Hereby, we bring you the second part of the mini-series of interviews about the cooperation between traditional financial institutions (i.e. banks) and young fintechs. As this seems to become an interesting trend worldwide. One of the banks that pulled the trigger as first in this area was Czech bank Komerční banka. Therefore, we would like to know how it actually happened, what worked, and also what could have been better. So as we would like to know where is this heading and how could the current products and services be improved.
This time we have been talking to Petr Volný, Co-founder and CTO of Upvest.cz. Upvest was historically the first equity entry of Komerční banky into a fintech and it took place in July 2020.
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1. Where does the idea that a bank could be your investor, or even a partner, come from?
We knew right from the beginning, when we founded Upvest in 2017, that the best partner for our business would be a large financial institution or a financial group. At that time, however, we could not yet imagine that after three years of building our product, we could succeed with Komerční banka – one of the top banks in the Czech Republic, which is also part of the strong international group Société Générale.
2. Why Komerční banka?
Komerční banka actually is the first bank in the Czech market that is truly ready for this kind of partnership. Komerční banka has not only talked about it but really systematically implements a plan to connect with good fintechs and invests in start-ups. We also like Komerční banka’s ambition to be agile and look to the future.
3. What are the advantages or disadvantages of cooperation between start-up/fintech and an institution of the size of Komerční banka?
I believe that we may learn a lot from each other. We certainly see great expertise and experience that Komerční banka has and we can only gain from it. Even bigger requirements are now being placed on Upvest regarding the standardization of our processes due to this partnership. Although, we consider this to be a step forward in our business.
One of the biggest differences between us is that the bank has an especially designated expert or even a team for each area. In a start-up such as Upvest, one person often takes care of more topics, which is why there is a visible disproportion in joint meetings between Upvest and Komerční banky :). But here again, I would like to underline that we are very happy to have the possibility to turn to colleagues from Komerční banka on many topics and consult with them.
4. When you think of it retrospectively, could you remember that specific moment in which you decided that Komerční banka really is the right partner for you?
Yes, I surely can. I think a great validation of our product was the story when an important developer claimed to accept financing from Komerční banka only under the condition that his real estate project would be using Upvest’s mezzanine financing at the same time. This was such a great market validation for us confirming that if we combine the product of a classical senior bank loan and our mezzanine loan, we can gain a great competitive advantage in the real estate development market.
5. When we compare start-up and corporation and their company culture, do you think that this connection will also cause that they will more or less adapt to each other? Do you think that the start-up on the one hand shall adapt to some corporate rules and the bank on the other hand shall learn to be more dynamic?
I can see such a special ambivalence when talking about this. It seems to me that the natural goal of a start-up is to become a corporation (i.e. a large company with thousands of employees and stable sales) and that every corporation would like to be a start-up (i.e. to be agile with a strong innovative product). It is a vicious circle :). But now seriously. Both Upvest and Komerční banka, have their own way of working and it would not be healthy to push one side or the other to completely change this. On behalf of Upvest I can say that if something inspires us about the corporate culture and operation of Komerční banky, we will not be afraid to “copy” that or be inspired by it.
6. How and for how long did the mutual “courtshiping” last?
To sign collaboration contracts with Komerční banka was fairly an elaborate process, however, which, in retrospect, was definitely worth it. Upvest had to go through a thorough due diligence process and tough but fair negotiations took place regarding the conditions of Komerční banka’s capital entry into Upvest. Everything was subsequently delayed by the coronavirus first wave starting March 2020. However, there was a strong motive on both sides to carry out this transaction and the signing happened in July 2020. In total, the courtshiping lasted 16 months.
7. Does this equity entry into Upvest mean any changes to your business model?
I would not say that the business model is going to change right away, although some fundamental aspects of our business will certainly be accelerated by this partnership. For example, thanks to a joint product of real estate development financing, Upvest can move faster to projects with higher capital density.
8. What has happened since the equity entry? What are the next development/expansion plans?
At the technological level, we test the use of Komerční banka’s open banking tools, which should further simplify and make our services more pleasant. Immediately after concluding the transaction, and in some cases even before it, we started thinking about several joint activities. For example, the already mentioned joint financing of real estate development in tandem Komerční banka + Upvest loans (senior + mezzanine financing). We embrace also jointly developing the idea of adding to Upvest financing products for projects in the Infrastructure segment and thus opening up investment opportunities for our clients from a segment other than real estate.
We are also working together to launch the Upvest product in the Komerční banka distribution network. In other words, we want to offer clients of Komerční banka a convenient way to participate in Upvest’s loans. At the technological level, we are starting to test the use of Komerční banka’s open banking tools, which should further simplify and make our services more pleasant. Of course, we are still talking about a lot of other ideas and possible ways of cooperation.
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