José Manuel Peral Cortés, From Bootstrap to Exit: Lessons in Fintech, Funding, and Control

Speaker A: This is the scalepoint podcast hosted by me, Martin Kodorish. On this show I sit down with founders and experts in the payments and fintech industry to explore key trends, opportunities and the realities of building a sustainable and profitable business in this next phase of the industry's growth, defined by tighter budgets and more challenging access to external funding. Right, let's get started with this week's episode. So welcome back to another episode of ScaleForward podcast. Today my guest is Jose Manuel Perel Cortez who is co founder, founder of Fintech Consulting. He's based in Madrid. Fintech Consulting, specialized payments and fraud operation Firm managing over 3 million operations monthly across a diverse range of merchants. Jose brings 15 years of experience in payments and um, previously co founded Easy Payment Gateway which he successfully exited to global payments back in January 2020. So welcome Jose. How you doing today?

Speaker B: Very good and thank you Martin for, for having me in your, in your show.

Speaker A: So in fact we spoke previously on another podcast. I think it was back in 23 or last year. So I'm excited to hear what's new with you. Uh, but maybe let's kick off with a short intro. Perfect.

Speaker B: My background I guess is, is a bit pretty, pretty standard. I didn't know my, my university degrees in, in Madrid, uh, after I did a um, MBA master, uh, degree. I also did another master degree um, on international tax planning. Because my, my first type of job was in big consultancy firms in PwC and all these type of firms. I've always been in parallel investing and looking into startups. All my friends uh, have been like um, the ones that did the first Spanish social networks which is Spanish Facebook. All my friends started that. So I've been always very related to the startup technology world. I'm always investing. After five, six years in the consultancy industry I decided to resign, uh, and go back to Marbella where I come from, um, where I was born and raised, um, and think about what would be my next move. And it was when I met one uh, investor that was thinking I was looking into a very good MVP, very nice MVP, a uh, company called EasyPement Gateway that didn't have a product in the market yet. He only had a developer that was the other founder and he introduced me to me and when I spoke to him we immediately um, got very well together and I was more like, I had more like a business mentality that he had. He was more like the product person that had a lot of ideas about different products and different features that we could build and we decided to get together and start Easy Payment gateway.

Speaker A: Fantastic. And um, so what, what time period are we talking about here? There was back in, we're talking about

Speaker B: 2012 when we got together, um, and we started to build ah, a business. Um, ah, actually we started maybe in a bootstrap way. Um, we were trying to get merchants when we only had a couple of features made. And in parallel we were working to build to other companies to build integrations or build. We were working as a software, software house, software company that we could build. You know, because all that money that we were getting, we used it, we invested in the, in the, in the product because at the time we didn't have investors.

Speaker A: Um, how conscious were you of like market timing? Was that a factor in launching the business? Were you concerned about whether or not we were.

Speaker B: We were concerned and we knew that the, at the time the word orchestration didn't exist. So no one even thought about it. However, in the high risk industries like gambling and at the time, uh, forex, um, they did, they knew what orchestration was because they were building it in house by coding. By coding so that they had to at uh, the end of the day. Orchestration. What, what is the value add of an orchestration? Orchestration. The essence of orchestration is to be able to, to root transactions depending on different data, different rules. Okay, how before orchestrators how you did this coding these rules? Basically the payment manager or the head of payments what said ah, okay, I need, if this transactions fails for this reason I wanted to send it to this other uh, acquirer.

Speaker A: I mean maybe for the, for the audience to explain orchestrations. Right. When you say routing you mean.

Speaker B: Exactly.

Speaker A: You're, you're rooting it to different acquirers.

