What are the main trends underlying the development of the fintech industry and what is MFG’s response in terms of products and services?
Еverything is getting digital but this is not a new trend. We need to add the human touch back to the digital experience now, at least until the AI passes the Turing test.
Efficiency and profitability are back in fashion, as opposed to pursuing a bigger market share at all cost, even in the winner-takes-it-all sectors of the industry.
The main trend is the speed of globalisation of the financial services. In the past years we’ve seen only banks expand abroad, and many of those regionally. On a larger scale we had in many countries the heavyweights Citibaank, Barclays, Deutsche Bank, ING, etc. In SEE, after the fall of the iron curtain mostly banks from Germany, Austria and Greece were expanding their foothold. The global players were involved mostly in institutional and large corporate lending. And retail lending was left to companies with limited technological and managerial potential. This resulted in much slower development of financial services in general in SEE. Due to the smaller standalone scale of the markets, the lenders were not willing to invest too much.
NS: More flexible financial regulations in the EU, and not only, have allowed the rapid expansion of non-banks in the past few years. Depending on the exact type of services, now it may be just as easy to launch operations on your home market as to expand abroad. You just need the appropriate licence. The best known examples are maybe Revolut and N26 that expanded in several countries at the same time without even setting local offices. This has seriously disrupted the businesses of the longstanding local players and has forced them to follow suit. This has been to the advantage of customers, offering them more and better products at lower prices. This has been a revolution similar to the one in air travel with the arrival of the low-cost carriers.
SV: For MFG all this means we need to focus on innovation and customer service even more than before. We’ve been on the market for many years now and we claim to know our customers better than anyone else. So knowing the markets abroad, we want to offer our clients the best-in-class global experience that will be culturally and linguistically adapted. This is something that the likes of Revolut are far from being able to do. One such product idea is a customercentric one-stop solution for all their finances and lifestyle needs. A super app that would allow the clients to use their phones for payments, credit products, insurance, other fintech products and services, adding to lifestyle needs such as shopping, daily routines, entertainment, subsciptions, travel services, healthcare, etc. with in-app messaging. One super app for a super life!
MFS comprises companies employing various business models. Could you tell us some more?
NS: Sixteen years ago our first company – Easy Credit – started operations as a home collected credits lender. This company still utilises the same business model. We employ more than 6,000 agents visiting our 300k+ clients on a weekly basis, but our agents and our back-office operations are a lot more advanced. We can be easily perceived as being almost like the Uber of credits. Each agent uses a digital device for real-time communication with our central system, being provided with real-time customer data, scoring decisions, if needed, and this gives us the opportunity to take credit decisions on the spot, while having coffee with the client and in most of the cases also advancing the cash needed. More than 90% of the back-office operations are fully automated and we strive to be a paperless office by the end of 2022. Unfortunately, some government agencies in Bulgaria and Romania still require paper signed documents, but we believe this too will change.
SV: On top of the knowledge acquired by this not at all easy, non-prime lending model, we started building knowledge about other products, services and segments and nowadays we have a growing credit card business through our company Access Finance in four EU countries – Bulgaria, Romania, Poland and Spain, an SME lender Fintrade, an e-money institution Easy Payment Services and our own P2P platform iuvo, which is among the top European P2P lending platforms, for diversifying our funding sources. Recently, we were the first to introduce the original buy now, pay later (BNPL) model in Bulgaria with the company NewPay. What is one of the biggest trends in the e-commerce worldwide is literally unknown and unheard of in Bulgaria. We have a real chance, and the know-how, to make a revolution in online shopping and financing in Bulgaria and in the region.
We are also very ambitious in our geoexpansion efforts and we plan to enter the US market by the end of 2022 and to grow in more West European markets even sooner.
AS: We are especially fond of the card model which is so far unique in the EU. No one before offered a prime product such as the credit card – due to its technological complexity and high fixed costs – to clients with irregular or low incomes or even no credit history. These consumers are not used to such a product that allows for much flexibility when using credit. We took the large risk to start the project, it took us years to educate our clients and we did take quite some losses. But we are happy that we helped hundreds of thousands of people improve their credit dossiers, manage better personal finance, probably take mortgage and improve general well-being. And now our company EPS is probably the largest Bulgarian credit card issuer, helping individuals in four countries! One of the companies within the group, MFG Invest, finances early stage startups.
