The beta version has just been presented to shareholders and is now awaiting authorization from the Bank of Italy which should arrive shortly. The digital credit platform for SMEs created by Ignazio Rocco di Torrepadula, a former consultant of the Boston Consulting Group, is ready to land on the market in September. The last piece that is missing is only the name which, Rocco di Torrepadula anticipates to FIRSTonline, will be announced "soon, before the summer, probably together with the authorization of the Bank of Italy and the partnerships" explaining that "it will be a name Italian” but with “a Latin root that will make it understandable and familiar even abroad”.
Between factoring and peer to peer lending, where are you positioned?
We are a digital lender. Our model is similar to the UK invoice factoring system which uses part of the factoring legislation and part of the securitization legislation. We are not peer to peer lending because we give the loans to institutional investors and we do not have them subscribed by private individuals or put them up for auction. We don't even do factoring under the current exception in Italy of the term because we don't do en bloc assignment of credits and we don't have the relative clauses, but here the company can assign the single commercial invoice, through an assignment with recourse. We are unique. For companies it is very simple: just present the invoice on the digital interface without any other documents and within a few hours you will get an answer and a quotation, without obligation. In case the transaction occurs, we receive an origination fee.
Who are the investors to whom you will sell the credits?
They are partly Italian and partly international funds. Even large Ucits funds that have a 5-10% chance of buying products that are considered technically illiquid. Or closed funds and the same minibond funds. We are currently in discussions with five Italian funds. It should be noted that we securitize simple and low-risk credits, these are trade credits, and for this reason the returns are commensurate with the risk profile, around 3-4% per annum. Our securitizations will not be tranched, loans are balanced in a single portfolio to have a single risk class for all investors. We also keep 5% of the portfolio to ourselves, thus taking on as much risk as we sell.
How did the idea come about?
When I was still working as a consultant at the Boston Consulting Group, where I was involved in banking, I reflected on what I would like to do in the next ten years. I first became interested in fintech as an investor, as an angel.
Then I thought of directly creating a fintech company in Italy in digital credit. It is a very large market. I adapted to the Italian market and the SME system what I had seen in San Francisco, New York and London, applying some changes. Starting from the reference target which abroad are above all private individuals, with the diffusion of peer to peer lending. But I preferred to create a model that would bring credit to businesses: on the one hand, our model is faster because it doesn't have to look for lenders, the funds that buy the credits already exist; on the other hand, I prefer lenders to be professional. I have doubts about the opportunity and the risk of private individuals becoming lenders. I think that the sharing economy paradigm cannot be easily applied to finance. Financial products, compared to Uber or Airbnb are more difficult for the end user to evaluate.
When to launch on the market?
We are returning to the regulation of financial intermediaries and are awaiting authorization from the Bank of Italy which should arrive shortly in the coming weeks. We will start operating in September. The product is almost ready, we have just presented it in beta to the shareholders. We have prepared the partnerships with the asset managers and we are working on the commercial ones. In addition to the product on the open market, we have also prepared a second version that is aimed at large companies that pay many small suppliers. We buy the small supplier's debts towards the large company, in the logic of reverse factoring, but leveraging a completely digital infrastructure and also financing individual invoices.
At what stage is the expansion of fintech in Italy?
Finance sector startups are different from the gaming and media sector. It is a highly regulated area and important capital is needed, otherwise it is difficult. Even just to be authorized by the Bank of Italy and Consob, two young people and twenty thousand euros are not enough, you need a mixture of technological innovation, young people and a pinch of experience and capital. Having said that, Italy is the country of cynicism, it is part of the DNA to take pride in the fact that startups are doing badly. You can't have a startup fabric without accepting that nine out of ten are struggling.
And are the banks understanding the change taking place?
The banks are understanding. In two or three years they will have incorporated all these technologies. Just as they have always incorporated many things, in the 90s it was said, for example, that telephone banks would be born. Instead, the innovation was incorporated by existing banks. The most advanced international banks typically have an internal watch list of all the startups in the world that they could acquire. according to the logic of open innovation: some things are better if they are designed by external teams.
What are the areas of application of Italian fintech?
In Italy we believe that the lending sector will undergo a major change, then there are the robot advisors who will penetrate the world of bank but also insurance promoters and consultants. Finally, the world of payments will change with the acceleration provided by mobile, think of Satispay. The fact that Italians are scarce card users should not mislead and be interpreted as poor digitization, with mobile we will see a change of gear.
Will Google and the other web giants be more and more competitors of the banks?
They are already competitors. If you look at Alibaba's financial services division, Ant Financial Sevices, mobile payments have over 400 million customers, the money market fund over $98 billion in assets, and digital lending is pretty big. Ant Financial Services is de facto the largest fintech company in the world and will grow on all emerging markets which are the fastest in this sector. In China, for example, it's a question of making up for the traditional banking market that doesn't exist. However, I put a question mark on whether Google, Facebook or Amazon become real competitors of the banking market in Western markets. There is a lot of regulation in this industry and these behemoths tend to skim value without taking too much of a burden.
In terms of technology, what does InstaPartners leverage?
We have a dual approach to credit risk. We'll start by using traditional analytics, just automating processes a lot. In parallel we will start experimenting with different variables and we already have a dedicated person, a Big Data analyst, who will start testing them. In the future we will therefore also use Big Data even if we must not mythologize them too much on credit. Many startups use them but no one has yet demonstrated that they have statistical robustness.
Among your shareholders you have important names in Italian entrepreneurship, what are the reasons for this bet?
Everyone saw in this initiative a company that caters to a large market in Italy, a product that if it works well can solve a problem, that of credit, and also be a bargain. Furthermore, there are those who have seen something that could also be useful for their business activities, thus making it possible to create something that did not exist but which could be of direct use.
And the name?
We will announce it shortly, before the summer, probably together with the authorization of the Bank of Italy and the partnerships. It will be an Italian name, we don't want to use an English name as is often done in fintech, in fact we want to speak to Italian SMEs, but with a Latin root that will make it understandable and familiar even abroad.
