International Personal Finance plc (IPF) Earnings Call Transcript & Summary

Hello, and welcome to the third of our in-depth insight pieces into the businesses of IPF. Now if you're not used to this format on our website, you will find what I would call "Episodes One and Two." In one, I interviewed Agnieszka Klos-Siddiqui, our Country Manager for Poland. And in two, I went to Puebla and interviewed David Parkinson, our divisional leader for home credit in Mexico. And for number three, I'm delighted to say I'm here with Povilas Gircys, who is our divisional leader for IPF Digital.

Yes. Hello, everyone.

And Povilas, thank you so much for the invite to Talen. I love this place. And I love the sunshine.

Yes. Finally, finally, we have it. Hopefully, it will stay longer with us.

Good. Well, Povilas, we're going to spend the next 40-45 minutes talking about your business and digital, all things digital. And as you look at the screen and we put up these slides over the next 3 quarters of an hour, at the bottom of your screen, you should see a text box. So at any point in time, key in any questions you might have there. And then Wojciech will present those questions to us at the end, and we'll answer all of those for you. With that, let's kick off Povilas with, how about a brief introduction to Povilas the man.

Yes. I've joined the business 9 years ago. I came from the telecommunications and noticed that it's very similar businesses, lending and the telcos, meaning that we manage the big customer bases, marketing is very important. Leaky bucket is very evident. Acquisition, churn, retention, it's obvious dilemmas and monthly invoices either. So with all that, I've joined as a country manager for Lithuania, then I went up the rank to regional country manager and business operations manager. And in 2021, I became division leader for IPF Digital.

An exciting journey. For those who might not be used to the terminology, when you refer to monthly invoices, you're talking about customer repayments?

Correct, correct.

Okay. So Povilas, let's kick off with the overview of IPF Digital.

Yes. The business was established in 2005. And until then, we have 1.1 million unique customers served and now we're turning towards 0.25 million of the customers in our 6 markets. So Baltics, we've seen likes of Estonia, Poland, Mexico and Australia. We have 3 brands. It's Credit24, the longest brand that we use in the Baltics and Australia, we have Creditea in Mexico and obviously Provident in Poland, definitely being fintech and being in very, very competitive environment means that we need to rely on technology that we built ourselves and as well the top leading partners that providing us services that we use to serve the customers in underwriting, in general operations, et cetera. As well, as I said, we are in 6 markets, but our employees are in 11 countries. So as well, it gives additional complexity of the cultural differences, time zones, et cetera, but I will talk more about how we do that operationally. And again, I'm very proud that we as well award-winning company as well, which means that even our industries are recognizing that. For example, in Mexico, we are top 3 place to work or in Estonia, just recently, we got the award for being the great place for work and life balance.

And I know the customer satisfaction is near the top of your list and NPS as well?

Yes. And this is one of the metrics we are constantly monitoring and obviously, the feedback from the customers is immediately reflected into the hub and the business.

Sure. Now the business was started back in 2005 by Rami Ryhänen. But since then, it's been on a journey.

Yes. And we're still in the journey. First of all, I would start from the geographical expansion. So in 2006, we opened Estonia and Finland, then Latvia, Lithuania came into the family. In 2012, we launched Australia ,in '15 Spain, then following Mexico. Obviously, with all that, we're extending our product portfolio to name a few, but very important ones. So in 2015, we launched the credit line, which I'll talk a bit later. And in 2022, last year, mobile wallet was introduced in quite a few markets, either. With all that, we had few hubs as well to go through and neither the decisions were made to collect out Finland and Spain simply because those markets were not delivering the returns. So it's a journey, right? And obviously exciting journey, which I hope today will go through.

Indeed. And in terms of the respective sizes of the businesses that we have across IPF Digital.

Yes. So as mentioned, we are in the 6 markets, the Baltics, obviously, they are the smallest ones -- but important here is to take a look at the, in the slide at the percentage from -- of our market share or the -- what amount of the customers we have from the working population. So seeing that figure around 3% is something that we are looking for achieving at some stage in the future when we look at the other 3 markets as well.

And for me, that's hugely exciting because as you say, the Baltics are the most established markets that we have, and you're at, give or take 3% of the employed population. And if I were to even think remotely getting a fraction of that in Mexico, that business would have several hundred thousand customers. So really lots of opportunity and lots of excitement in the business about building that out. Now being in so many markets, clearly, we have to deal with a lot of regulators.

