In the 11th episode of SME Banking Club Podcast Series, we speak about automation of factoring for SME customers with Daniel Huszar, Head of Sales at efcom (Germany).
OG: Before we start talking about technology, tell us please about yourself, what is your pass to efcom and what do you exactly do?
DH: I’ve been connected to efcom and working for efcom for over ten years now. I started out translating the system into English, so I know the depth of the system very well, it’s a good place to start out with. My job as Head of Sales doesn’t really encapsulate completely, because my job is of course to sell and to consult clients on which solutions might work for them. But also, to look into future technologies and the ones which we have right now and give impulses to product development, and to think about future applications, and I think this is also why you invited me.
OG: Let’s start with the question of automation of factoring especially for SMEs and probably mainly micro. As we see in the CEE region and not only here that banks mainly are specialized in factoring for corporate customers. This is mainly due to the fact that these big organizations have manual processes for that product, and of course, servicing SMEs in such a way is very costly and insufficient. So, to serve SMEs and micros, one should automate the process as much as possible. This is what we see in Polish market where some Fintechs have appeared recently, which are focused on micro factoring segment offering factoring purely online in few minutes. So, it’s evident that automation makes sense for that segment of customers, we don’t discuss why to automate. But rather how. So, my question is – how banks can or should automate? What is the exact process could be?
DH: First of all, if we go into the micro sector and SME sector with the manual process we don’t get so much money from each individual client than for example in corporate world. So, yes, there is really a need to automate. With manual processes versus automation – automation makes things scalable, which is very important with SME and micro-segment. Because we have a lot of customers and it’s hard if we have manual processes connected to all of them, when we onboard them and manage them, so we need to automate, because then it’s not scalable. And maybe to add even when we are dealing with corporates, in case of invoice discounting or factoring products, we don’t have a big number of clients, but we have a big number of invoices and we kind of need to automate it to get them into the system, to manage the limits and to manage the risks. So, we need automation. And to do this we have 2 technologies: we have the front-end which is the online portal or an app, something like that, so this is the customer-facing part of the technology, and then we have the back-end where you crunch all those numbers, make all those postings, track the invoices and track your risks, for example. And I’ll start with the front-end, what we can do there. I think, with front-end the design is the most important thing, and it’s not really the automation in this part but to get the customer onboard, so that they want to interact with your solution and they really want to use it. Because without that fact there is no product to use. And to do this we definitely need to shape it from the mobile and by this, I mean to make it really simple to use, easy to upload invoices or documents and to make requests and all this kind of things and give the users multiple opportunities to interact with your technology and with your product. And when the automation comes into play it’s more about customer’s convenience. When I say about multichannel approach and multiple ways to interact with your software it’s more about do I type in this invoice manually or do I take a picture and then some LCR software reads out what is written on that picture and translates it into the fields, and customer convenience here plays definitely more important role then automation even. It just needs to be easy and simple. And when we go to the backend there is really only one thing – it needs to be flexible, it needs to be so flexible that all of your business processes can be translated into parameters of the software which are really the rules by how to automate things, like, for example, which invoices do you buy, which clients do you onboard according to severe ratings. So those are the most important parts.
OG: What are the most important or crucial steps for banks or factoring companies to do the automation?
DH: Firstly, I’d really urge every product manager that conceptualizes the product to step away from the tools, completely, that they use at the moment. Because it’s kind of limits in the way we think and the product shapes itself after the tools we use, and it’s hard to get different ideas or different perspective. So, if you are making a new product for SMEs, let your imagination run wild, not too wild of course , think of everything, and then we can confine it to the product. First, of course, we need to see the business cases, if feasible. This would be the step 1 for me, to get this concept. And the step 2 would be to translate this into the technology, meaning making front-end tool easy to use, to have this multichannel approach that the customer can interact with you on many different levels, for example, like I mentioned – entering invoices by multiple ways: by taking a picture, typing them in. And the customer’s convenience is keen. And for the back-end the way you automate things, the way you translate your business processes into the software parameters – that’s basically it. You take some rules which you have in mind, like which invoices to buy, which customers to take, which customers to reject, how to set your limits and you kind of think about what my risk appetite is here because without risk we can’t do this. We have to take some spread, we have to take some risks, and we are not getting everything insured by the credit insurance.
OG: Do you understand under the automation that all the processes are done by machine or robots without any human touch or involvement?
DH: This is an interesting question. I think No, it’s not even that is dangerous, but it doesn’t need to be that way. Of course automation means that things run automatically but when we look at certain risks if you have hundreds of thousands of customers or invoices then nobody can look over all of these and you need pre-defined decisions, but you need to look at some of them, and you need to look at most likely to be a risk, and this is what big data risk management is for, so you put it all in and you let the technology run its scores by some predefined rules, checking your invoices, checking your customers against patterns. For example, if you look at the invoices and invoices’ number and you detect the pattern that can be flagellant. So, in the end when we apply all these parameters to our data, and things we think there is a risk, like Bedford model, and patterns and all these kinds of things, then the risk manager will get a proposal list, she/he would not look at every invoice or every client, but they will get the best clients according to the business rules in the software and then they can look are these clients or invoices they should check the most. Basically, automation can also mean that humans use their time in the most efficient way possible. Automation should serve humans and users and not vice versa, of course, it’s just a tool. To make sure that it’s not a black box, I believe there are two factors that really help. I mentioned that we translate business processes into parameters, so the software, when you automate it, it does exactly what you want it to do, the business rules that the bank and we as a software company implemented in the first place, so it’s just a process enhancer, it takes business rules and applies them over and over, and quicker. But it is what e tell the software to do. And the second thing, which is very important, is to be able to analyze all the data that goes in, and the measures that we take as efcom to do that, is that we save everything on invoice level, so every invoice and every credit note, every item that goes there it stays within the database and can be analyzed with reporting even years later. That is really important to shape your portfolio and to watch it over time and even have the possibility of creating reports or dashboards later on, that you might not think of right now, because they represent future products. And that’s a very important factor, in my opinion, that you are be able to do that.
OG: Well that’s good news that humans will stay somehow in the process
DH: I think so too!