Alexander Artop√© is Co-Founder and CEO of Smava, Germany‚Äôs leading loan portal. Alexander has more than 18 years of entrepreneurial and internet experience. Before he founded Smava in 2006, Alexander co-founded the enterprise software company Datango and served as the CEO. The company was sold to SAP. Previously, Alexander was co-author and managing editor for the book ‚ÄúThe Internet Economy‚Äù with the European Communication Council. Alexander studied Business Administration and Communication Science at LMU Munich and FU Berlin.
We started to work together at the end of 2013. Smava was established several years earlier and you had pioneered the peer-to-peer lending market in Germany. Could you share some background on how you have built Smava over the last 10 years?
We started out as Germany‚Äôs first peer-to-peer lender in 2007, similar to LendingClub in the US, with a strong mission: to make personal loans transparent, fair and affordable. However, we learned over the first years, that the refinancing costs of private lenders were structurally higher than banks. The main reason for this is the deposit overhang which allows banks to re-fi at very low costs. So we transformed into a lending marketplace, similar to Lendingtree, connecting banks to our lender side. This has led to a growth rate of 90% for our loan volume from 2012 to 2018. As of today, Smava is the biggest pure play for personal loans in Germany.
What have been your main learnings so far in the Smava growth journey?
First, staying true to your mission is crucial. We put our borrowers first and empower them in dealing with banks. Second, hire the best people you can find, give them a strong focus on execution and put them in charge. Third, persistence and seeing things through has proven to be an important success factor.
The lending market is changing with the emergence of digital models and technology. What are the major trends you are seeing?
I believe the online penetration of personal loads in Germany will go up from 10% (currently) to over 50% in the next couple of years, similar to the ratio we currently see in Scandinavia for example. Secondly, we see a strong shift from banks to aggregators. The key rationale for these is more convenience and better prices than offline banks. Third, digital loans will be a standard in the near term. Until today, borrowers had to wait more than 10 days on average to get an online loan. With digital loans, this comes down to 10 minutes. Smava has been pioneering this space by introducing Germany‚Äôs first digital loan in October 2016.
What has been the ‚Äòsecret sauce‚Äô of getting Smava to its leading position of today in the German market?
It was a couple of different factors. First and foremost was the focus on the product, making personal loans more transparent and affordable to our borrowers. This led to a superior conversion rate compared to those of our competitors, and better unit economics. Second, we were able to build a leading consumer brand by providing a simple and clear message: ‚ÄúSmava is always the cheapest offering‚Äù, combined with a positioning that we are always on the side of the consumer.
This was started with constantly increasing TV budgets, but also strongly supported by PR campaigns. For example, we started the first worldwide negative interest loan for consumers in July 2017, where borrowers got ‚Ç¨1,000 for minus 0.4%. Third we focused on constant iteration of our operational model, improving every day. Last, but not least, we always understood that it does not hurt to raise enough funding to grow to the next level – this is where Kreos was of important value to Smava in 2013 and 2014.
How will you continue to drive growth in your business for the coming years?
Given that it is still relatively early days, we always say to our team that ‚Äúthe best is yet to come‚Äù. Generally speaking, we will try to stay true to our mission, keep on innovating, and stay humble and lean. Specifically speaking, we will focus on daily improvements, because any retail business means detail business. Thus, constantly generating lead bullets will generate the biggest benefit for the business.
You have expanded your equity investor base over the years (most recently with the Vitruvian-led $65m growth fund) and also utilised growth lending. What advice would you offer other growth companies about how they finance their business?
I think it is mainly a question of i) the phase (seed, series A, series B etc.) and ii) the flexibility that comes with either equity or debt funding. In general, equity is more dilutive, but flexible. Debt funding has of course little dilution, but requires at least pledges and covenants. I would recommend to use equity in the early stages and supplement with growth lending later on. This is a recipe that worked quite well for Smava.