With this seventh episode of SME Banking Conversations with Olena Gryniuk, we are continuing the series of inspiring interviews on SME Banking, digital transformation, and people making innovations happen in the industry!
The recording of the seventh episode took place in Frankfurt am Main (Germany). Olena Gryniuk – CEE Director at SME Banking Club, speaks to Federico Avellán Borgmeyer – Chief Partner Officer at efcom – a company that provides software factoring solutions for more than 20 years.
Listen to this conversation on our SoundCloud channel:
Olena Gryniuk: What are the moods here, economic and business moods here in Frankfurt, and Germany in general in the eyes of the upcoming recession?
Federico Avellán Borgmeyer: I would say, in general, German politics and media tend to paint the German reality much worse than it is. I guess many countries would like to or love to have our problems. People are aware that none of these are easy to cope with. We’re lucky enough to have a good government, a democratic one. We have a strong economy, we have a functional banking system, the European Central Bank is just a few hundred meters away from here, we have the Eurozone, etc. So, all of this is really a strong wall for us. I’m really optimistic that we’re going to cope with this difficulty as well if we all hold together.
OG: What is your personal recipe to feel safe in the turbulent times that are living in right now?
FAB: You see, it’s like when you’re cooking and when you run out of a few of your ingredients. And right now, we’re running out of a bunch of ingredients. So, from efcom’s point of view, what we are doing is we’re going through globalizing our business activities. We are focusing stronger on technology as a second point that we would like to stand firm on. And then, of course, third, to diversify our product portfolio. Is this going to be enough? We don’t know. But these are the ingredients that we’re using right now to cook for these turbulent times. So, this is what we’re doing at the moment.
OG: Federico, let’s talk now more about you. I know you have more than 30 years of experience in artificial intelligence. Wow. And financial services, of course. So, please tell us more about you, your background, and your path to efcom.
FAB: Okay. For that, I would go a little bit back in time. Born in Germany, raised in Central and South America, graduated from La Salle, and almost became a member of La Salle’s Catholic brotherhood in the mission of education. However, as you know, things turn different in life and something like a bit over 30 years ago, I was working as an engineering student visiting scholar at the University of Illinois, doing research on how to apply artificial intelligence for marketing. That was a kind of a new thing in those years. However, when returning to Technical University Berlin, then called West Berlin, I had to change my plans and stop my academic career, my Ph.D., and moved into top management consulting instead, working among others, on turning around state-owned companies previously owned by the former GDR – Eastern German Government and turning them into competitive Western organizations before selling them to global investors. Later moved into M&A (mergers and acquisitions) for the German Quandt Family building a pretty decent portfolio of market-leading companies in banking. That’s when I went into banking technology such as for its DatCard, Gemplus, and Verifone to name the better-known ones. From M&A moved into the operational frontline. So, I wanted to see how it is in the front, starting and growing companies like US’ DataCard for the Iberian market, Spain, and Portugal, became McKinsey’s Start-up 2000 Fidelio Networks in Madrid or Germany’s Postbank POS Transact in Frankfurt. But then some 10 years ago, my friend José called me up, he was working as a Sales Manager for Spain’s leading Artificial Intelligence boutique Aplicaciones Informaticas Avanzadas (AIA). When José said Artificial Intelligence, I felt a sudden flashback! And took the chance to promote an AI-driven factoring application made in Spain in Germany. So now you’re seeing the thing. However, when talking to Germany’s factoring companies, they all said the same: “We already have that, we work with efcom”. After hearing that straight around ten times from different companies, I went back to Jose and told him: “Hey, we’re not alone”. And however, when I saw efcom offices were quite close to where I have my office, I called them up and spoke with Bodo Reinecke – one of the founders, now retired. When I told Bodo what we do at Aplicaciones Informaticas, he said: “Well, we at efcom do a lot, but we don’t have an intelligent matching tool yet”. So, we met, liked each other, and started to work together as partners. The application is now fully embedded in our core system and efcom acquired capital in the Spanish organization. So, you see now where we’re getting. In 2020, during the pandemic, I proposed Arnulf Romann, also one of the founders and efcom’s CEO, perhaps use that time for strategically reorienting efcom as a whole. So, after some nine months’ time, that was in 2020, still of work, the new strategy was set and ready to go. When I asked Arnulf who would drive the new strategy, he looked at me and said: “You”!
