Latvian lending fintech company Monify is working exclusively with small and medium companies. Their message is simple “Could you make 103k EUR out of 100k EUR loan? Sure, you can and Monify will help to provide resources in less than 40 minutes!” How do they manage it?
Walking down the Dzirnavu Street in prestigious “Quite Center” district of Riga, where carefree public sips their coffee in glamourous cafes, I enter a building that 90 years ago was a home to one of the oldest student unions in Latvia. Once the elevator takes me to the 2nd floor, the atmosphere suddenly changes to fast paced, silicon-valley style open space office. Lots of young people in trendy t-shirts, sitting at their desks or bean bags are working on their laptops.
I am greeted by Artur Geisari, Founder and CEO of Monify – an online lending platform specializing in funding Small and Medium Enterprises (SMEs). The energy and vision of this young man explain how he managed to find an angel investor for his startup. Monify’s unique selling point is speed – they are lending up to Eur 250’000 to businesses in forty minutes with no collateral needed and fully online. It requires a lot confidence to believe you can compete with big banks, however, Artur actually sees the weak sides of the established banking system and challenged it.
Enough with the old ways
Despite the young looks, Artur has extensive experience. He was working in audit in Ernst & Young, later he was raising debt financing for big corporations. When he decided to work for himself, he leveraged extensive experience and contacts that he acquired during his career in the industry. Big corporations have a lot of staff who handle their financing questions, so Artur focused on SMEs. He took them to banks to apply for a loan and then a very lengthy process began involving lots of documents, waiting, going from one manager to another manager.
The process took up to 3 months of waiting for a decision and finally heard a “no” for an answer so many times. In February 2015 his patience was gone together with a co-founder decided to open his own lending company eliminating the old bureaucratic way and long waiting periods. The first company had two founders and a seed investor, however, in 2017 he separated from his previous business partner, taking best employees with him, finding a new strategic and forward-looking investor, and establishing Monify. Now, Monify employs 15 people and outsources 6 developers and works in 4 countries.
Small steps, big achievements
How he manages to do seeming the impossible – to shorten the waiting period from 3 months to less than an hour? His recipe is simple: “You need to feel the pain of small businesses, then you are ready to do something. If you are a worker of a big bank, you are so far from SME’s problems that you are unlikely to make any positive decision. Why do you need the funding, what is the problem, how to solve it?
Artur says that there is no secret to their success or business model. Well, if there is, it is all human factor, he says – “we are all young, all ambitious and fast.” This translates into taking decisions physically fast. Hundred emails a day? – easy, hundred calls a day? – done. The speed factor is definitely one of the ingredients, but Artur is being modest. Monify has developed an in-house scoring system, based on 10 criteria such as bankruptcy ratio and tax debt to turnover. Additionally, there are red flags and yellow flags.
Currently, the scoring model is an automated algorithm, which makes a decision like a robot, based on the company’s 2-year bank printout and data register. When you input all the fields – the output will be yes/no, term and interest rate. It is that simple. Algorithm ranks customers in 10 risk categories, where 1 is safest with an almost-zero probability of default and 10 being the riskiest. Monify lends money to companies who fall within 1-6 range.
However, it took a while, scrupulously working to come this far. In the beginning, interns were playing around with some formulas and researching the internet. Later, Artur found best experts in Latvia to improve the scoring model. And finally, best experts in the world, such as the former Wells Fargo risk officer, came on board to finalize the algorithm. In spite of serious financial minds have worked on the screening model, it is absolutely intuitive and when a person with no financial knowledge looks at it, he will realize how simple and straightforward it is.
Money makes money
However, the business model is not based only on numbers. Monify knew exactly what companies fit its ideal customer profile. Big turnover for the past year and ambitions to grow are absolutely essential factors. “We’re not going to lend money to a flower shop to sell flowers”, says Artur, “but we will give money to flower shop to grow a chain – go big, or go home!”, he laughs. Well it makes sense, since Monify’s loans are not cheap varying from 36 % to 84% a year in APR. These businesses have to be serious about their future plans, they have to be ready to forgo some of the profit right now in order to gain in the future. However, the current interest rate is a sweet spot Monify found with experience – 20% a month was too high and leads to high default rate, but 5% a month motivates businesses to repay quicker. That is Monify’s vision: “money makes money”- even though it is pricey, everyone stays happy – borrowers, investors, and the employees.
Monify has served 200 ambitious entrepreneurs since its establishment in 2017. Currently, Artur is at “the steering wheel” working on the big picture – the company’s strategy, but he used to work in the lending department at the very beginning. He remembers all of the clients he worked with, some of them inspired him. Like, for example, an Estonian pharmaceutical company which due to the sudden delay from suppliers were left with no money to pay its employees on Friday night and Estonian 100-year anniversary. Company’s management couldn’t not pay their employees and decided to apply for a loan at Monify, within hour money was at the company’s account and happy workers could go home and celebrate. This is an example of how business owners care about people who work for them. And apparently, the table we are sitting at and having our conversation is made by company’s early customers too – a Latvian timber manufacturer who makes tables from solid wood – it was his gift to Monify for the excellent customer service. This motivates even further, when you see the result of your work and how it helps not to only to earn yourself, but helps others make good cash flow.
On the way to conquer the world
The strategy seems to be working, currently, the loan portfolio is growing 20% a month. Monify has its presence in 4 countries – Latvia, Lithuania, Estonia, and Poland. These countries bring some diversification to Monify’s loan portfolio: Polish SMEs are more export-oriented, Estonia brings a lot of one-person companies with high turnover and Latvia has a concentration of timber businesses with impressive profit margins. Monify is not going to stop there – the research they conducted showed that the market where they are operating is bigger than Eur 4.4 billion. As a motivation, they hanged the wall- size scratch-off map of the world in the middle of the office space. Currently, 4 countries are scratched, but who knows how far they will go. Artur says they already know which country is next, but he can’t disclose it just yet. The good thing is that Monify designed a step-by-step plan on how to open a new office anywhere, so if there will be urgency they are able to scale up in a 1-month period. However, geographical coverage has its limits and Artur knows exactly where to go. Monify will flourish in countries where banks are slow and entrepreneurial spirit is high. Asia is doing pretty good already, but Western Europe is lagging behind. Monify promises to bring speed to the industry, so entrepreneurs can be working hard, create new ideas, and not worry about the funding. Monify aims to become even faster than they are now, the goal is to shorten time to 5(!) minutes for a loan issue.
We are all familiar with brands, which sound similar, such as Taxify- few clicks and you get taxi, Spotify- few clicks and you get music, Monify’s mission and goal to do same for money- few clicks and cash! Taxify and Spotify are both unicorns (not the fairytale creatures, in finance this term is used for private startups valued over $1 billion), and Artur is not shy to admit he wants to share this similarity with these European startups too and become the first Latvian unicorn. No one knows what future will bring us but what we definitely know you won’t succeed if you don’t try. So, let’s see and wait where the enthusiasm of this energetic team will bring.