Speaker B: Acquirers or different payment solutions or whatever. Or even connecting to a fraud solution that could give you validation if your customer is potential fraudulent or not. These type of things, all these connections at uh, the time the companies, the merchants had to build them one by one and you need to build these rules. The good and the bad thing about payments is that it's never the same. So what, you maybe need this X rule today, but in two weeks, in three months you need a different rule. So you were constantly developing, changing obviously. And these developments takes time. Development teams make mistakes. You need to test them, launch them. So it's very time consuming and um, you need a lot to invest on to be able to do this. So the gambling and the high risk industries, even travel that is also considered high risk industries. Had these pains already before then marketplaces than normal. E Commerce, uh, all these type of things. So when we built this tool our uh, go to market strategy was very clear. We were going to go to these high risk industries because they understood and they had the pain. So they, we did the presentation directly. They saw the value of we will bring it to the table. Um and actually we grew very, very fast. The thing of being an orchestrator, standard orchestrator so being technology release what you're selling, you're selling technology. Um, we couldn't charge a percentage like as you know, acquirers, banks, when you process the transaction you charge a percentage plus a fixed fee. Mhm. On the orchestration model you can only charge ah, cents per transaction. Right. So your business model was, is, is not great. Okay. But anyway we got together, we launched and we, because we saw we were ahead of our time. We only focus in one vertical, one that was high risk sector.

Speaker A: Right. Interesting. And um, I mean you know let's, let's move forward to your um, eventual exit. I think that's quite interesting.

Speaker B: Yeah, yeah.

Speaker A: How that played out for you.

Speaker B: I mean it played out well um, because at the end always an exit is good um, for everyone. Uh, however the founders we were not happy about it. Um, um, basically at the time when we were looking for investors in Spain raising money for fintech at that time it was absolutely impossible. No one had done it. So we had to go outside mainly to the uk, Germany, uh, Sweden, um, on top of that because we were ahead of our time when we went go to a VC in the UK and we said hello, we have an orchestrator. Um, they were saying what? But that's a gateway. So we had, we didn't do, I think we didn't do the best job in explaining the value that we brought to table. Now you can see the guys like Primer, uh, pay Rails Bridge, raising hundreds of millions without even having clients. Because now people really understand the value and they understand that credit cards fail and that in the world there's many payment methods. Um, so the exit we got diluted along the way a lot. This um, means that we lost control of the company.

Speaker A: Okay. All the sort of standard things that happen to you when you take on external funding.

Speaker B: Yeah but we didn't control on the board. And also the mistake we, we committed was that the investors that we took, they had a lot of money but they didn't have a clue about payments. So they didn't understand that as technology, um, margins didn't, wasn't, wasn't. They were not awesome. So we were only taking, we were processing around 6 billion um, a year and a lot of transactions. But that doesn't mean you're gonna have hundreds of millions in revenue. So we had to get a license. We actually granted the, the UK license. This was remember this was before Brexit. We got the um acquiring license for, for the UK but before the, the board like decided to sell the company without the two founders. We didn't want to do it but they want, they wanted to do it even though we have that license um granted. That would have then increased our margins by a lot of money.

Speaker A: Do you think that if you'd had investors who had a better understanding of payments the story might have been somewhat different?

Speaker B: 200 we at that time we were the same size and competed against um Checkout. Now Checkout is a 40 billion valuation company. Um so yes definitely we would have because I, even when obviously when all this happens and the board decided to sell I did with my co founder. We did a complete study about Fintechs at that time. When did they manage to get profitable? The one that got profitable um sooner was strive because they started since the beginning with the license but for example transfer wise that now everyone calls wise they didn't get profitable until after 10 years. So fintech is normally this type of time to get into profitability. It takes five to ten years. We were at our uh fifth year of life of the company and we were still investing and as soon as we would start using the license and being an acquirer as part of our offering we would have gotten profitable very fast, very very quick. But they didn't give us the opportunity. So basically we have to go out there um, speak to different parties that because along the way we got many offers to sell the company. Many offers and we reached out global payments that they had showed interest in the past and the sale was easy. The selling part, um, um it's a good story because there's a lot of startups that don't get the exit. Uh it's always good but the learnings will be that um because Fintech is a very special industry you need a lot of knowledge um, and understanding and it's a tough because normally when you go, when you go B2B your go to market is a B2B you need to have, you're going to have long selling cycles. You know everyone has a full roadmaps, integrations and all these type of situations is pretty common. So you need, you need funding, you need funding and it's going to take time and if you need, you need Partners that understand this follow on funding presumably as well.

Speaker A: Right?

Speaker B: Yes, yes, absolutely.

Speaker A: I suppose that they didn't have the stomach for that.

Speaker B: They did, they did. Well, they didn't see was when are we going to get profitable? They didn't understand it. When are we going to get profitable? That was the word that they didn't understand or the vision they didn't have. When is this game going to stop? We raised, we raise around 25, 20, 25 million pounds. Um, in total. Yeah. I mean we were processing for huge names like E Dreams, like, I don't know, William Hill, you know, we were processing to huge, huge names. Latin America, Africa, Asia. We had really ambitious plans to expand in the U.S. um, following the same strategy because at those times the US was getting regulated in terms of gambling and in the US no one understood gambling because you know, at those days gambling was, was legal only in the casino, but not online. These were the days where the licenses were starting to ramp up. So we, we had a very good situation. Uh, but anyway, long story short, the experience was awesome. It was a process of five, six months. It's never easy. Um, due diligence and when you speak it to a huge company, a bank like, like Global Payments, you know, the, the, the utility is always very tough. The negotiation is difficult. Um, ah, also when you're in a situation that they know your board wants to sell. So it's, it's, it wasn't. We were not in the best of the negotiation power, but it was a, um, valuable experience. Um, you know in consultancy you learn a lot but you know, being an entrepreneur and started your own thing. Of course, dude, it's, it's another story. It's a complete different story. When you become a man, really, you

Speaker A: got to walk the walk, right?

Speaker B: Yes. And you don't know what to do. For me, the most difficult thing for me and for my co founder the most difficult thing was we don't know what we were doing because no one told us, now you need to do this now you do this now you, you don't know what is the correct solution or correct path. So you need to constantly make decisions that you don't know. That is the correct answer of the, or the wrong answer. That's why you need the money and good investors that can advise you. Um, the money is to be able to make wrong decisions because we all make a wrong decision.

Speaker A: And did they support and advise you or did they just effectively?

Speaker B: Not really. Not really. Well, they did. They did. Well, they did. They, they gave this merchants One of the, one of the investors we had had a holding group of E Commerce and all the, all the volume that they had through his companies. He sent it to us. Um, in that sense, yes, but, but he couldn't advise us in anything else actually. But, but anyway, it was a very, very good story. Very good learnings, full of mistakes, but also full of learnings, which is, which is good. And uh, and actually that, that's because of that I now have with, uh, with another partner, FinTech Consulting. Actually that was the rumor that was.

Speaker A: Um, um. But are you still in contact with those investors? And how do you know?

Speaker B: Yeah, yeah, yeah, yeah. At that time, at that time, you know, when all this happened, obviously all the friendship or the relationship got stopped because, you know, we don't want to say, oh you do. You know, everything got. But obviously time gives you the opportunity to see things with perspective and then you, you can understand what they, what they were saying. Uh, by now they're all friends and, and now they say oh, we shouldn't have sell the company. Sold the company. I said yeah, we shouldn't. We now be 40 billion in valuation like checkout. But anyway, that's what I was saying. You only know talking about the past is easy. Uh, being in that time, making the correct answer for them, I guess it was difficult and they just lost faith, I guess, uh, because they didn't have the background to, to make the most valuable decision. That was also our fault because we picked those investors that had a lot of money. Right. We had the opportunity because it's been a long time ago, so it's not confidential anything we had the opportunity to, to accept. In the cap table Mangrove, which is a very big vc, there was one of the first investors in Skype, for example, um, from Luxembourg. Uh, uh, we were so focused and always thinking getting bigger valuation, valuation, valuation. They gave us a low evaluation that other investors and we said to them no, we should have told them yes, maybe take that lower valuation which at the end it doesn't really matter a lot the valuation. To be honest, I'm um, sure they would have provided us with a lot of good advice and they've been in these situations before the investors we had. No, but anyway, I suppose it's all

Speaker A: about growing the size of the pie

Speaker B: rather than correct is creating value at the end. Doesn't matter how you. I get diluted a bit now, but if, if I this, this money takes me to create this amount of value, really it doesn't matter at the end of the day valuation is putting yourself a rope in the neck because if you put it too high in a B2B world with long selling cycles, you can have problems at the end of the day. You're going to need to do a down round at some point which, which anyway learnings and so.