Yes, not a secret, we're operating in a heavily regulated market. And it didn't happen yesterday. And obviously, it doesn't -- it obviously requires a lot of expertise and the knowledge, so which we are building and we are still building every day by working very closely with the regulator with consultating them sometimes, et cetera. So it's important, but our life, right? So we're taking that as what it is. And I think we're managing pretty effectively associations as well helping us a lot because the times from early 2000s have changed, right? So there is no more wild wild west approach, and we're really appreciating that how the markets are maturing, so to say. And all the associations we're having, we are playing the leading role to maintain that contact with the regulator.

And the important thing about this associations is that when you want to push your case in a particular country, it's never in your best interest to do it in your own brand name of your own business. But if you're part of an association, an industry-wide association, that's much better, which is why I'm so pleased with the work you and your team are doing in being involved in all those associations and driving them forward. Now the other thing you have because of regulation, and it's at the bottom of this slide are those cost caps.

Yes. And that's part of the regulation that we are facing in the market. And it's only part of the regulation. Obviously, in quite a few markets, we have the debt income requirements established, which means that we need to really evaluate customer income versus their obligations, and that as well puts additional complexity for us. But very important in such markets where the heavy regulation is, how quickly you are -- we are ready to adopt the change. And this is what we're always striving for. So obviously, work very close to the regulator to understand clearly what is the change, how we're adapting to the change. So this is the key principles we are following in those markets. And so far, we're doing pretty good.

Fantastic. Now no shortage of regulation, equally, no shortage of competition.

Correct. And this is the fraction of the competitors we added to this slide. But key points to make. So first of all, we don't provide pay day loans, right? So that's part of the competitors were not really interested.

And we should say that we don't provide payday loans because, in our view, charging somebody 1,000 or 2,000%, even if it's for a short period is not something we want to be associated with.

Yes, correct. And this moral dilemma, we already answered to ourselves and therefore, we're out of that. We've never been interested in that as well, we don't compete with the banks. So our key segment is, as we call it, underserved. And this is where we're putting all our knowledge, experience and effort how to gain the market share there, how to gain more customers.

And I think one of the key questions viewers might have now is you're in the underserved market, who are the customers that you're trying to serve. So let's talk a bit about how you think about your customers.

Yes. And... well, first of all, my way here, right? So why are customers choosing us? So definitely, they in certain need, right? So we have talked about the customers who have certain needs to be met, and this is where we are coming into the play. That's how customers are looking for us. Important part obviously is the demographics. This section is rather stable. It's not changing throughout the years. And looking at the competitors, we are slightly skewed to the right, meaning that we have slightly all the customers, which means they are more reliable, and obviously, that reflects into the quality. And at the same time, they are more likely to be single, more renting the house but obviously, full-time workers, which again is important towards the sustainable income they are receiving and then they can afford the loan. From behavior, I'll talk a bit later, but predominantly, this is a digital side of customers, who choose this type of the option to opt for the loan or any other services they are choosing to -- with the other industries, too. Geographically, no secret and no surprises here. Obviously, we are mostly serving the customers in the biggest cities where the populations are concentrated either.

Sure. I think many of our viewers would be interested in whether or not this is the same demographic as we serve in home credit. And what I would say is in home credit, our customers tend to be slightly older, so let's call it, middle aged, mostly women, taking care of a family and a home, and they want to borrow money for things like kids going back to school or other household expenses and they need a reasonable amount of time to repay it. And they also have what I would call intermittent work usually in the cash end of society. In our digital business, the customers tend to be slightly younger, even though you said they're a bit towards the older, but they're younger than the home credit customers. They are more male than the female side. They tend to be in better jobs, so have higher income and can borrow more money. And they tend to be what I would call a home renter rather than a home owner. Now Povilas, you described the customers as stable, but they are evolving aren't they? In terms of what they're thinking about.

Correct. And these are the trends we are observing and that very much influencing how we operate because that affects how we're interacting with the customer, how we approach the customer, what marketing mix we are using. And as I said, digital is what our -- the mean of how we're approaching the customers, how customers are getting to us. And COVID time obviously increased that how customers are -- they move towards digital, competitors as well to move towards digital because that was the main way to interact with the customer. And now we see that more than 80% of all the applications coming from the mobile device. When it used to be desktop or the computer was the predominant one. So that shift is, happened very quickly.