What kind of companies is it looking to add to its portfolio?
NS: Our experience is mainly in the fintech sector. On top of that it is very hot right now and will be hot in the coming years, so naturally we are interested in discovering new business ideas and solutions there. We also witness the big change in retail – e-commerce in Europe is growing with double, even triple digits and surely this sector will attract more and more investments.
SV: Generally, we would like to identify young, brave companies that harness technology in order to improve our daily life in one way or another. Our portfolio already consists of fintech services providers such as Payhawk and Boleron, innovative software services such as Log-Sentinel and Tiger Technology, and food and ecommerce companies of the future as we see it with investments in ebag, ONDO and Seewines.
MFG has been expanding rapidly in the past years. How do you see this process going forward? What areas will you focus on and what are your strategic goals?
NS: We would like to build a group of centrally coordinated but independently functioning companies. We see it as a constantly evolving fintech ecosystem that will stand strong in the long run due to its data and technology architecture, the smart innovative technologies implemented, and the shared resources, ideas, knowledge and synergy between the businesses. Our mission is to provide financial inclusion to as many people as possible and we stand by our core values – visionary spirit and entrepreneurship to provide bold, state-of-the-art fintech products and services for the benefit of the people; empathy when providing service to our customers and engaging with our colleagues; and sustainable growth and development in harmony with society, nature and people.
SV: Strategically, we want to continue building on our core capabilities and further grow the business – the potential is truly enormous! We consider ourselves as being very good at credit scoring – especially for the sub and near-prime markets, but also at micro and SMEs; IT – almost all our systems are developed in-house, which gives us speed and agility; and last but not least, people and operations management – with more than 8,300 employees on six markets, learning this is inevitable.
AS: We would like to further diversify our geographical span and enter new markets, but we won’t rush into this as every country is different and requires special attention, knowledge and in many cases, product and operations localization, even within the EU.
SV: We are definitely seeking to diversify our financing options further and beyond the few partner banks that we work with and our P2P platform. Currently, the leverage of the Group is still low and being in growth mood, we need the additional fuel to skyrocket.
The Covid pandemic gave a strong boost to the digitalisation of companies across the board. How is this shift impacting your operations?
AS: Long before the pandemic we had a very strong digitalisation programme underway and I must say that Covid actually helped us accelerate the execution of this program. We have streamlined our processes to protect the health of our employees and clients and reduce our dependence on personnel. Part of the most important changes include the following:
• Automation of the credit approval. Now at one of our companies the total time between our first interaction with the client and final credit decision is less than a minute for 75% of clients! Here the traditional players don’t even come close and we are in a league of our own.
• Self-service electronic identification. We partnered with one of the world’s leading technology providers, British company Onfido, to offer personal identification through a mobile phone. We are among the pioneers in SEE and we bear the costs of market education but improved customer service, speed and decreased risks for customer health are priceless!
• Electronic contract signing. We have introduced distant signing of credit contracts in all our markets. We are especially fond of doing that for credit cards as we are unique in some of our markets offering completely remote onboarding (identification and signing) for credit card products to new clients. From an organisational point of view, we reduced tremendously our reliance on offices. Practically all our employees worked from home during the pandemic and this switch took us just two days. This is an enormous effort and a great success for our ICT team and we are highly grateful to them. However, in many departments it is essential for us to keep the start-up culture and we prefer to work from the office when the health situation allows it.
Did the Covid pandemic make you revise in any way your relations with employees and clients?
AS: Yes, initially, in March-April 2020, we were a bit scared from the unknown and we reduced our lending. We never cut it off completely but our volumes during these initial months dropped by 40-50%. This was only natural, actually, as clients were not eager to buy new loans.
They were consuming less and less, staying at home and had the same fear about the future, hence, reluctant to get into debt. Little by little, by the end of the year, as our customers’ state and sentiment changed, we returned to the pre-pandemic budgeted levels.
Concerning our employees, here the cliché “we are our employees” is pretty much valid. We never cut positions, or let go anyone go because of the pandemic. Parting with good and valuable employees is like taking away from our Group’s flesh and blood. Work habits changed, of course, but we all knows this…
What are the highlights of your business strategy until 2030?
NS: More markets on more continents. More easy-to-use and innovative fintech products and services for the benefit of the people provided in a new and exciting way.
SV: If the stars align – getting a banking licence in the EU.