With this twelfth episode of SME Banking Conversations, I continue the series of inspiring interviews on SME Banking, digital transformation, and people making innovations happen in the industry!
The recording of this episode took place in July at Comarch‘s Innovation Space in Kraków, where I talked with Karol Leszczyński (Product Development Manager at Comarch Factoring Platform) about the development of the factoring market and the pace of the digitalization in the CEE region.
Read my conversation with Karol below or hear it on Soundcloud:
Karol, I’m very excited that we are recording a new conversation in your Innovation Space at Comarch’s head office for a second time. We were here a year ago. So, let’s discuss what has changed, how things changed here in Comarch and on the factoring market in general
Karol Leszczyński: Hello, Olena. It’s always nice to have you here.
Let’s start with a question, and with the discussion of this enormous and historical, I would say, the growth of the factoring and receivable finance market on a global scale, which showed 18.3% growth for the last year. Europe makes the biggest part of it, and CEE countries also showed very good results. We had a 30% growth in Poland. Also, Romania and Bulgaria showed big growth, and Turkey as well, but here probably partially it resulted from the high rate of inflation. But anyway, how do you assess and evaluate this growth in the market?
KL: Yes, the numbers are great in 2020. I think it’s also worth mentioning that in 2022, the global volume turnover reached almost €3.7 trillion. The estimations are that in 2030 it will reach nearly €6 trillion. So, it will be almost double. I think that the clients, the customers are starting to appreciate the factoring as a financial solution, the ability to transfer risk to a third party, more and more intuitive systems. Our digital process makes factoring a perfect product. You mentioned inflation. I think it was also one of the key reasons for the growth, but not the main reason, in my opinion. We also must remember about organizations like FCI, Polish Factory Association, BCR, or your SME Banking Club that are doing a great job in case of education and promotion of our product.
How do think what is the influence of technology on that growth?
KL: As a software provider, we must ensure ongoing support for financial institutions to capitalize on this growth. And I think there are key several factors here. The first one is optimization and automation of the processes in the system. We still think that the factoring system has still huge potential for improvement. So, the defining task of factory employees, the daily tasks that they proceed and streamlining their work is crucial here. I’m thinking about the processes, like entering a new agreement, modifying an existing agreement, adding a counterparty, or changing the level of the limit is very important. By making this process as easy as possible we are streamlining the work of the factoring employees. The second factor is investing in the technology. Considering the newest technology such as microservices to enhance the management of functionalities will help because improving each functionality as fast as possible on a daily or weekly basis is very important here.
Also, prioritizing security is very important. We must update all the libraries, and all the components to be sure that the data is safe and there will be no lack of information. And third of all, considering the still-evolving market perspective, is also very important. So, preparing the intuitive system for the end user who is working on a daily basis is also crucial here.
So providing a user-friendly system for the clients who are able to navigate through it intuitively is very important here because if the clients are able to independently utilize the system, they will have a better working experience, the user experience, and they will be able to easily put the invoices into the system, make all the transactions, make all the reports, read all the reports, and it is very important right now.
How do you evaluate the pace of the digitalization of the factoring industry here in Poland and in general in the region?
KL: This is a good question because, in my opinion, we still have a long way to go. After all, as I’m referring to the Polish market, only a few players are able to provide a fully digital process. In this case, it’s only for the micro clients where the amounts of limits are significantly lower, the global limit and the counterparties limit. But when I’m thinking about the last year and this year, I think most factors were directed to the e-invoicing. They were focusing on e-invoicing because in Poland it will be obligatory in the second half of 2024 and the European Union, it’s from 2026. But I think this is also a form of digitalization.
Yes. You mentioned that in the Polish market, few companies have this fully digital factory process. But still, we have these few companies. Because there are several markets in the CEE region, where there is no factoring company that provides digital services. So having these several companies in the Polish market we are ahead of the other markets.
How do you think strategies factoring companies should implement to benefit or to maximize this effect of digitalization and also to stay competitive?
KL: I think that factoring companies, and financial institutions are starting to be aware that more and more clients, the new generation of clients will expect a digital process without the necessity to leave home or the office. But in my opinion, right now the main problem is that the people who are in management positions are reluctant to make the change, to change their mindset because they still believe that traditional banking will last. However, we need to remember that the process of digitalization will last not a few days or a few weeks, but rather months. So adequate preparation for this process is very important as well because we need to think about technological change in advance. And when I’m thinking about the market right now, factoring is becoming more and more popular, and new companies are entering this market. From the beginning, they can bypass the stage where the current factors are right now. So. they can start with a fully digital process right from the start.
Let’s talk now about the ESG topic. It’s becoming very important. Are there any challenges that the factoring market is facing right now in aligning with ESG principles?
KL: ESG becoming more and more important right now and it is for each industry, not only for the IT industry, for each industry right now. So, minimizing the carbon footprint, electronic waste, or using renewable sources is very important. At Comarch, we are preparing a report that shows how we minimize our footprint on the environment in this case. And I think this type of commitment to sustainability should be standard in our industry, in our factoring industry.
Yes. And also, yeah, we should remember these S and G components in ESG.
KL: Yes, of course, there are other components there. Yeah. Yeah, exactly.
Have you done your certification as a Comarch?
KL: Yes. We are providing this report each year.
How do you think you as an IT provider can help factors and maybe also other smaller companies to be in line with the ESG?
KL: I think the easiest way is to provide this kind of report in our system. For example, our system can provide a score of ESG report if the company applying for the financing reaches a certain level of score, the system will propose a better price, the better rates for this client because they really care about the environment. And additionally, I think in our industry, it also can be an advantage for these clients, for our industry.
It should be. It should be included in the risk and price models, as you mentioned.
How to stay agile and open to the requirements, to different requirements of different factoring companies?
KL: We understand that clients require more than just the shelf solution. For each implementation, we divide it into two or three phases. In the first phase, we develop the basic functions of the system and provide training for the factory employees. Then in the second phase, we are tailoring our solution for the clients, for their specific needs. As a part of our program, our clients have a real impact on our system because we want to be sure that developed functionalities meet their expectations. But for now, I can say that we will reveal more information in autumn, so please stay tuned for the exciting news.
Let’s stay tuned for the autumn. Thank you very much, Karol, for this conversation.
KL: Thank you!
Watch the conversation below:
