MKB Fintechlab alumni PénTech Solutions and Cégjelző sign co-operation agreement

MKB FinTechlab alumni PénTech Solutions and Cégjelző have signed a co-operation agreement to join forces and develop a product together. The initiative started developing while participating in the third batch of MKB Fintechlab’s incubation program earlier this year. This is a great example of how the local fintech ecosystem is developing and what synergies can be achieved between companies in different sub-sectors of the fintech space.

Setting the scene

One of the big challenges for (fintech) startups is that there’s a constant optimization game between resources (both human capital and other resources) and client needs. It is easy to get derailed between tiny side-projects, or slowly bleed to death as resources prove to be too expensive to buy.

Partnerships: how to do them – badly

So how can a startup tackle these issues. One obvious solution is to stand on the shoulders of giants, i.e. try to leverage partnerships.

It is pretty straightforward why a startup would want to do this. The tougher part is: what would any large corporation gain from such a partnership? The asymmetries in size and bargaining power often prevent deals to even start to take form, and even if they do get signed, it’s usually the smaller party that has to compromise on the terms. And that’s just the face of it, larger corporations tend to be slower and tend to have significantly different cultures than startups do.

No wonder, therefore, that the word “partnership” sounds like a curse word for many startups, and some suggest that the first rule of partnerships should be: “don’t do them, if possible”

Lesson 1: pick someone your own size

What can a startup learn from this? Firstly, it’s better to start with smaller players, and work your way up – hence you can gain both experience and credibility on the way.

Smaller organisations are usually less bureaucratic, more flexible, and – most importantly – more willing to take a risk. There’s also a smaller difference between the two parties in terms of size. It’s not hard to understand why $10,000 worth of extra sales through a partnership is immensely more significant for a $1 million company than for a $1 billion company.

Lesson 2: why settle with sales and cost cutting?

Partnerships are generally used to either boost your revenues or moderate your costs. This happens partly due to the relative simplicity of these cooperation agreements, and partly because no-one wants to let anyone in on the more strategic areas, such as product development.

This is perfectly rational behaviour. But as we see in the below example, there may be situations when there is more to gain from a more strategic partnership is bigger than the cost of opening up.

The heroes of the story

PénTech Solutions and Cégjelző operate in different spaces. The companies have two things in common, however: we are both operating in the broader financial services industry – and we both completed MKB Fintechlab’s incubation program.

PénTech Solutions is a smart factoring / invoice financing company. The team brings together a mix of backgrounds, spanning from business through finance, risk and data science to software development and legal. Our ethos is that small & medium-sized enterprises (SMEs) should get financing at the ease of clicking a button.

While simple on the surface, this offering requires a robust credit scoring algorithm doing the heavy lifting in the background. And algorithms, as we know, are hungry beasts… And not just hungry, but extremely picky. You need to feed it with data – and not just any data, but only reliable and well-structured, as well as processed in a way that the beast can actually eat it.

Cégjelző, on the other hand, is a company information system. Information today is in abundance – but it is also messy and often expensive. It took Cégjelző years to build up a database spanning from companies through civil organisations to sole proprietors. And the data itself is only one aspect – the database is well structured and easily accessible through an API if needed.

The magic word: synergies

Although PénTech Solutions and Cégjelző operate in different spaces, the operations are adjacent – and complementary.

Cégjelző has a vast database with endless possibilities, which they currently license. It is a solid business and good money, but there’s more. There are still complementary products they could offer, should they have more capacity and resources. Data is today’s oil. And while it’s good business to sell crude oil, if gas (i.e. processed crude oil) can sell for more than twice the price, it may be worth giving it a shot at going downstream.

PénTech Solutions, on the other hand, is the laboratory of a refinery in this example. The technology is there, but buying oil in big quantities is expensive. Really expensive. The capabilities are available but the raw materials are needed.

It is clear that both companies have something that the other party lacks, and, in turn, something that is needed from the other firm. In business, this is what we call potential synergies.

Business and risk analytics

PénTech Solutions and Cégjelző have decided to enter into a partnership to analyse Cégjelző’s vast database so that we can accelerate PénTech’s market launch and Cégjelző’s product development.

