Gregoire de Lestapis, CEO of October (Spain), a European online lender, recently noted that Spain is a country with many SMEs.
Gregoire revealed during a recent interview that Spanish SMEs “account for 99% of the total companies in the country, and 70% of employment and GDP.”
Gregoire pointed out that the the market opportunity is there, and there’s also a challenging environment for banking institutions. He also mentioned that after the financial crisis of 2008, the relationship between SMEs and their banking service providers “suffered due to the credit crunch, some financial [mismanagement] and heavy cross selling mechanisms.”
Gregoire added that the dependency on banks was “enormous.” That’s why there was “resentment and understanding of the required diversification of financing sources.”
“Spain is home to very large banks like BBVA, Santander and CaixaBank, with over 200 million customers worldwide. In terms of market share, the top five entities represents 75% of the market. This is 40% compared in 2008. … These are physical branches, outdated technological platforms [with a focus] on product instead of customers satisfaction. The Spanish banking system has to contend with digitalization, low profit margins, recurring economic crises, and increasingly strict regulations. As a result, banks are undertaking measures that include closing branch offices and downsizing to effectively reduce their operating expenses.”
He added that despite 10 years of banking concentration and commercial branches “reduction of over 40%,” the number of branches in Spain is still quite high compared to other regions. He revealed that the downsizing process is still the works and banks are not focusing too much on “improving their customer experience.”
“On the alternative banking side, the private equity and debt funds are concentrating either on large transactions (above 10 million euro) for a few players while on small short term financing for a few platforms. We believe that we can make a change, combining the alternative financing opportunity together with the process efficiency thanks to technology.”
Gregoire also noted that last year, the market got “flushed” with loans that were being offered “exclusively” by banks with “a guarantee of the State.” But a relatively large portion of these loans were “a mere transformation of short term credit lines into long term financing,” Gregoire revealed. He also noted that this created the need of “additional liquidity” for the SMEs.
He added that the “mega mergers” in the Spanish market will likely lead to “a credit offer contraction, hence less credit to SMEs” and a focus on lowering operational costs instead of customer satisfaction. According to Gregoire, this approach will result in less innovation and transformation. He believes that October is in a position to better serve the needs of SMEs than incumbents.
“[At October, they have an initiative called] ‘Fill the gap with October Classic‘. This is a financing solution for ‘investment for growth’ deals between 1 million and 2 million euro. The crisis is generating opportunities for resilient companies to invest in new markets, investing in production capabilities or acquiring competitors. These transactions are too small for private equity, debt fund or investment banking institutions. But they are too big and difficult for the traditional commercial banking network. We have developed quite an expertise and reputation with our partners in the market in that field and are involved in many of these transactions.”
He also noted:
“[October has developed] … a scalable offer for small tickets below €250.000. By leveraging our data and scoring models we improve the customer journey through a unique App dedicated to our partners and provide direct access to the platform for our borrowers. The objective is to be able to provide a credit decision within hours…”
Then there’s October Connect, the platform’s neo-lending technology to financial institutions that acts as an “end to end B2B integrated solution or as a modular connection via API for one or several modules like our scoring model or antifraud tools.”
(Note: to learn more about what October and its Spanish division are offering, check here.)