter that market and provide an omni-channel solution. The key was to have a better app and overall experience than traditional card issuers.
This was demonstrated in our recent launch of the Twisto app and card offering in Poland, which has been well received by customers, with over 70,000 sign ups and over 20,000 cards ordered in the first 30 days from launch. We are very pleased with the speed of execution through this launch, and strategic partners like Mastercard and Marqeta have been fundamental to enabling the success of the technology. We look forward to exploring expansion opportunities across the EU on the back of this solution.
- What’s your vision for your card programme and how it will help you solve your challenges and deliver a better customer experience?
At Twisto we believe that having a plastic card in your wallet is already outdated. Because of this, we’ve committed to our goal to stop issuing plastic cards by 2025. We believe that the future is paying with mobile phones. Thanks to Marqeta and our Digital First certification from Mastercard, we’re one of the first companies in Europe, or even the world, who doesn’t have to issue physical cards.
MAXIMISING THE SPEED OF RECOVERY: ALLOCATING CAPITAL EFFECTIVELY
Simon Bittlestone, CEO of Metapraxis
How has COVID-19 impacted businesses’ financial plans?
The uncertainty thrown up by the COVID-19 pandemic has meant that many businesses have been feeling the strain and extra pressure on their cashflow. While measures such as the Coronavirus Business Interruption Loan Scheme (CBILS) were put in place, for some businesses, these have been ineffective in providing much needed liquidity. This has affected smaller businesses significantly, as they are much more likely to default on loans than their larger counterparts, and therefore less likely to have a loan approved.
In April this year, a survey showed a pessimistic outlook for SMEs predicting that many would run out of cash in as little as 12 weeks. Taking into account various other factors at the time, Metapraxis predicted this time frame could be shorter still, giving certain businesses just 6 – 8 weeks.
What do you think the next few months hold?
While the outlook of businesses may have changed continuously since the beginning of the pandemic, it would be naïve to think we are out of the woods. The worst of the economic recession is still to come, so good allocation of capital and effective management of cashflow is now more important than ever.
What factors do businesses need to consider in order to effectively optimise their strategy?
Financial results depend on how businesses split their capital across different strategies, projects, products or services, as well as various regions. Clearly it would be beneficial to back the most profitable service lines in a time of financial uncertainty, but in order to get this right, businesses need to consider three main points: multiplicity of inputs, complexity of comparison and multiplicity of output.
Multiplicity of inputs looks at the number of assets that can be supported. The more assets there are, the more complex the challenge of coordinating capital allocation appropriately. Tied in with that, a business also needs to be able to realistically compare one asset’s return with another’s. This is the complexity of comparison; it is hard for the board to choose which assets to support if they are not directly comparable with each other. Finally, and perhaps most obviously, all of this needs to fit into the overall goal of the business, and what areas it is trying to maximise.
To add to this already difficult process, multiplicity of output is going to change dramatically over the coming years, as companies begin to consider other factors such as climate impact, employee wellness and social responsibility as outputs.
What should businesses be focusing on in the short-term?
Businesses must focus their efforts on financial return. Doing so is a key part of any businesses’ recovery from financial hardship, even if they are caused by unpredictable ‘black swan events’ such as coronavirus.
Many things remain fixed in a short-term model. During recovery from such events there is not generally time to create a whole new product line, or explore a different service, although some more agile businesses have of course been able to achieve this. Building a top down model of the business is therefore key in order to streamline processes and manage cashflow, providing the necessary liquidity to survive.
What longer-term changes should businesses be aiming at implementing?
With multiple inputs and outputs to consider, the long-term equation is extremely complex. Businesses often underestimate the importance of building a model that allows directors to see the impact of different factors on profitability and cash flow. The ability to reach long-term goals very much depends on identifying future risks and changes in the market, and being able to react quickly.
This can only be done by analysing historical return on investment by business unit, region and product or service, and applying these ratios to test future assumptions. This allows management to run different scenarios quickly and then test these with operational deliverability. If the management team can analyse how various future scenarios might pan out and what the impact might be on the business, it can use this information to make better decisions.
Any company that doesn’t have a model like this will find themselves at a massive disadvantage as we approach the next two years of economic recovery andit is the finance team who must take responsibility for rectifying that.
What is the key takeaway for businesses who are looking to learn from COVID-19?
Capital allocation has always and will always be at the heart of any business’s operations. This is even more prevalent in times of economic recession when managing cashflow becomes even more vital for survival. When a business has a clear historical overview of its portfolio, how well products or services are performing, and how previous scenarios have affected profitability, it can make more informed decisions when it comes to assessing the impact of an unexpected event.
The ability to adapt to fluctuations is hugely important to the board, particularly the CFO, when it comes to successful cashflow management. Agility in financial planning, good scenario modelling and prudent assumptions will allow a business to better weather most storms.
HOW NEW TECH START-UP IS SHAKING UP THE IT CONTRACT MARKET
Neil How, CEO and Co-founder, ten80
1. What is ten80?
ten80 enables cost savings on SAP/software projects by an average of 43%. We do this by switching companies to an on-demand workforce – think Uber and how that has disrupted the taxi industry.
The ten80 marketplace connects companies with around 47,000 verified contractors, using algorithms to match companies with the very best experts that then deliver on projects remotely. This enables SAP customers to utilise a global workforce and break free from geographical borders, as well as take advantage of international market rates. In other words, it gives them the exact resources, when they want them, for however long they need them for and at a cost-effective price.
2. How did the idea of ten80 come about?
I’ve been lucky enough to work with SAP my entire career. My journey first started at the end-user side. I ran my first SAP implementation project in my early twenties and went on to form an SAP Centre of Excellence to allow for long term improvement.
Over the next six years, I ran three other major change programmes before joining the consulting world, and for the next 10 years I worked with various consultancies running numerous projects in a wide variety of sectors, including retail, utilities, banking public sector and government.
But having spent time working both end-user side and consulting side, it became clear that SAP clients were struggling to access the best in class consultants and contractors. Wanting to get this knowledge into the wider world, ten80 was formed to digitally link the global contracting workforce to a global customer base, while allowing clients to digitally access the ‘best in world’ not the ‘best in organisation’.
3. ten80 is solving business problems, but how is it helping contractors?
Consistency of regular work is becoming a challenge for many contractors, and the impact of ‘dead time’ becoming more severe and likely. This is made worse through an ever increasing pool of expert contractors.
In addition, selling time for money is not a sustainable model for financial freedom, and contractors are tired of being capped at an ever decreasing day rate. Contracting also puts a huge pressure on family life, especially if you have to be on-site away from home — missing out on time with family and loved ones is a huge drawback, and there is little work life balance.
With ten80, contractors can benefit from the following:
- An ‘always on’ demand for work
- The ability to sell their knowledge and capabilities rather than a day of their time
- Being able to carry out their role wherever in the world at any time, with total bulletproof security
4. What are the main challenges for your business?
ten80 is operating in a completely new area — outcomes-based delivery, so not being able to be ‘put’ us in a specific vendor box type is a challenge. Often corporate organisation’s procurement processes want to categorise us as a systems integrator or recruiter, but we are neither.
Being the first to market is always hard. We are offering some really powerful benefits to businesses and contractors, but we have no one to follow and are learning at every step of the way. There is a great saying that I have always believed in – “Success leaves footprints.” The big difference with ten80 is that we are making them! We are running agile processes on each stage of our journey. Everything is tested, iterated, refined, repeated. It’s the curse of being the first, but actually embedding continual improvement into our business has been one of our rocks of success.
Another challenge has also been controlling deal size. Big corporates have latched onto the benefits of what we are offering and are immediately referring us globally. It’s great but can quickly escalate and then take longer to close.
5. What’s next for ten80?
Our focus/goal is to secure a major investment over the next six months. That’s the first ticket to the major league and will give us the potential to grow to 150 people and some pretty big numbers revenue wise. We are entertaining some pretty important investment houses and are looking forward to one of them closing.
Running alongside that we have some really amazing companies in our pipeline, and I am looking forward to welcoming them onto our platform.
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