In our latest #FintechInterview we have talked with Corrado Passera, founder and CEO of Illimity.
To achieve excellence and understand things properly sometimes we need knowledge that cannot easily be found in books. That is what moves us to have conversations with the most important leaders in the FinTech world. Moved by this passion, this time we had the pleasure to have a chat with Corrado Passera, former Italian Minister of Economic Development and Minister of Infrastructure and Transport and current founder and CEO of illimity, a new paradigm bank which is challenging the way of operating in this business.
What does “modular bank” mean for you and why is it a key factor for the success of illimity?
More than a modular bank, it is the IT architecture that is modular. All the traditional banks, and even some of the new ones, have mainframe-based information systems. These are integrated systems where everything is interconnected and where introducing changes and innovation is very slow and expensive. I strongly believed that we could do things differently and more smoothly, and thus we created the first completely modular information system: each piece (such as the front-end, the core systems, the vertical applications, the data-lake, and the security) can be plugged in or plugged out. They are connected to the rest of the system via API, and this allows us to save on both time and cost by 80-90%. A process that in legacy systems takes a year and millions of euros, for us it takes weeks by investing a small portion of that sum. In terms of technology this is the most sensational element of differentiation of illimity from other banks, and the reason why many IT providers want to partner with us.
Moreover, what is even more important is that we are cloud native and entirely cloud based. This allows us to enjoy facilities and provide services that otherwise small banks could not have, and for a very small price.
According to Microsoft’s CEO, who told me he uses illimity as a "showroom" for their cloud platform, what makes the illimity system unique is the fact that it is the only completely, digital, modular, and cloud-based banking information system.
The illimity SPAC in 2018 was the largest in Europe. What were the elements that characterized it? Would it be possible to achieve the same results today?
The reasons behind its success are very precise. Often, SPACs are just vehicles thanks to which sponsors collect money and make vague promises about its deployment. Instead, my plan was clear: I asked for money to create illimity, a bank with precise characteristics in a given time span and with clear, expected results.
SPACs are often leveraged by sponsors to make more money, and more easily than general shareholders. I wanted illimity’s shareholders to be the first ones to earn and benefit. Only after they had made a 50% profit, I would have started earning too.
Lastly, unlike most SPACs, it was an entrepreneurial one promoted by its founders who, having a certain credibility, took charge of managing the results.
Now the world is flooded by SPACs, but I believe there will be a great disappointment when many of them will not be able to find good investment opportunities and/or conditions. The reason why so many SPAC’s are being launched is connected with the negative market yields environment: investing in a vehicle that gets you either zero return or, if you decide to commit, good/excellent results, makes a lot of sense.
illimity is one of the few companies in the banking sector that reached the breakeven point already in the fourth quarter of the first year of activity (2019) while confirming a profit of more than 30 million in 2020. What is your "secret"?
We started from the idea of building a sustainable company that must seek both growth and profitability: we reached a 5.5% ROE in the first full year of activity, and we promised 10% in 2021: we already are high in the rankings.
Actually, no secret. We try to follow the golden rule: find a way to service a rather large, underserved need. Your solution, clearly, must be defensible for a reasonable period of time: it does not become immediately a commodity. This is what I always recommend to any startup.
Our market, financing SMEs, is a very large and growing market that is not adequately served by traditional banks. For this reason, we decided to focus on three most defensible layers of the SME market: growth credit to second tier SMEs, restructuring credit and distressed credit. No secret about the formula: best people and best technologies. Around 70% of our people do not come from banks but from sectors that have already experienced or are experiencing the digital transformation.
Among the various business areas in which illimity operates, which one will play a key role in the future? And above all, where do you see illimity in five years?
illimity actually focuses on a single business, which is credit to SMEs, within which we identified three particularly interesting segments. In five years, I expect we will further strengthen in those areas. I do not believe in the universal bank model: you must focus on markets where you can be excellent. In the future, I see illimity having the same focus, but with bigger numbers. Our 10% ROE will hopefully become 20% in five years, and the 2021 €60 million profit is forecasted to become €250 million. Today we are not distributing any dividend, but we hope we will be able to distribute 70-80 million a year when we reach cruise speed. In the early years, the company prioritised startup costs and investments, but now we are entering the operating leverage phase.
What are the biggest obstacles you had to face in your first 3 years of life?
To remove the “limits of illimity” we have created “illimity SGR”, as our main obstacle was the size. So, going beyond our capital and using third party money in our activities was crucial.
Then, there were the obvious difficulties: the money, finding the right people, creating the right drivers and reaching a relevant size.
At the beginning the difficulties were the ones that are typical of almost any startup: raising capital, attracting talents, reaching scale, but we made it.
Early in our life a moment of almost panic arrived when the pandemic hit while we were just over a year old, and we were doing well on the stock market: in a few days our share price fell from 11 to 5 euros. Many did not believe that we would overcome the hurdle as we were an Italian banking startup giving credit to the most affected companies, SMEs. Actually, we succeeded in playing a crucial role both in performing and non-performing credit and we are reaching all our targets. Now, month after month, and step after step, we are back to more than 12, which is a pleasant feeling.
HYPE 2.0, a financial services platform that you have in partnership with Banca Sella, will be launched by the end of the year. By adding many services such as personal loans and insurance, do you have the goal of becoming the first Italian and European super-app?
For sure we want to make Hype one of the benchmarks in the industry: both for growth and profitability. In order to collect deposits, we had already created illimitybank.com, which is our retail direct bank which has reached the highest NPS in Italy (the NPS is an indicator that measures the customer satisfaction, ed). With illimitybank.com we raised more than one-billion-euro worth of deposits.