I believe in what we designed as the new efcom, let’s call it efcom 2.0. I joined in 2021 as a member of the management team in charge of sales, marketing, training, partnerships, investor relations, and the corporate transformation we’re going through. So that’s the path.
OG: What does your everyday job look like here at efcom now?
FAB: I love my job because there is no such thing as an everyday job. When you transform an organization, every day comes with new challenges and a lot of opportunities of meeting interesting people in your own organization. But also, from startups in Uganda or Berlin to long-established financial institutions in Madrid or here in Frankfurt, creating new markets in Islamic finance. Further developing our application with high-end technologies such as blockchain, AI, machine learning, cloud computing, and many, many more. So, every day comes differently I mean, for me, but also my team.
OG: How many people now work here at efcom?
FAB: Right now, at the core where we’re sitting right now, some 50 people. And it’s 11 countries maybe 12 by now currently working out of our Frankfurt offices. But, also, from remote. If I add, our close technology and commercial partners, we have become in the last 18 months since my joining, the team we call the ef community, like efcom community. I would say 1000 staff spread across Europe, the Americas, Africa, the Middle East, India also and even as far as the Asia Pacific and with offices, apart from ours, in Barcelona, Sofia in Bulgaria, Ljubljana in Slovenia, Nairobi, Cairo, Chennai in India, Brisbane, Australia, Washington DC and Jalisco in Mexico. These are not ours, but from our partners, and they’re basically our relationship and sales distribution network in those regions, in those offices.
OG: That’s, that’s a lot of people, Federico. How are responsibilities divided inside the team?
FAB: As a software company, we do obviously have a development team that maintains and further develops our core backend and frontend systems ef3, efX, and ef Online. Development is our largest function supervised by Martin Hug, another of our founders, using agile and professional project management tools and processes. However, developments are one hand triggered by customers’ needs and wants. But lately, we’re also seeing or we’re introducing the marketing and sales approach. That means not only what customers are telling us to do, but we’re thinking that maybe it’s important to deploy in the market. There are several adjacent markets next to processing, and receivables finance that are extremely appealing to us. Along with our own development team and our technology partners, efcom has and is further tapping into the cloud, blockchain, AI, machine learning, and others spearheading technologies to provide solutions to fintechs as well as to globally operating financial institutions. As you see the spread is quite wide. But also, corporations to large corp’s we just are implementing at that very large German company, blue chip, and the governments of any size. We were talking to one government in Eastern Europe right now. Our organization is quite lean and together with my colleagues in the management team, we delegate responsibilities to all those employees or partners most capable to achieve the target. So, we try to keep it quite lean management and whoever can do the job should do the job.
OG: So efcom is present on the market for more than 20 years already, right? What do you consider the biggest success?
FAB: Oh my God. I know efcom now for some ten years of its twenty-two in business. I think the biggest success has certainly been to set up an organization that became an undisputed market leader in this part of the world, in Europe, from day one. Never losing a customer implementation so far and thus allowing its 50 customers to achieve in 2022, this is our projection, and the one from our customers, to reach over 200 billion Euro transaction volume in receivables finance. So, this is, I think, a big achievement.
OG: You’re present in different markets. You mentioned, of course, Europe, but this covers different countries. Does the product differ from market to market that you’re working on: let’s say Germany, Austria, or Spain? Do you offer a different solution there?
