Why the Fintech Platform Credimi Needs a Bank Partner to Continue Working

Credimi, the fintech platform dedicated to lending to SMEs, co-founded by Ignazio Rocco di Torrepadula, needs a banking partner in order to continue working. Ignazio Rocco himself made this clear last November 9th during his speech at Fintech Future 2022, the annual event of Assofintech, the Italian association for fintech and insurtech: “We first have to solve a problem that is our collection model. We collect today through securitizations, this is clearly a bottleneck, it limits us a lot, so we have to have either our own bank collection, for which we need a license, or we have to agree or do a partnership with a bank to have bank collection that would allow us to do about twice the volumes and about three times the contribution we have today. Having done that, we are interested in bringing the same approach to small businesses in other European countries both that of credit and the new product that is a non-credit product, based on PSD2, that we have developed.”

In fact, it is precisely among the banks that financial advisor KPMG, to which Credimi shareholders have given a mandate, is looking for a buyer. According to reports in recent days by Il Sole 24 Ore and MF Milano Finanza, the dossier is being studied by Banca CF+, Unicredit, Credem, Banca Popolare Pugliese, Banca Popolare della Puglia e Basilicata, Illimity and Cassa Centrale Banca. But the list could also be longer. All for a valuation, it is said, of a few tens of millions of euros.

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The operation, however, is not the easiest

Ignazio Rocco has been working on it for some time, in parallel with the project to raise a further round of capital increase, which was to be in the order of €80-€100 million and was to follow the €5.7 million round bridge raised at the end of 2021, which had been underwritten on a confidential basis by some of the existing shareholders and in particular by Vertis sgr (for €1.8 million), Merloni Holding (about one million), United Ventures sgr (€620,000) and Ignazio Rocco himself (about €500,000). According to BeBeez, the capital increase had become necessary to enable Credimi to continue to comply with banking supervisory rules, given the continued development of the business. As is well known, in fact, financial intermediaries registered with Bankitalia on the basis of Article 106 of the Consolidated Banking Act, as is the case with Credimi, must comply with precise capital ratios related to total loans disbursed.

And that is because Credimi’s business model, as stated in the 2021 Annual Report, entails that the company finds itself “managing for very short cycles disbursements with its own liquid assets before receding eligible positions to the securitization vehicles Lumen spv and Perseveranza spa.” For this Credimi “has equipped itself with a number of credit lines taken out with leading banking institutions to cope with any short overdraft periods. In addition, in order to finance the notes of the securitizations with respect to which Credimi holds a stake, the company has taken out special financing lines.”

As a result, given further plans for growth, the idea was precisely to become much more capital structured. The scaleup had previously raised capital in two other rounds. The first of €8 million in two successive tranches closed in February 2016 by well-known entrepreneurs and finance professionals and the other of €10 million in September 2018, led by UV2 (United Ventures sgr) and Vertis Venture 2 Scaleup (Vertis sgr). Other institutional partners include Tikehau Capital and Deutsche Bank.

The business, however, has since gradually absorbed the capital raised in previous rounds, generating net losses that have been covered with existing reserves: against a rising net interest and other banking income to €10.8 million in 2021 from €8.1 million in 2020 and 2.7 million in 2019, there was a net loss of €7.6 million last year after €4.15 million in 2020 and €7.07 million in 2019, and at the same time gross borrowings rose to €31.5 million in 2021 from €13.6 million in 2020 and €21.5 million in 2019. The new round operation, however, turned out to be more complicated than expected, and in the meantime, it became increasingly difficult to finance itself.

This difficulty had already emerged last year

In fact, the Report to the Financial Statements again states that the main element that negatively impacted performance in 2021 was “the low ability on the part of the company to transform the funding requests received, amounting to approximately 7 billion euros, into customers, this was mainly dictated by restrictions in terms of eligibility criteria and pricing in the perimeter of the securitization transactions in place during the financial year.” For this reason, management had set out again to “negotiate funding operations with less friction in terms of eligibility criteria for loans in the perimeter” and that allowed “application of better prices” and that “were more remunerative, thanks to the track record and standing built by the company.”

A policy that in the first two months of 2022 was working, as a “marked improvement was seen in terms of volumes disbursed and profitability (a trend that had already begun in the last months of 2021). In particular, it should be noted that the average monthly volumes of medium- to long-term loans disbursed in the first two months of 2022 amounted to €44.4 million, while the average for 2021 was €32.8 million. Likewise, the average revenue yield (net of brokerage fees) on these loans increased from a 2021 average of 2.95 percent to 3.94 percent in the first two months of 2022, ensuring income balance for the latter period.”

And indeed in the first part of the year, Credimi had secured new funding by structuring two new securitizations. The first was announced last March, for a total of €100 million, as an extension of the Perseverance Program, an extension initially announced for €150 million, with the senior notes being underwritten by Duomo Funding, Banco BPM, and Intesa Sanpaolo and the juniors and mezzanines by Golden Tree, as well as by Credimi itself; the Perseverance Program had kicked off in April 2021, with an initial €200 million partly-paid abs issue. The second transaction was then announced in June, for an amount of €26.6 million, and underwritten for €25 million by Mediocredito Centrale and €1.6 million by Credimi itself.

Meanwhile, the platform had disbursed loans to SMEs in the first half of the year, albeit only for a little more than €255 million, because compared to the first months, activity had already been waning, until it collapsed in July with only €8 million intermediated, according to P2P Market Data, for a total for the nine months 2022 then of only €267.7 million, when in the whole of 2021 instead as much as €434 million had been disbursed and in 2020 as much as €660 million (of which €295 million were medium- to long-term loans and the rest factoring, an activity that Credimi then decided to abandon because it was unprofitable). After that, as of October, Credimi no longer reported its statistics to P2P Market.

That said, in total since it began operations in 2016 and through the end of last September, Credimi’s brokerage has exceeded €2.2 billion, bringing the company to be one of the leading fintech lending platforms in Europe. And at this point, it is time for the financial investors who have accompanied its growth to exit.

This was made clear by Paolo Gesess, co-founder and managing partner of United Ventures sgr, also speaking at Fintech Future 2022, who, speaking during the panel discussion dedicated to investors (see video of the speech here), said, “The reason why we invested in Credimi was well explained by the previous panel (a panel discussion all dedicated to fintech banks, ed.), since all banks now want to go in the fintech direction. Credimi was the fintech startup that grew the most in terms of disbursement to SMEs. Usually, we, like a bit of all venture capital operators, aim to take our investees to grow internationally. But in this specific case, the potential Italian SME market was already huge and it was enough to make the company big. We, as venture capital operator, look for companies that can grow from small to big and then, once they become big, we want to sell them. So now we have to figure out what that path is.”

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(Featured image by pasja1000 via Pixabay)

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First published in Be Beez, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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