Traditional banking is history with the introduction of new data sources and increased access to data
Our CEO Stefano M. Stoppani was interviewed by Pétur Hreinsson from ViðskiptaMogginn, one of the main business newspapers in Iceland. We are uploading an English translation of this interview.
Traditional banking is history, after the emergence of new data and increased access to it, according to Stefano M. Stoppani, CEO of Creditinfo Group. Interesting times are ahead for Creditinfo’s operations, which are extensive in developing countries, including 11 companies in Africa. He says Creditinfo’s main challenge today is to learn to say ‘no’ to many business opportunities offered to the company, with the current strategy being to make the company’s core assets cost-effective prior to any further expansion.
Approximately 400 employees work at Creditinfo today, which operates more than 25 credit rating agencies over four continents. The company extends from America to Asia, but Creditinfo also has extensive operations in Africa. Stefano M. Stoppani is the CEO of the company, who took over the lead a year ago, and is based in Dubai, which is said to be a central point of all Creditinfo companies that stretch across the globe.
Oil of the 21st century
Although the company’s headquarters are located in Iceland, Stoppani says Creditinfo has no headquarters. “If anything, it’s possible to call all airports around the world, our headquarters,” Stoppani claims. He is used to frequent traveling and has been traveling since he was a child. Stoppani was born in Angola, the country was a Portuguese colony, where his parents met. “My father was an Italian diplomat and my mother is Portuguese,” says Stoppani, who moved from country to country every three to four years, and first lived in Italy when he was 18 and went to college. He accommodated a journalist in his apparently tight agenda while in Iceland, but during the interview, he also addressed both Brynja Baldursdóttir, Managing Director of Creditinfo Iceland, and Reynir Grétarsson, the founder of the company and the main owner. Stoppani has a strong vision of the world that moves us in the coming years when it comes to the financialization of society and says traditional banking will soon be the history . Increased access to data and improved identification technology. There is data, but not oil, [as stated in the Economist article], which is the most valuable resource in the world today; it is the same for data today that oil has been before in the 20th century – the driving force of growth and change.
Every single solar system needs the sun
Creditinfo has grown tremendously in recent years. The core business of the company involves the dissemination and processing of financial and commercial information. This information is used by credit institutions, which use them again for lending decisions, for both individuals and companies. The company was founded in 1997 and joined the overseas market in 2002. Since that time, Creditinfo has bought a large number of companies worldwide, but Stoppani now says that the company’s main challenge is to ignore many business opportunities offered to the company and to make all current assets of Creditinfo cost effective; to make sure that the company changes from being an international company with operations in many countries, to in a company where its employees find that they work for ‘One Creditinfo’ as a whole. “Every single solar system needs the sun,” Stoppani says, catching an analogy. “The sun gives us light and life. But it must not burn you. We want to be a global company that has a consistent approach. A company that can take advantage of the wealth that exists in it and where the same work is not done twice. A company with an ‘intelligence team’ working across the company, instead of companies standing alone in Asia and others in the Caribbean,” says Stoppani. On the other hand, it is important to retain the company’s values. “When companies grow, decision-making will often be slower. We do not want that.” says Stoppani. “We must not undermine the Icelandic genetic material of the company. The company needs to be agile and have short messages, as it has been for the last 21 years. This trend has already begun and we are seeing the results. We recently finalized the half-yearly report and are seeing a two-digit number increase of income and a three-digit growth of profitability of the company. The numbers say we are doing the right thing,” says Stoppani. Creditinfo Group’s turnover for the first half of this year was ISK 2.3 billion, EBITDA, profit before financial items, depreciation and tax amounted to ISK 359.5 million during the same period, and the operating result was positive by ISK 165 million. Year on year, the estimated turnover increase is 22% and the estimated EBITDA increase is 227%. The relative growth between years when it comes to the company’s operating results is 207%.”We assume that EBITDA in 2018 will be around 700-800 million and exceed one billion in 2019,” says Stoppani.
Focus on the current market
Asking about the main challenges of the company at the moment, Stoppani says that the main challenge is to learn to say no. “We need to better choose the growth and investment opportunities available. Where they come from and how. The company’s growth in recent years has been about opening-up new markets from scratch. We’ve stopped doing that and now we’d rather focus on the markets where we currently operate, “says Stoppani. “A newborn baby requires a lot of energy, but then other family members often get less attention,” Stoppani said. “This is a big challenge, especially since the opening of new markets has been a part of the company’s success in recent years. Saying no is not simple and clearly one of our biggest challenges,” Stoppani said.
Millennial Revolution and New Europeans
Creditinfo has operations in 11 countries in Africa , and the company is working on very interesting projects in developing countries that provide financial inclusion. Credit rating agencies, such as Creditinfo, play an important role in the development of financial systems, whether in developing countries or elsewhere, says Stoppani. “If any of our companies would stop working for a few hours, for some reason, there would be no loans at that time. This shows how important our business is for the economy and how important we are,” says Stoppani. “Sometimes we underestimate it. Such a company is the foundation of the financial system,” Stoppani said.
I asked about the difference between the activities that are taking place in developing countries and what is happening at the European company. Stoppani says these two markets tackle different challenges, although it can be argued that they are the same.