HYPE 2.0 represented a formidable opportunity to create the leader of the market in a very short period of time. Buying is better than building, especially when there is already someone that is properly doing what you want to do and with which, by collaborating, you can achieve better and faster results. With HYPE, we have reached 1.4 million customers and this number is set to grow also thanks to the integration with illimity’s technology. In September we will present to the market the “new” Hype.
Will the future be characterized by competition or cooperation between FinTechs and traditional banks?
There will be both competition and cooperation. At illimity, many of our products are licensed to, or bought by other companies that we could consider competitors in certain markets. For example, we manage distressed credit on behalf of other banks that are thus clients but also competitors. The ability to partner is much more important than ever before.
We could say that illimity is a platform capable of integrating FinTechs, and the more we’ll do it the faster we will grow. We raised €400 million in Germany thanks to Raisin (an open banking platform allowing savers of thirty-one European countries to access deposit products from across the continent, ed) simply by “attaching” our system to theirs.
So yes, there will be a lot of collaboration, but much more between FinTechs and new paradigm banks (as between us and Raisin) than between FinTechs and traditional banks. In the new scenario that is emerging, one of the most important skills will be knowing how to manage partnerships.
Cryptocurrencies are one of the hottest topics now and many international banks are now allowing their clients to invest in this type of asset. With regulations that will become more stringent, State sovereignty threatened and the arrival of e-currencies, what is in the future of crypto?
The crypto debate is confusing as they could be considered as three different things: payment systems, virtual investment assets, and a potential “fiat currency”.
From a payment systems point of view, I agree that it is right to innovate and encourage competition through new digital mechanisms and networks. However, cryptos are often used by criminals as they are an easier way to make money disappear. Therefore, before rejoicing in the face of innovation, the money-laundering problem must be resolved because facilitating this should not be entertained. Another huge problem is that they consume an enormous quantity of energy and therefore this aspect needs to be fixed. Last but not least, transaction costs in cryptocurrencies are quite high.
On the other hand, from a virtual asset point of view, they are considered attractive because their prices -or, at least some of them - have gone up and a lot of people have made a fortune – at least on paper - out of it. What is important is that retail investors should understand that they are virtual assets and, most importantly, that by being so volatile, they are very risky. Once people are educated and know the risk that they are facing, I would not place any constraint on crypto’s trading.
Regarding stable coins, they pretend they are convertible in legal money even though many of them are supported by “real” reserves of just 1-2% of the total value. This means that the day in which there is going to be a mass conversion, everything will collapse. Most importantly, I would like to highlight that the problem with stable coins is much broader because they imperil our sovereignty. Our freedom and independence as a country is based on very few things, one of which is fiat money. It is not possible to make economic and monetary policies if you are not in control of the monetary base. Making decisions about interest rates, inflation rates and so on is very dangerous to delegate them to others: most developed countries would never give up these powers. Would you ever allow one Big Tech or a permissionless algorithm to decide on how much legal money should circulate?
Also, for this reason, Europe must speed up its Digital Euro programmes, for if it lacks a competitive alternative to the Digital Dollar or the Digital Renminbi, it will not be able to survive the complexity of our times.
We live in an age that geopolitical experts have defined as G-Zero, rather than G20! Several supranational institutions have failed, and the two main world leaders, America and China – which, incidentally, have never been enamoured of the idea of a third global entity like the EU, with its solid and independent Euro – sure in the might of their technological and economic power, risk imposing an invincible diarchy on the world. But we urgently need the creation of a Digital Euro. After all, history teaches us what happens to the clay pots that move between the iron ones.
Regulation is a fundamental factor for the spread of technology, which direction should the Italian Institutions take?
Regulation is crucial in every industry, is crucial to guarantee competition, is crucial to facilitate virtuous behaviours. The “Startup bill” is a good example. Up to 2021 Italy was not a friendly country for startups: they had to follow the same rules of well-established companies. With the support of the whole Parliament, we created an ecosystem much more favourable to new innovative companies: the outcome of such an effort is encouraging since 13.000 new startups were launched since then. More can be done public incentives to further facilitate exits, public investments in funds of funds targeting this asset line, further reduction of red tape to make life easier to new entrepreneurs, public supply tenders dedicated to startups, and so on.
As students, we reflect a lot on which path to take at the end of our university career, so we would like to ask you what the most important steps and decisions were you took and why.
It’s difficult to select the most important ones.
I left McKinsey – a wonderful place to work – a few months before becoming partners: it sounded strange to most of my friends, but I did want to become a top manager and I decided to speed up the process.
I left Ambroveneto after the merger with Cariplo despite the position I was offered – I was still quite young – but I believe the final responsibility in managing difficult organizational processes cannot be shared between two people.
After the unsuccessful political project, I decided to start from scratch once again and to become an entrepreneur by creating a totally new bank in a difficult period of our country and of the industry.
In all the three cases the risks were clear, but I’m happy I decided to run them.
Students are always looking for advice on how to face future obstacles in their careers, what advice would you give us?
There is no rule book that is good for everybody.
I have a few suggestions that proved right in my life.
First: if you can, especially at the beginning of your career, try to select employers and bosses who invest on young people, who train them, who like diversity.
Second: don’t try to plan too strictly your life. Life is a creative process and if you want to keep it in a predetermined track, you take the risk of loosing great opportunities.
Third: try to understand as soon as possible in your career if you want to be a specialist or a leader of specialists. If you want to be the best piano player or the best orchestra director. In both cases you can achieve wonderful results but the paths to achieve them are inevitably different.
Fourth: be ready to start it all over again several times in your professional life.
Fifth: say “no” to attractive proposals if they are not in line with your ethical or professional values.