Interview with Sabino Costanza, Co-Founder of Credimi, the leading Italian digital financing company for SMEs

Sabino graduated in Economics of International Markets and New Technologies and General Management at Bocconi University and received a Master in International Management (CEMS) from Copenhagen Business School.

In 2015, together with Ignazio Rocco and Jacopo Anselmi, you founded Credimi, a digital financing company dedicated to SMEs and institutional investors. What led you to this decision and how did the idea of Credimi come about?

Sabino: Since my university days, I’ve always thought about launching a new venture; with friends, we had even set up several companies without really committing 100%.

In 2014, when I was working at BCG, fintech started to intrigue me. Before then I believed credit and lending was a complicated sector to start a new company in. And even though I used to be a consultant for banks and insurance companies, I never thought of doing a startup in that field. Then I saw the appearance of tech companies offering very interesting financial services, so I started to look into it. Those were years when there was a lot of talk about LendingClub in the US and Funding Circle in the UK.

I started talking to colleagues and friends about my desire to create a startup, and at some point, I got in touch with investors who were developing a fintech project. I started working on it, almost resigning at BCG, but then later changed my mind, as we found ourselves not aligned on certain aspects. So, I decided it probably wasn’t the right time, and to wait for the next opportunity.

A couple of months later, Ignazio Rocco contacted me to propose that I join him in a fintech project he was developing, which at the time was called Instacredit. And I decided to accept his proposal. We finalised the first round of capital increase, and we founded Credimi.

2014 and 2015 were the years of peer-to-peer lending (P2P). Have you evaluated this business model?

Sabino: Yes, and our clear decision was not to do P2P lending. Having started after other operators such as LendingClub and Funding Circle, we were able to study the sector and the growth of these companies. And we realised that these operators had mainly grown when institutional investors came in to provide funding.

P2P lending is quite a complicated model. Marketing is more complex, you have to reach a lot of private investors – including non-professional ones – rather than a few institutional ones, and explain to them the opportunity and the risks of these types of financing. Moreover, there are much higher compliance requirements.

Last but not least, the Italian market is different from the American and British ones. The latter are in fact markets where interest rates reach 20%. P2P operators can charge clients with rates as high as 15%, and give investors a return of 7-8%. In a world of not-so-high returns, 7-8% is interesting and makes you keen to go to the platform and make an investment.

Italy is a market where we thought the rates would be 5-6%, we could give investors 2-3%, and we didn’t think it was that interesting. So we decided not to offer P2P lending.

In the end, we think it was a good decision because almost all P2P operators have evolved towards more traditional lending. Only a few platforms remain active with P2P, including Mintos in the Baltics with funding that yields up to 20%.

So, Credimi is an authorised intermediary that offers medium to long-term digital financing services to Italian SMEs. Can you tell us more about the business model of the company?

Having to wait a long time and having to follow very complex procedures to get credit are two of the “pain points” of the bank credit market. This allows us to operate on the credit market by reaching prime customers; we do not finance the so-called “unbanked clients”, almost all of our customers are already financed by banks.

For us, it is essential to offer a service that differs from the traditional one. We are in a low-interest market, and we can hardly offer customers lower rates than those offered by banks. While new fintech players are very efficient in terms of operating costs by not having branches and having very lean organisations, the cost of funding is higher. The banks, sourcing from the European Central Bank, have a cost of funding close to 0 and can make interest rates of 2-3% even to SMEs. Operators who do not have a banking licence cannot match these rates. So, our higher cost is justified by a very effective, very simple, very fast and above all stellar customer service. Even if we do not have a local presence, our Customer Delight Team responds and solves problems in a short time.

Credimi provides digital financing to SMEs that are then transferred to institutional investors through framework agreements. We negotiate in advance with institutional investors on potential target portfolios, and over time we provide financing to SMEs that we gradually transfer to investors. Credimi retains a fee for originating the portfolio and a fee for managing it over time; we continue to manage all the collections and the relationship with the clients on behalf of our investors, and any recovery activity.

Today we offer 5-year financing, and from this month we will start offering 8-year financing. A longer-term will allow companies that received financing in 2020 to reduce the instalments they have to pay, and to have more sustainable financing.

What results have you achieved until now? What are the development plans of Credimi?

Sabino: We have grown so much, today we are a team of about 70 people based in various European countries.

We have provided over € 1.7 billion of digital funding in 4.5 years, which represents the highest value in continental Europe. Although we only operate in Italy, we have managed to grow fast, even faster than other companies operating in multiple European countries.

At the end of last year, we reached a few months of break-even, which is an important achievement in the fintech world, where the average time to reach the break-even point is very long. We are now working to try to confirm this result again this year.

For the future, we are continuing to work on renewing our products.