Together, we will launch a credit scoring algorithm in the coming months. It will be powered with PénTech’s risk, data science and machine learning capabilities, and fuelled by Cégjelző’s superb database.

Co-operation is good – and underutilised

Ultimately, this new product will be a big step in both companies’ product development process, as well as it will contribute to the local fintech community and beyond.

There’s much focus on gaining market share, beating competitors and outsmarting incumbents in today’s fintech world. We believe there should be more co-operation, for the benefit of the ecosystem and of all clients that the ecosystem serves. Opening up to other players in adjacent industries can increase the speed of innovation and product development.

In our case, Péntech Solutions brings risk, finance, data science and machine learning expertise, as well as the capacity to work on new products. Cégjelző, on the other hand, brings structured, wide-ranging data – and great tech to access and work with it. The joint effort should result in a great product that can be used for two different purposes for two different client groups – for the cost of one!

It’s not just the ones involved – it’s the whole ecosystem

As outlined above, this co-operation is already beneficial from the two companies’ standpoint, but benefits can be reaped beyond that. In PénTech’s case, SMEs looking for short term liquidity sources can start using the service earlier and with a potentially more precise and more tailor-made financing quote. What it translates to is more affordable fees and less productive time wasted on administrative tasks for SMEs using the service. In Cégjelző’s case a new product line can complement the company’s current offering so that their clients can make more informed decisions about who to enter into business with.

Both of these should result in rewards for better managed and more resilient companies. They will be the ones getting better financing rates and they will look more attractive as business partners. Ultimately, this will lead to a more clean and efficient business ecosystem. First in Hungary, and later in the Central Eastern European (CEE) region as well.

Summary

To paraphrase Gordon Gekko’s speech, co-operation […] is good. Co-operation is right, co-operation works. As we have seen, the fast growing fintech space in the region has companies popping up in different areas of finance. While you may be able to go zero-to-hero on your own, relying on other parties to help you out can open up a host of opportunities. Startup-startup partnerships, in particular, are a good way to start due to size parity, better culture fit and openness. This will help you as a startup entering your market earlier, as well as aid the whole business ecosystem in Hungary and the region – for the benefit of all.

PénTech Solutions – Company info

PénTech is a smart factoring / invoice financing startup enabling small & medium-sized enterprises (SMEs) to increase their liquidity at the ease of clicking a button. At low costs, full transparency, completely online. All powered by an AI based credit scoring algorithm.

Payment delays and long invoice due days are a substantial part of everyday business life in the region. More than one third of Hungarian invoices were paid late in 2017 and the average repayment time amounted to 43 days. These delays and long due dates are leading to bankruptcy and are hindering growth.

While this is a great issue, current service offerings like traditional factoring do not provide ideal solutions for customers. They are expensive, have usually long lock-in contract periods with lock-in clauses, charge many hidden costs and take a lot of time and paperwork to set-up.

PénTech is set to seize this market opportunity to enable SMEs to solve their liquidity issues at the ease of clicking a button. To enable this process, PenTech is currently developing its proprietary credit scoring algorithm, first using a rule-based method, and then gradually increasing the scope and power of the algorithm through machine learning.

Cégjelző – Company info

Cégjelző is offering subscription based company information. You can reach data instantly. Cégjelző has a database that contains all the publicly available information about companies, sole proprietors and civil organizations.

When doing business, sooner or later you will need information about your business stakeholders. No matter what you’re looking for, you will find it in Cégjelző’s system, whether it’s a marketing list to sell your product, or one of your partner goes bankrupt and you want this information right when it happens or even when you are on a meeting and you need instant information.

Cégjelző is focusing on integrated services to provide an easy but technologically strong ground. The company offers 3 services:

1. You can go Cégjelző’s website and check company information instantly. Simple and easy.
2. You can implement Cégjelző’s prompt-information API to your system. The company also has an API to monitor your clients. And if anything changes, they send you push notifications.
3. With Cégjelző’s Messenger Chatbot, you can check your clients instantly.