So on their phone, and they can do everything on their phone.

Correct. So the journeys are totally a mobile device compatible and the customers are obviously doing so as well, we see that even the media usage is changing as well. So this so-called 2-screen pattern of the customers probably we can find in ourselves as well that we watch TV at the same time, the phone is in hands means that we need to reflect to that either to follow the customer in social media, et cetera. So our marketing mix now and versus, let's say, 2, 3, 4 years ago is totally different now.

So increasing expectations, increasing use of digital, particularly mobile, how are you meeting those customer expectations in terms of products?

Yes. And rightly said, customer expectations are increasing because simply, they're increasing elsewhere because they use not only lending digitally, but the, or the food or the tax, et cetera. So how we're addressing that from product portfolio is providing the installment loans and the credit line, right? The credit line we launched in 2015, and it has now around 70% of our total portfolio with the tendency to increase. Now in terms of the installment loans, so obviously, it's a personal loan with the -- as you see maturity of fixed term from 3 to 48 months. And for the customers that who prefer really this fixed monthly repayment, which is obviously, as I said, 30% from our portfolio. Now moving to the credit line is -- well, we can say it is as similar to the credit card. So it's a revolving digital product, lending product where customer gets the amount signed, right, depending on his needs and affordability, and then interest is charged only when the customer makes a draw, and he can decide what amount from this credit limit to take. Then he has several options how to we repay. He can stay with this schedule, as we call it, minimum monthly payment pattern or repay faster and then save obviously on the interest, then again make another draw to his home bank account, et cetera. So they give us another flexibility pattern from the customers, and we see that it made a difference both for customers and for the business.

So essentially, the customer is in control and provided their repayment behavior is good. They continue to have the facility and they use it as they feel free. So clearly, a product that resonates with the customer and their lifestyle.

Yes, correct. And that's why it's always easier to explain to customers what is, and they appreciate the flexibility if they want to. If not, even in the credit line, customers can stay with this minimum monthly payment schedule because some people that's how they treat it as a control over them.

So they could have the credit line, which is a revolving facility, but treated like an installment loan.

Correct. So that's one flexibility option. Other one, they can take any amount they want to within this limit assigned, repay whenever they can, but at least with the schedule assigned. So that's the flexibility for the customer. For us, it means that as well, we do the affordability check for the customer wants and then later on, the journey with the customer start, meaning that if a customer wants to and he can afford, he can always increase the credit limit, right? Which means we're extending customer lifetime with us, which means it's a stickier product, which means that with the acquisition cost, which is not getting lower as well are utilized better either. So it's a totally different customer experience for us and for the customer.

I think it's hugely important that stickiness piece because anything that reduces the amount of money we pay to search engines and Google and people like that has got to be a positive thing. So that's one of the things I really like about this. Now Povilas, because you and I sit on the same technology committee and product development committees and all of those, I know how much work we're putting into developing the product. So linking that to what you just mentioned a few minutes ago about mobile. Let's talk about where we're going.

Yes. And again, following the customer, matching customer needs, we have the credit line that as well resonates with the customer very well. In 2022, we've launched the mobile wallet in the Baltics. That was enabled by institutional license that we acquired in Estonia in the end of 2021, which can then transport across the Europe. And the benefit is that we're combining 2 worlds together in the application. So it's a payment account and the credit line in the same app, living life over there. Customer can always order the debit card as well, which can be used either as a physical or the virtual one as well, plus a lot of embedded features in that app that makes customers feel more in control. The product is more adaptive for them. And for us, it means we can -- it opens us more additional revenue streams within that platform. So important, last year, we launched in the Baltics. And 2 weeks ago, mobile wallet light version was introduced in Mexico as well with a pretty nice already initial results. But maybe instead of talking more about that, let's take a look at the clip that we provided.

Great. Okay. So let's have a look at this clip. [Presentation]

Povilas, I can absolutely agree with you, a video much more effective at describing what we're doing here for our customers and any words that you and I could come up with. So really fantastic work there. Now we talked about when the business was established back in 2005, the journey we've been on, that kind of snake like journey, the countries we're in and the number of customers we have in each country, the regulators that we deal with and how we do that very proactively, I would say, competitors that we're up against. The customer segment that we're serving their needs and the products that we're using to serve those needs. So let's now take a look at how we are structured internally because I think a lot of people would be interested to know how the business looks internally.