This year we launched two new products. The first is dedicated to sole proprietorships. This is a medium- to long-term loan that has enabled us to cover all corporate customer segments.

The second is Credimi Commerce and is part of a new generation of products, which goes beyond just financing. Credimi Commerce also includes a matching service: customers can contact us to develop a digitalisation project, such as setting up an eCommerce, enabling sales on platforms like Alibaba or Amazon, or setting up marketing campaigns. We put the client in touch with one of our partner companies and together they define the project, which we then finance. Last year we realised from talking to many companies that their main fear was not get credit – which was plentiful – but how to sell in the future. So, we decided to offer a solution to help companies sell more, in line with our mission.

Moreover, in the future, we would also like to internationalise and take Credimi abroad with a model that follows more the logic of a technology company rather than a financial one.

We are also considering the acquisition of a banking licence because it would allow us to have access to a more diversified and cheaper funding base, and thus become more competitive. Some large fintechs have already done this, for example, Klarna.

Hence, Credimi today is a scaleup with more than 70 employees. What are the main issues you are experiencing in the growth phase? What would you suggest to founders approaching the scaling-up phase?

Sabino: I think there must always be a focus on people and talent. At any stage in the life of a company, the primary thing is to attract and retain talent. With the scaling up, this becomes particularly important. In the scaleup phase, a company changes and evolves its DNA. It is a phase where you realise that the people who created the company are not always a strength, they may not facilitate this change. And it is a phase where you need to be ready and equipped to manage staff turnover in the company. In the end, the labour market is becoming increasingly competitive and globalised. So, I think that people management is the most critical aspect, and it has to be done while you are trying to grow like a rocket.

Another point of attention is the organisation, which changes and becomes more complex as it grows. It is important not to be afraid to evolve the organisational structure and follow the needs of the moment. It is, therefore, necessary to start having more structured, vertical paths for the growth of people, not only horizontal as happens in the early stages of a company’s development.

Finally, to scale you need to grow. Some products are new and therefore grow explosively almost naturally. But for most products, you have to sustain growth. So, you always have to figure out how to reinvent your business, what to add, what to get rid of, what to change to continue to sustain growth. There are various ways: updating the product portfolio, going to new countries, changing marketing strategies and channels, making commercial agreements, finding new revenue models, monetising other aspects of your product, or understanding whether you are monetising everything you are doing. These are aspects that need to be analysed almost obsessively on an ongoing basis. The moment that growth slows down, the scale up phase stops. And a slowdown affects not only the P&L but a lot of other things, including attracting talent and motivating the people in the company.

What do you think of the Italian fintech market? What are the trends that you find more interesting?

Sabino: Fintech is a very interesting industry, perhaps one of the most developed in continental Europe. Even last year, which was peculiar, fintech in SME lending grew, even in Europe, from $ 4.3 billion in 2019 to $ 5.2 billion in 2020 (source: The 2^nd Global Alternative Finance Market Benchmarking report, by Cambridge Centre for Alternative Finance, June 2011).

Italy is present in fintech in almost all segments – payments, SME lending, consumer lending. But the average Italian company size is still small compared to players in other countries. And I think it is important for Italian companies to grow and enter other countries, taking advantage of what they have learned in Italy. Otherwise, other non-Italian players will do it.

In Italy, there is a lot of expertise in finance and technology. However, as of this year, it has become much more global than before. The fact that you can work in the tech segment remotely and in any location means that the supply of jobs in this sector will become even scarcer. And given Italy’s lack of competitiveness in terms of labour costs, companies will have to be good to attract the right people. Reforms would be needed to change the tax wedge at least on labour, to increase the ability of Italian companies to offer higher wages.

Another aspect that would greatly facilitate fintech is regulatory. Very often it is said that fintech is not regulated. This is not the case. Credimi is a financial intermediary subject to practically the same regulation as a bank. And very few operators work without a proper licence. This type of regulation is really heavy for a startup, it involves costs (most of them hidden and difficult to predict) and non-trivial constraints. It is also an element that slows down growth considerably.

There are other countries, such as the UK, that are trying to define more simplified regulatory frameworks for startups. This facilitates the creation of new companies, and therefore increases the competitiveness of the sector, with advantages for citizens and the overall system.

Research has shown that the countries that have improved their ranking and ability to attract international investments the most are not those that have given tax incentives, but those that have simplified regulatory compliance, such as the Scandinavian countries. If we wanted to get fintech off the ground in Italy, the way forward might be to simplify and allow operators to innovate and grow. But beyond a certain company size, the system is put at risk, so it is necessary to protect the market. If nothing is done, we risk being left far behind the rest of Europe.

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For more info on Credimi, visit: https://www.credimi.com/en/#exitPopup