In our second interview, we look at the Spanish market, back to the past of efcom and Tech4Fin, but also into the future. Have fun while listening!

Rasko Peric:
Welcome to the efcom podcast. My name is Rasko Peric and today I welcome Mr. Federico Avellán Borgmeyer as our guest. He is managing director of Tech4Fin in Germany.

Mr. Avellán Borgmeyer can you please introduce yourself.

Federico Avellán Borgmeyer:
My name is Federico Avellán Borgmeyer and as you can hear from my name, it sounds a little bit Latin and somehow German also. That is because my first part is Latin American Spanish speaking and my second part is German. I have been working in the banking, especially in the transaction processing industry for the last thirty years. That is transaction processing in the broadest sense including payment systems, credit cards, smart cards, payment equipment, card personalization systems. At some point in time I got in touch with a different area of the banking or financial service industries, and that is factoring. This is been now some six years ago and since then I have been working in this particular area. Then I got in touch with a company which we now call Tech4Fin.

Rasko Peric:
What is the focus of Tech4Fin? Which technologies do you currently use?

Federico Avellán Borgmeyer:
The focus of Tech4Fin – which is formerly “Aplicaciónes informáticas avanzadas” (Advanced intelligent application) – go back to the late eighties when artificial intelligence was coming up in the market. So, “Aplicaciónes informáticas avanzadas/AIA” – a Barcelona based organization – started with that particular technology. My friend José Maria Morera was working at AIA and he was telling me about that. That was really cool, because it reminded me of my master studies which I did at the university of Illinois in Urbana-Champaign, and that was exactly about that. As a part from an NBA which I was doing I was also studying artificial intelligence, something that was extremely hot and cool in those days. I got in touch with José and I asked him: Are you doing anything in Germany right now? He said: No, actually Germany is something that I would to hit or contact. So, then I said: You have got your man. Then I became the partner of AIA for Germany, basically for Tech4Fin later. That´s how Tech4Fin Deutschland came into being. Artificial intelligence algorithms that are in use for making business in factoring organizations much more efficient and smart.

Rasko Peric:
Can you please describe the partnership with efcom?

Federico Avellán Borgmeyer:
This was very funny, because my friend José from Spain told me after I learned about the products that they had developed for the Spanish market in banking applications. And I asked him: Please tell me what your main competitors are. So, I would know if I am going around the German market. I would try to understand if those competitors are currently here or not. He told me: We´re so unique, we have no competition. I hardly believe that and put that as a typical Spanish exaggeration. I thought: Ok, let´s see, I will give it a try and start to talk about our products and benefits to the German factoring community. Every time I got in touch with one of them, they say: Well, you know, we already have that. We are already working with that technology. I said: That can´t be, because supposedly we are the only ones in the world.

But ok, I kept going and after hearing this for the fifth or the sixth time I asked him: Can you please tell me who you are working with? Well, this is the company efcom. efcom was not really in the radar of our Spanish friends. I talked to them: Well, it seems that there is in Germany a company called efcom which you didn´t know they existed, and it seems that they are working in this particular environment. So, our friends in Spain were shocked. I was a kind of: Ok, did I all this work in vain or can we do something about it? I said: If you can´t beat them, join them. I gave them a call, and this is how I get in touch with efcom with Mr. Bodo Reinecke in those days and explained him about what we are doing. He was super open, and he said: Well, you know what? It is right that we are the German leaders in the market for factoring ERP systems. That particular area that you are working on we don´t do. So, why don´t we meet? I said: Cool, this couldn´t be better. Especially, because efcom was just around the corner: Tech4Fin Deutschland is in Kronberg and efcom is in Neu-Isenburg – so we have Frankfurt in between and a few kilometres apart only.

I came to visit efcom and introduced our solutions and they were pretty excited and surprised about what we had in Spain. I said: This looks like it could become a good partnership, because we don´t have what you have and perhaps we can work together. This is how the partnership began. It´s been now about six years since we have been together. It feels like a marriage, actually there is some sort of marriage, because by now efcom is also minority shareholder of Tech4Fin and we from Tech4Fin are in the Hispanic countries do commercialized market sell and service the ef3 product from efcom. So, it become a really nice partnership, it´s even more than a partnership – we are friends also or a family.

Rasko Peric:
What´s the situation of factoring in Spain? Are there any differences compared to the other European countries, especially Germany?

Federico Avellán Borgmeyer:
In principle, there is no difference. But all markets are different. If we talk about the differences between Spain and the other European countries: Spain is the smallest of the five biggest markets in Europe, number five after the UK, France, Italy, Germany. The market in Spain is about 50% of the German market and the particularity is, that Spain´s GDP is 50% of Germany. That means that in percentage of GDP you can say Spain does a lot more factoring then most of the other countries in Europe. It goes up to some 14% of GDP and 30 billion Euro in volume, where Germany is about 260 billion Euro per year in factoring volume. This is one major difference that means the Spanish market is much more mature regarding the percentage of usage of factoring. This is most likely due to the situation that many Spanish organizations do require funding and if not received through the regular revolving credit, I would say that factoring has become an extremely important source of financing for SME.

The second one is in the product itself. In Germany we have the so called inhouse factoring as the major product to be sold in the factoring community. In Spain there is a variance of the reverse factoring or supply chain finance that in Spin is called “confirming”. Confirming is a product that was developed by Banco Santander some twenty-five years ago and is today the number one factoring product. Here is a second major difference. A third large difference is that the market has been working with solutions to manage their business developed by themselves. Many companies working in Spain in factoring confirming are using their own developed solutions, developed twenty, thirty years ago by their own IT departments or by local software companies. That is now changing. As we now, in Germany we have had already the transition of moving from own developed solutions to off-the-shelf solutions like the ones developed by efcom. And that is not the case in Spain yet. In Spain we´re seeing a transition from doing it yourself to buying or using a product that is a specialized product for your business. So, this is why we are excited to be in Spain.