Yes. And it's very important, as I said, of being operational in 6 markets and having employees across the globe in 11 markets. So it's not that straightforward, simply to be -- have a strong presence in each and every market because it's not really sustainable. Therefore, we have the concept, as we call hub and spoke, which allows us to have, think global act local approach where the brains of the strategies and all the new technology, et cetera, is considered in the hub. We can talk about credit risk collection, digital marketing, analysis, et cetera, et cetera, et cetera. I'm sorry if I'm not mentioning all of those, it's just where we have in the hubs. So it's in Warsaw and Talen, right? So this is where the brain part is happening. But in the countries, we have the customer facing. We have sales and marketing implementation present. So that's where this combination of the skills and the experience is nicely combined and many benefits out of that. So knowledge sharing, best practice sharing. So that means that whatever is happening in the market is in consistent way, faster time for learning and adopting to the what's happening and as well as way more optimal in terms of the cost and efficiency.

So essentially, I suppose a bespoke set up where all the functions are centered together, and they provide services out of the individual countries. And just for the avoidance of doubt, I believe we've got lots of brains in the individual countries as well as brains in the hub. But the brains in the individual countries are very much what you and I would call customer-facing. So anything to do with the customer interaction is in the country, but anything that enables that comes from the hub, and it allows us to be much, much more efficient.

Correct.

Now Povilas, one of the things that people would expect is for a digital business, we are technology-enabled, and we are very much data-driven. So let's talk a little bit about that.

Yes. And -- that's what -- who we are. We are a digital lender, right, which means that we need to make sure that customer gets, as smooth experience as possible. And obviously, the additional tools that we use enables that. And that means that we go beyond the traditional credit bureaus. Means that we are following the customer journey with us, customer life cycle with us, starting from the digital customer identification, affordability checks, monitoring of the customers, how they are using the product, right? And are there any patterns of the change happening over there and as well, applying quite a few scoring models starting from the application of the scoring model, behavioral scoring model, collection, fraud, et cetera. So with all that, we can stay with the customer the way he prefers to. As I was mentioning before, customer expectations has changing as well. So we need to be less intrusive, but at the same time to provide bespoke service for the customers.

And speaking of bespoke, so the technology at the center of the business is bespoke, so it's ours, our intellectual property. And then what we're doing is we're buying in all these other technological services and connecting those into that so that we're very flexible. And as regulation changes or customer preferences change, we can unplug a service and plug in a new service that happens to be better or more efficient for us.

Correct. And maybe to add, having several markets, we're playing the way that we try in one market and I think it works, obviously, we're extending in other markets as well to stay consistent and have less of the different players -- sorry, different providers as much as possible.

Sure. So data-driven technology enabled, but always customer-centric.

Correct. And even in this underwriting process, we always have opportunity to use the customer touch as well. So our call centers as well whenever needed, can contact the customer and do certain additional questions, et cetera. So we always have this opportunity. Some customers even prefer for that, so we have always that solution ready. Talking about the collections. So it's not only what we do but how we do -- and this is what allows us to achieve good results by adopting to the customer preference as well and finding the best ways to -- for the customer to repay. So it can be pay by link. It can be the direct debit or through the app, et cetera. So we try -- test and try different approaches and we see the patterns customers are repaying better, and obviously, that we're implementing across the market, potentially with the certain differences, obviously, as well how the customers are communicating with us as well, for example, in Mexico, WhatsApp is much more preferred than any other channel, while in, let's say, in Baltics, we potentially will pick up the phone and we'll call the customer. So again, it's more about not only achieving the results, but how to do that in the right manner.

So I would describe it as you are omnichannel at the front end when the customer wants to get our service, so a loan or a value-added service, what it might be, so they can choose the channel. But equally, when it comes to repayment of their loan or any servicing needs that they might have, we're trying to be omnichannel there as well. So whatever their preference is, but clearly, the more digital, the better for us and presumably the better for the customer.

Yes.

Okay. Now one of the areas that people might be interested where there's a key difference between this setup and our home credit business is, as we mentioned, the collection. So just describe what happens in collections for your business when a customer stops repaying or is late?