Speaker A: Okay, let's, let's move on. But did that experience give the appetite to do more entrepreneurial activity and.

Speaker B: Yes and no Entrepreneurial or take that

Speaker A: big job that you mentioned earlier on in the corporate with a big sort of pay packet?

Speaker B: Yes and no. After when, when I sold this Kabify um, offered me uh, um to do a project with them which I accepted basically because I needed to relax a bit during this easy payment gateway journey. I had a kid which I didn't see him. Basically I, I could spend a month outside traveling. Uh, I, I would meet with my wife and say I'm going to be in London these two days. Come to London and, and spend time with her because we didn't um. So entrepreneur and creating your own company is not for everyone. Okay. Uh, you, you, you, you need to, you need to say no to many things. Not see your friends, family, you know, it's, it's really difficult. So after, after, after I wanted to relax a bit so I, I signed with a project that I did for Karifi to organize all the payments. But in the meantime during that year in Kabi 5 it's like the Spanish Uber, okay. It's doing operations in Latin America and in Spain. Uh, they are, they are the first unicorn in Spain. Okay. M. Um, so basically during that time I was, I was well helping them. I received different calls from, from merchants because I was known a bit in the industry. So people were calling me okay, what should I use to process payments here? What did I use to do this year? Oh, have you seen this new technology? What do you think? So naturally I got together with, with Marco, my, my, my partner now and, and we started the company. We started FinTech Consulting as a Viaco to answer all these, all these questions more in a more professional way and make it a business. Um, and it's what we're doing now. Uh, basically helping, helping medium to big corporates in the payment strategy. Now what does payment strategy mean? It can mean doing a report for I don't know. We want to do this project. We want to know your opinion about this. We're going to buy this, this technology do you think is worth it? A ah, one off like I like to call it or other projects that we are the ones that we really like which is that we become the head of payments or the payment manager for these companies. We are external but we are involved in the operations. So we manage the relationship with the partners. We manage the tools they have to route transactions. We create the fraud, um, rules. We, we are part of the team. Okay, that, that's the project we like the most. However, those projects has, have an issue. Obviously we cannot work with more than 3, 4 companies at the same time because it's what we are selling in a sense, in a, in a way is our time.

Speaker A: Well, exactly. I mean it's a service based, correct business model. Right, so you're selling time.

Speaker B: We've been having these discussions for the last two years. Should we hire people? And, but because payments is such an industry that to be honest there's a lot of people that say they know about payments, but they don't know. Um, there's not a lot of people with senior knowledge and really deep because payments is very difficult. You have regulations, you have Visa, MasterCard, you have me, you have, you have. It's a very complex um, industry. So we decided to not take that path of hiring people because at the end of the day big companies want results. M. And when I speak to them, I can tell them answers. Maybe not straight away, but I know where to find the answer, you know, in a sense, which is something that um, they are paying for and something that they want. Uh, getting a junior guy. This is not like the consultancy firms that, you know, the big names that we all know where you can get like a junior to do the job.

Speaker A: So they're buying expertise rather than um, resource in a way.

Speaker B: And normally what happens is, is exactly that. Normally when we work with a company, a company has like a junior person or an analyst inside that we constantly working with you, always coaching them. That's, that's what we do, we coach them. And normally we see this trend that in after um, two, three, four years, then this, this person that we have been in contact with for these three, four, five years, they start doing things on their own. Uh, you know, so it's, it's, it's. We like it a lot because we, we have a very. Providers don't like it when we speak to the guys, you know, at the insist drive, all these providers, because we know we have a lot of information about fees, about all this information that we see from different merchants.

Speaker A: So you're an intermediary, aren't you?

Speaker B: So I know when they're charging you very high, very low, you know, I Know these type of things which normally a provider doesn't like. But um, it's what we've been doing and it happened really naturally. Um, very naturally. After we sold the company, people start calling us and that's how we started the business.

Speaker A: Right. And so what's your more medium term vision for the, for Fintech consulting?

Speaker B: We would like what are you doing

Speaker A: or what are your growth ambitions or

Speaker B: you know, we would like to get more into uh, I mean we haven't invested, we haven't invested into becoming a brand. Um, and you know, for your background, you know how important is in consultancy to, to have a brand. We like to get more involved in M and A transactions, um, which are ah, very interesting about that. They're much more profitable. You get much more margin for the time you, you spend. Um and is where I see that the future going because um, I came again, coming, coming back to the ecosystem, Fintech in general, um, the markets right now to raise money is really tough. The market, to raise money in Europe is tough. You need to go with a very, very clear business model with a lot of margins, become profitable after two, three years. And in Fintech that's really hard. So I think in the next three to four years we're going to see a lot of money happening. A lot of M, uh and A

Speaker A: is already starting to happen, isn't it?

Speaker B: Correct, correct, correct, correct. So we would like to get into that wave. We would like to get into that wave and it's something that you need a bit of branding to do it. So we're going to start investing in branding to be able to get into that, um, into that space. What we have seen is that big consultancy brands in Europe call us to say, okay, you're going to do this job for me, but actually you're going to do it with my brand.

Speaker A: Yeah, yeah.

Speaker B: Subcontracting is exactly. So why do they come to you?

Speaker A: Do they, do they lack the expertise themselves or.

Speaker B: Yeah, that's been at least the two jobs we've done specifically to huge consultancy firms, one from Europe and another one from, from Spain. It's just because of that they have the brand and many times, you know, listed companies, for example, they cannot work with a company that's very small. I don't, I don't know about, you know, they work with a brand. You need to be a brand to be able to work with those type of companies. Companies that want to do M and A transactions and normally are huge companies. You need like, you know, you need a brand doing The M and A transaction and doing the due diligence for you. So it's something that we are lacking.

Speaker A: I mean it's a very concentrated market. Right?

Speaker B: Correct, correct. Uh, I've been part of a big four and I know they don't have a clue about fintech. I know. So what they do, they get the job and they look for someone that can do it. I had a meeting yesterday with a big bank from Spain doing a uh, developing a product and the, the, the head of product was actually external person in a bank. This, this five years ago wouldn't have happened. To work for a bank you need to be absolutely full time internal. You know I think this is, this is something that Covid uh brought. I think people are conscious that hey, maybe I don't need a full time Also obviously hiring a uh, very, very experienced person is, is expensive. Social Security expenses are uh, high. Having it external is, is better for, for companies. But I agree with you that I think it's something that's going to happen more and more um in Europe. I think in the US is more, it's more common. I think in Europe as well we were lacking a bit and but I, I agree with you. It's something that I'm seeing and if banks, you know how banks with a mentality they have are starting to do it, it's a trend that's going to happen more and more.

Speaker A: So okay, let's um, start wrapping up. Maybe we tackle one more topic. Um, what are you most excited about when you look across the landscape in

Speaker B: fintech now I think all the innovation is happening around instant. I think everything is becoming instant which is very exciting and it's going to be a game changer for many things, for many use cases. Um, I think specifically in Europe we have these two new protocols that are happening in account to account payments which is OCT and rtp Request to pay and one leg out credit transfer which is basically OCT is cross um border instant bank transfers. But real instant. I don't know if you know but this people like companies like Wise or others, how they work is that they have bank accounts open in different countries and when you do a transfer from Spain to Europe, from from Europe to the U.S. for example, what they do is a local bank transfer from U.S. to the U.S. so they, they have like their own clearinghouse. Okay. All these new protocols, what they do is they are actually happening on ach level. So it's a real instant bank transfer. So you're not going to play anymore with your cash in different places it's actually bank transfers.

Speaker A: So this is an integration between two ACH systems, cross border integration.

Speaker B: It's a protocol that is happening right now. Um, you have the first version now in Europe actually in uh, Europe and in other regions they have tested it already between Bang of Santander and a bank in Australia where they've done a, I think it's 15 seconds. Basically how it works is that you have ah, entity that is um, registered in this protocol in Europe. Let's say you have another financial entity registered in this protocol in the US and there's a third uh, instrument that you need to be able to work which is the person, the entity that is providing the exchange rate in real time which now is very easy because we have many of these companies so you're going to really have a bank transfer instantly and they're going to ask you okay the exchange rate is this, do you want to accept it?

Speaker A: What I'm excited about is the application of crypto so particularly stable coins.

Speaker B: The thing is coming to my background I've been seeing transactions in crypto for many years now. So for me it's not new. High risk industries always been using this for years now. For years. So I see now how companies are using it to pay salaries in Latin America. I mean in Argentina they've been using this for years, for years and people have the stable coins um, four years happening. Um now what we're seeing is becoming to the general public knowledge that this is possible and to companies like not to high risk companies but to normal let's say standard merchants, financial institutions are

Speaker A: ah, embracing BVA today.

Speaker B: BBVA Spanish bank has just accepted it. Everyone is. But this has been happening now for four years. That's why I don't see it like a new game changer. What is going to happen now is that the volume is increasing. Yeah now the volume is increasing. Now companies ah, when I speak to merchants now they want to have okay whatever I want to ask as a payment option in my checkout I want to be able to accept stablecoins because it's not a risk at the beginning.

Speaker A: It's never evolution isn't it?

Speaker B: Of course, I mean the stablecoin there's no risk in a stablecoin In a, in a Bitcoin there is risk and you need a third party that guarantees the value of that Bitcoin because Bitcoin or Ethereum or whatever crypto is always changing value. So you need someone in the middle that guarantees the value because obviously if I'm a Big merchant, a company. I want to know how much money I'm receiving. I want a guarantee of that. So I think that the game changer has been a stable coin. But again I've seen that for four years now. It's becoming popular. So all the general public. But what's new is really is a B2B payments, instant payments. Uh, because if you look at the landscape, all the countries, all the regions in the world are creating their own instant protocol. In, in India as normal, we have UPI for years. In Brazil with Pix and in Spain with Bitum, we see it, we see it as.

Speaker A: Tell me about BISM actually because that's um. Yeah, I mean you're right to call that out as, as quite as a real time payment system, but perhaps Spain, the audience.

Speaker B: Yeah, go into. Is an account to account solution, payment solution that started uh, peer to peer. So I could send money to you instantly but with, with my phone number. Okay, how. What did the. It's owned by the banks. Okay. It's owned by the Spanish banks. So what did they do to make this very popular very fast? They give these bank transfers for free. So I could send money to you for free. Now the game change is happening because in the um, from the last 18 months now you can use it as a payment method so merchants can have it in the checkout and you can pay by bitum, which is very convenient because we are all very used to deal with bitum. And actually Spain is the country in Europe that um, has more instant bank transfers. That also makes sense because the ACH we have in Spain which is either pay, um is the most advanced when it comes to payments protocols, APIs and all these type of things. It's the ACH that you need to connect in Spain if you want to get access to these services as an infrastructure. So as a psp, as a regulated financial entity, is it a real time payment system? Yes, yes, exactly. More or less that either pay is connected to sepa, basically to European network. Uh, that's how you get access to this. But like in the UK you get access to through faster payments. Correct.

Speaker A: All right, Jose. Yeah, fantastic. You know I love, love talking to you as our second podcast. Really enjoyed it was a great conversation.

Speaker B: Thank you very much.

Speaker A: I'll, uh, speak to you very soon. Thank you.

Speaker B: Bye bye.

Speaker A: Thanks for tuning in to this episode of the scalepoint podcast. Don't forget to subscribe, leave a review and follow us on social media. You can also find out more at our website, which is scalepointpartners.com that's it for today. See you next time. And take care.