Rasko Peric:
What do you think: Where is the journey going in the factoring sector? What will come, and what will not? What should one be prepared for?

Federico Avellán Borgmeyer:
In the factoring sector in general what we are seeing is, that factoring as such is growing on the global basis. If we look at the numbers from FCI there has been only one direction in factoring over the last thirty years: growth. It doesn´t really matter, how the world economy is doing. The worst that can happen to factoring is not a recession but a slower growth. Growth is the only thing that factoring has been seen over the last thirty years. And we don´t see really at this point in time a difference. This may come from regulation in the different countries regarding to the lending and credit market.

So, factoring becomes a very important source of financing their business, especially in the SME sector. And this is still going and growing. There´s is no sign that this is going to stop. We don´t see that this is changing. Many new markets are coming on top. I mean, apart from the European markets which are today the predominant markets in factoring on a global basis representing 60 to 70% of the global, we see China growing fast and furious and other Asian countries as well. Definitely Africa and South America are on top markets that all require financing for the SME. So, factoring is also a big thing in those regions. This is coming and that´s why we also apart from Spain tackle Portugal, but also Latin-American countries and we have the one and the other foot in the door in South America and Central America. This is coming and it will represent most likely a portion of our sales activities over the next five years. This from a market point of view.

From a technology point of view, I would say you have heard of artificial intelligence, big data and blockchain. All of these technologies are going to be in the factoring sector. To be precise, we from Tech4Fin have already developed solutions with big data and artificial intelligence for matching for instance in the area of matching invoices to payments, but also for risk control and clustering possible new clients with our so called DDA (Dynamic debtor analysis), so we are using AI to improve productivity on one hand and also to give you insights of the debtors that a factor has in its universe. This is very exciting. Last but not least, we have developed with another partner a consortial blockchain based on hyper-ledger. That would prevent the double pledging of invoices in a particular market. This has already been presented in the Spanish community, to the Spanish banks and associations for factoring and also in the Portuguese.

It was been received with excitement on what this can do. New technologies and their deployment especially in such conservative environment as it is in the financial sector is taking it´s time. If you are asking me, how the future could look like more from other new market entrance especially I am thinking of fintechs in this area, I could even imagine fintechs coming into this market strongly and changing the rules of the game of this particular area, if the current players don´t do it and changing the complete environment within the three to five years. What should one be prepared for? Again: If you can´t beat them, join them. That means, if the current players are not willing or able to change themselves, then they better join someone that is doing that already.

Rasko Peric:
How do you usually get inspired in terms of new technology trends and developments?

Federico Avellán Borgmeyer:
On one hand we listen to what our customers problems are. Most of them are not really willing to openly talk about where the pains are in their business. But, if you have enough confidence and trust with your current partners, you hear and listen where those pains are. Actually, one of the products that we have presented – a blockchain solution with a double pledging – was developed from ours without a mandate, because in Spain bankers were talking about that particular issue: the double pledging of invoices in the market, that had led to ruin the one or the other factoring organization. We were asked, if we were so smart with our AI, whether we could also bring a solution that could tackle that one. And that´s when we said: Ok, we will think about it.

It wasn´t really an AI solution, but blockchain was in the coming and I remember when my son talked to me about it: Papa, why don´t you look into blockchain for this. And I said: Why, blockchain? I only knew blockchain through bitcoin and I didn´t see the transfer of that. But, once I got into what blockchain was all about and the cryptology used in the background, it made a klick. I thought: Here is a way on how we could tackle that particular issues. So, you can say by daydreaming, listening to customers, speaking to others, but then also – since I work aside as a teaching professor at Darmstadt university at the computer science department ¬– I hear and listen to the new trends and developments and try to see whether the one or the other is good for us, whether it´s web-based applications which we really look forward in deploying also in the future and offer exciting products to companies that are far off from Frankfurt and could use our technology by using web-based solutions. This is, how I usually get inspired and try to put those trends and developments into practice for our particular environment.

Rasko Peric:
We live in a turbulent time. Many things are changing rapidly. What seems safe today, maybe different tomorrow. How do you face this challenge?

Federico Avellán Borgmeyer:
Your right, we live in a turbulent time. The news everyday could lead in a completely different direction, whether it´s political, whether it´s the globalization of things. Things are changing much faster than they used to change when we were younger. I guess, as we have seen the banking community shrinking dramatically over the last couple of years – we are not talking about ten or twenty years – the massive layoffs of the big banks. It´s not only Deutsche Bank, but also Banco Santander is laying off a significant number of their work force and this is in my opinion only the beginning. It comes along with the change of the industry itself, but also the technology which is making a number of manual or analogue tasks superfluous when it comes to automation.

I think of our products, our products promise you, that you could run your business completely automated, whether you will do it completely automated or whether you will do it semi-automated, its´s your own choice. But today´s technology we could already run a factoring business on an automated manner. That means a complete change in paradigm, in selling and operating that particular business. This is a scary thought for many, even for us. How do we face this challenge? You can´t deny the developments taking place and you will not stop them either, and you don´t want to stop them. The only thing you can do is to be one little step ahead of those developments and being basically in the future today. This is, how we face this challenge. If we don´t do it, we won´t be there either tomorrow.

Rasko Peric:
Mr. Avellán Borgmeyer, thank you very much.

Federico Avellán Borgmeyer:
Thank you, Rasko.

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