FAB: Good question. You know, explaining the factoring triangle to an outsider, like when you tell your mom or your friends what factoring is all about if they don’t know anything about it, it takes less than a minute. But explaining how factoring operations work in practice around the globe, though, in my opinion, does probably take a lifetime. And I see it here in our organization when new people come on board and that triangle is easy, and now the problem starts. And even when you go to different markets. In principle, markets differ, in my opinion, from four different points of view. Let’s go through those four: One – maturity of the market is one of them. Regulatory is another one. Business size or volume. And client structure. As the first one, the maturity market’s concerned, we work on one hand in markets with zero receivables finance offering and therefore zero experience. On the other hand, we work in extremely mature markets like this one in Germany or other European regions. The challenges for infant markets are education and business planning. So, I really feel like going back in time, how to tell people about the advantages of this technology or, in this case, in this business. In young markets, our new clients adapt to our best practice. They start fresh and with excellent productivity because they have no legacy. In mature markets, where receivables finance represents up to 20% of GDP, the financial product has a large portfolio of choices. Our clients have been working in this space for 20 or up to 50 years, doing domestic or international, with multi currencies, with international offices, as financial institutions, but also as larger corporations or governmental bodies. Our products have evolved over the past 22 years to probably cover, I would say, 95 to 98% of any possible requirement that is posed by a mature financial institution. Whoever comes to us, we most likely can implement 95 to 98% of their requirements. Or else we have a solution to cope with the requirement as an alternative in a more efficient way. Let’s call it a workaround. The difficulty with mature organizations though is that they have become more and more complex and therefore rather slow over time due to their internal processes as well as, as we know, the external regulations. That’s it. But many of the processes though could be simplified and eliminated. If you went to a client, ask him, why are you doing it like this? Well, because we’ve always done that. Done well. Maybe it’s time to change. In that case, consulting and change management become key during the sales and implementation process. Believe me, it’s not about having the right solution. It’s very much also about change.
OG: Changes are difficult.
FAB: Then are regulated and non-regulated markets. Regulated markets like Germany or Spain, though both European countries imposed in the eurozone are nevertheless regulated very much differently. Also, regular reporting to an audit by regulators poses a lot of stress on financial institutions. Always. When I meet with these financial institutions, they always talk about that. Our applications, apart from providing virtually any required information, provide that information practically with the click of a button to the regulatory body or auditors, as every transaction can be traced in our systems. In this case, it’s not one but with three clicks. Still easy. Our applications in unregulated markets, like Switzerland, because not really regulated, pose other challenges such as stronger risk management, expectations regarding KYC and client onboarding as well as on-the-spot real-time control of buyers’ and sellers’ behavior. With our embedded risk management functionalities, we detect fraudulent activities when they happen with our upcoming machine learning AI-based products. We would even be able to predict them before they happen. Just stay tuned and watch out. Regulation from religious codes or financial conduct like transactions regulated under Sharia law in Islamic countries is another one. For those markets, we have developed Sharia-compliant trade finance products. Super exciting. Business size, business volume. When starting a receivables finance business, its products often need to be simple to understand and easy to execute. Therefore, our core product offerings also need to be easy to understand and easy to be handled. Since our clients are not know how their business will evolve in volume or product type, our products will need to fit and be able to scale accordingly. This is why we have created efX which is a pay-per-use web and cloud product that suits any starting or growing factoring organization, a product that embeds best practice receivables finance, the latest technology at the price ticket defined by the size of your business.
OG: The next question comes smoothly. What are you working on right now at efcom? What are your customers should expect in the nearest years?
FAB: Definitely improving our cloud solution. And on the other hand, we’re tapping into new geographies in Africa, Asia, and LatAm. We’re bringing new people on board with different minds, with different backgrounds. We’re investing in machine learning and predictive modeling. And then there is one extremely exciting market segment we’ll talk about more in a few months. I cannot disclose that right now, but we’re almost there. So, we’re excited. And you will see it in the media.
OG: What is your source of inspiration, you know, to do a better job, to get new ideas? Where do you get it?
FAB: My parents inspired me alike for their many facets of interest and passion, whether those being family and culture, philosophy, religion, mathematics and history, languages, storytelling, painting, photography or, I don’t know, cooking in astronomy. I used to have an astronomy company before. Yeah. Life is not boring and definitely too short, in my opinion, to explore it all. So. Yeah. So new horizons.
OG: Right. Thank you very much, Federico, for this conversation. Thank you very much.
FAB: Thank you, Olena. I thank you for coming to Frankfurt.
Watch the conversation below: