Way to grow: How Senior Solution seized FinTech’s potential
How hot is Financial Technology? FinTech companies around the world impact all areas of financial services, a once highly regulated industry dominated by large banks. Industry observers such as Forbes—which in 2015 published its first “FinTech 50” list of innovative companies—predict we are entering a FinTech-led digital disruption phase that will challenge existing business models in retail banking, investments and currencies.
While some FinTech companies such as WePay and PayPal have gone public, the majority of FinTech companies around the world are startups struggling to scale. But Senior Solution, a Brazilian company specializing in software development and solutions for financial institutions, is an exception. The company’s steady rise from startup to IPO offers insights for FinTech companies looking to successfully scale.
Here are four lessons from the company’s success:
1. Adapt business models to customer demand
Founded in 1996 by Bernardo Gomes and Luciano Camargo, Senior Solution began by providing customized IT projects with a source code. In response to changing market demands, the company changed its business model by developing a standard product it could offer to clients in exchange for a monthly licensing fee. It also charged customers for support and maintenance expenses. The company continued to evolve its business model in response to customer demand, and by 2012 it included four segments: software (including licensing, support and maintenance of software); services (mainly related to tailored projects for customers); outsourcing (management of IT systems and processes); and consulting financial institutions.
2. Partner with the right investors
By the mid-2000s, the Brazilian financial services sector was highly fragmented. Out of more than 150 providers, not one held more than 5 percent of the market. At that point, Senior Solution had grown to more than 100 employees, while improving its governance structures and reaping significant recurring revenues. Still, it needed external financing to grow the company. The company resumed discussions started as early as 2001 with Stratus, a private equity investment company focusing on Brazil’s mid-tier market. Stratus bought 20 percent of Senior Solution’s shares and the fit between management and Stratus was clear: Both were not focused on short-term gains and a quick exit but looking to methodically grow the company. The partnership also allowed Senior Solution to pursue a rigorous M&A strategy focused on complementary offerings. By 2012 the company became the main consolidator in the sector—acquiring and integrating five companies in six years to complement its solutions portfolio.
3. Pursue IPO financing at the right time (and on your own terms)
By 2012, Senior Solution’s management knew they needed more resources to pursue their growth plan. The outlook for new investments seemed promising and by taking an active role in consolidating the sector, the company could further strengthen its product portfolio. In December 2012, the company’s board of directors approved the decision to go public and sell part of its capital on the stock exchange. Access to capital markets allowed Senior Solution to obtain resources in a more continuous way while company continued to grow through acquisitions. In 2013 it acquired Drive, a leading developer and marketer of software applications for assets managers, and in 2015 it acquired Aquarius and Pleno, two software application developers for the consortium segment.
4. Focus on your customers’ pain points
Senior Solution clearly identified many of its customers’ pain points and tweaked its offering to overcome them. Among the difficulties customers faced was a fragmented and large number of suppliers. This lack of integration created compliance problems, along with compatibility issues due to the company having multiple platforms. Also, no end-to-end solution existed. Different systems existed for bonds, equities, foreign exchange, front and back office, and more. In addition specificities from the Brazilian context complicated dealings with banks such as a high level of inflation; traditional systems cannot handle so many digits, for example. And previously, there were complex methods for computing interest rates on interbank loans. All of these issues added up to hassles for customers who had to tackle them manually before Senior Solution introduced a way to ease the process.
Senior Solution successfully navigated the turbulent Brazilian financial markets to become a leading software developer for the Brazilian financial industry. Through a combination of organic growth and acquisitions the company achieved nine consecutive years of increased gross revenues and an average annual growth rate of 26.5 percent. Four lessons from Senior Solution’s rise—adapting business models to customer demand, partnering with the right investors, and pursuing IPO financing at the right time and focusing on customer pain points—remain relevant for other businesses in developed and developing markets looking to scale and realize the promise of FinTech. The word “Solution” in its moniker, then, carries another powerful meaning for its FinTech contemporaries.
Nuno Fernandes is professor of finance at IMD, where he directs the Strategic Finance Program and also Finance Fundamentals for Executives. He is the author of Finance for Executives: A Practical Guide for Managers.