“It has been our view that financial services for all are at the forefront of developing countries and the economies that have been growing in recent years. It is, of course, because of the fact that the majority of developing countries do not have access to financial services. According to Stoppani, two billion people worldwide, according to World Bank data, have no access to financial services. About a year ago Reynir Grétarsson said for ViðskiptaMogginn that the company’s goal was to provide 100 million people in poorer countries with access to credit. On the other hand, life is not just roses in Europe, and two groups, especially the Millennials , and what Stoppani calls New Europeans, have a difficult position when it comes to accessing credit.
“We are in some ways facing the same problem in Europe and even in Iceland regarding the Millennial Revolution. As an Italian, I clearly see some of these things in Europe, where two groups of society do not have access to financial services. On the one hand, it is the algorithm, people born in 1992 in most European countries, and even in the United States, which have no permanent work. When you do not have a steady income, it is very difficult, even if you are well-behaved, to get access to credit. It may even be difficult to get credit or student loans,” says Stoppani. He says it’s hard for people of this age to have a mortgage and that more traditional banks simply focus on what they have . “In southern and central Europe, the algorithms are tackling this problem. These issues came up in a conference in Scandinavia, so we are facing them there too,” says Stoppani. “However, they are what I call New Europeans. We live in an era of massive migration. People in search of a better life, from Africa or Eastern Europe. All these people that come, maybe have jobs somewhere, but more often than not, it’s just stuck . In southern Europe, in Spain, in Italy or in France, it is usually importers who operate small shops selling fruit, fish and meat. Even 10 years later, when the family has come to terms, these people are not regarded as natives , with stable incomes. These people are not part of the financial system. Sometimes the cash flow is also informal. It can be difficult,” says Stoppani. He tells me, people in this position get caught in the vicious circle and cannot afford anything else than to go to the wrong lender.
“This is an example of groups that we at Creditinfo try to cater for as much as we can. With our skills, we allow lenders to analyze individual credit ratings, whether it’s the Alamo Group, New Europeans or people outside the formal financial system,” Stoppani said. “There must be a certain breakthrough in the financial culture,” he adds.
Changes in traditional banking
A key element that played a role in the revolution of and big opportunity for finance companies came as a result of legislative changes that prioritize the consumer. If a new PSD2 Act is taken as an example, the consumer can now control who can use data about him and, inter alia, open access to third party access to his bank details.”The world is changing for the banks. And since the banks are our biggest customers, it is also changing for companies like ours. But the product is not changing – Credit. There will always be credit available and has always been, throughout human history. People and businesses need money to grow. What will happen is that we will see more people working on this. This trend has begun. The banks are no longer the only way to get a loan. Financial companies have opened new routes, especially in Europe, as it is even easier to get a loan from a company in another country. However, the development of the legislation is unclear,” Stoppani said, indicating that the market is usually one to two steps ahead of the legislature in this regard. He emphasizes that the legal environment must be the same for all parties in the market. “It will be interesting to see how this will evolve in the coming months and years. You can set regulation around a bank, but let go of the financial companies. Will we see more volatile regulation, as we see in some markets in Eastern Europe, where restrictions are set on interest rates that are very bad for financial companies? Or do we get more regulations in the spirit of PSD2, like Europe, which explicitly encourages increased competition? ” asks Stoppani. “These European rules open up opportunities for Creditinfo and other comparable companies. This opens access to data. Now it’s the person who has the power. As an individual, I have more power and can give permission on my phone, in any app I trust to use and provide my bank details. I do it because I know it will be useful to me, especially if I move across countries. I have my credit rating data in my pocket. Just the fact that I pay my electrical bill on time and the credit card help. There is a huge amount of data available today, which were until now, tied to the bank, “says Stoppani.
Companies can be bottlenecks
Stoppani says that the banks that don’t adapt to these fast developing data sources will not live long.”If the banks earn enough with their current operating arrangements, they will not have the incentive to go down these new routes. Those who are there are financial companies that do not operate under the same rigorous regulatory framework. The fintec companies, are flexible and do not operate in such a strict regulatory environment as the banks.. What’s going on is that some of these banks will allow these fintecs to act as a kind of laboratory and develop new solutions and apps based on the needs of those who are entering the financial system today. If they see that these solutions are performing, they will potentially buy these companies. The other banks, who are not there and justfocus on themselves; they are the dinosaurs, I believe, who will end up not being able to compete with these new and powerful fintecs,” Stoppani said. Stoppani says the banks need to understand that this is the future, but that understanding is not necessarily always available. “We benefit from these legislative changes. But since we sell our solutions in the corporate market, they are sometimes bottlenecks. However, we have the understanding and can analyze this information. The source of information is expanding and it is necessary to analyze more and bigger sheets. Banks need to understand that today they need to base their decisions on more information. Otherwise, they miss a large number of business opportunities” says Stoppani.
“I have three daughters. The oldest is 19 years old. I can assure you that she never needs to go to a banking branch. This generation expects things to happen by moving one finger. We also need to adapt to this generation. People are making more demands today,” Stoppani said.
Turtles that live long
When asked if this should be a concern for more conservative established but old fashioned banks, he thinks it’s not necessarily that bad.He takes an example of a 270-year-old turtle he recently saw in Zimbabwe.”She saw the colony in Zimbabwe. She saw Britania coming. She saw it all and is still there. She adjusts to the environment,” says Stoppani. “I think we are not yet in a position to understand how the market will develop. Yet one can see the banks realize they need to change. The purchase on credit will no longer follow its normal course. However, I would never say that banks are in an inconvenient position. If you’re smart, you can adjust slowly, like the turtle,” says Stoppani.