I’ve been postponing this interview for a long time, but it’s finally time. In March, I shared my desire to start recording and transcribing a few talks I have with executives from different companies.
However, I do not intend to interview traditional companies. I believe there are extraordinary entrepreneurs in LatAm doing a great job in their respective industries.
So, I spent most of my time looking for these extraordinary people who are actually taking risks as entrepreneurs or gathering their first fruits.
I’m grateful to have Sinqia’s (IR Site) CTO, Thiago Saldanha, as my first guest. I’ve been following the company since 2015, becoming a shareholder in 2016.
Since then, Sinqia has been almost a ten-bagger in my portfolio. I still see tons of evidence that the company will enjoy an extraordinary operating momentum in the following years.
If you wish to know more about the company, read our deep dive. Also, Sinqia has a very good amount of info (in en) on its website and has one of the best IR teams. Finally, I’d like to thank Saldanha for the conversation. I learned quite a lot. Thanks.
This interview was adapted to fit our max 10 minutes reading length.
Giro: In general, the conversation will concentrate on payment. Before we get going, it would be great to get your background and understand your role at the company and how long you were there, and just a bit about yourself.
Saldanha: I'm from technology. I've lived a long time outside Sinqia, mainly in eCommerce and full commerce as CTO. I worked in a few startups, such as ClickOn in 2010, which ended up being sold.
Before Sinqia, I worked at an API company to sell infrastructure through services. When he went to Sinqia, Luciano [Sinqia’s COO] had a vision of transforming the company. What was Senior Solution, which became Sinqia, has a great ambition of transformation.
The ambition of transformation has a lot of legacies and cultural systems because there were old people in the company who needed to go through the transformation.
As the CTO, I have to play a part in products and fulfilling the sales team gap. Sinqia doesn’t offer an end-to-end solution, but it does its clients' software management and deployments.
So, today, I’m responsible for pension plans, consortiums, funds, and treasury products with a dedicated team and dedicated roadmap.
Within banks, there is a portion of the team dedicated to payments. It's still a piece that doesn't have a single vertical. There is a certain exposure to the market after the acquisition of ConsultBrasil], which already had SPB, and with Pix, they saw that they needed to join Pix.
All studies indicated that Sinqia needed to enter. Sinqia, by default, has a license selling pattern (delay and slow structure). We are looking for a clean design selling SaaS, providing the infrastructure for clients to operate Pix qualified as a PSTI (IT Service Provider) at the Central Bank.
There is a higher fee for deployment in the license offering and a flat fee. However, we’re gaining much traction in our SaaS offering, charging a minimum for deployment, then a take-rate (not static) over the processed volume.
Giro: The management of this BC has a characteristic aimed at stimulating competition between institutions. In this sense, perhaps the greatest achievement was the regulatory change in 2018, with the creation of SCDs, SEPs, and IPs.
First, for Sinqia, what has changed for you? Then, if you could comment on how you see the change in the sector's competitive dynamics, that would be great.
Saldanha: For Sinqia, it was one hell of an opportunity because when the Central Bank decides to stimulate competition, our addressable market instantly expands.
However, Sinqia had always been focused on robust systems for big banks, and, suddenly, we had to start focusing on retail, moving from a back-office mindset to the retail side.
We had to change our product bundle. We had to transform ourselves from a back-office mindset to a customer-focused solution.
Interestingly, we felt no pushback from big clients. Large banks are also looking for new products that favor Sinqia in traditional products focused on the consortium, treasury, onboarding, etc.
Giro: The market had problems related to the registration of receivables, which impacted TAG (Stone), and some players, such as N26, are still having difficulty putting the PIX on the street, while others face problems related to latency or settlement.
Why do you believe that players are having difficulties? Is it related to the design proposed by the regulator, or is there another reason?
Saldanha: Every innovation has advantages and difficulties. If you take Open Banking, why didn't it pop and Pix went? The Open Banking concept is a road that needs to be built.
Pix is transactional. The market was not prepared for this. It's a 24/7 model with an SLA (“Service Level Agreement”) ready for it. The banks were not ready for that. The provider may be ready, but he needs to connect it all to the legacy.
The bank needs one year and two more to implement to carry out a legacy structure, although they only had two years to prepare.
When the SPB (“Brazilian Payment System”) went up the first time, there were also difficulties, with the system crashing and being out for days.
The Central Bank protected itself a lot in the regulatory environment. Of course, there was a problem with timing the distribution of Central Bank regulations, but it was always very clear and transparent about the rules.
In fact, he always gave options, such as indirect and direct Pix. If you don't have the conditions to perform, you can opt for indirect and pay a fee for it. Banks have been able to adapt, while others opt to switch to software.
Perhaps the PIX is the most sensitive topic. However, with over 12 months on the road, Pix is a huge success in P2P transactions, even if retailers are still not convinced about him.
Giro: Yeah, just interrupting you for a bit, but I don’t want to miss the opportunity to ask your opinion about the long-term effect of PIX on the payments industry?
Saldanha: Looking at the Central Bank statistics, P2P is a little higher, 40%, in the amount transacted, while in B2B, it is 32%, and it is going well.
There are a few reasons for the P2B lagging the P2B. For instance, smaller merchants use Pix through P2P, which most institutions offer for free. I believe that new features, such as scheduled payments and automatic debit, should also help speed up the B2B.
Giro: Santander recently launched PIX Parcelado, which was a bit of a surprise, as Itaú had been selected to work with BC on the product. What did you think of the proposal? I found the interest a little high.
Saldanha: Installment does not have to be free. However, the fee on the card of 5% for those who are small is high. So I think it should be more competitive.
I think Pix Parcelado is great for those who don't have access to credit but would like to access a competitive service. Nevertheless, the credit card is a good product for their convenience.
As a credit product, Pix has the advantage of being paid in advance to the company. So, even though you’re selling in installments, you instantly get access to the cash as a merchant.
In my opinion, the biggest contribution from Pix came to fostering competition between banks to adding unbanked people to transact and participate in the system, which is fantastic.
Giro: Another important change occurred at the end of 2021 with Open Banking. How did customers see this movement (newcomers and incumbents), and how has Sinqia benefited?
Open Finance began to discuss in 2019. They modeled the offer in 2020 and were selling in 2021. Open Finance is a distribution layer (Sinqia looks at the back office and how to make it work).
Every API and distribution layer was not Sinqia's focus. Instead, we evaluated and formatted several ways to offer the service to the customer.
For that, we chose to partner with Sensidia. They created an internal product that is the platform's enablers in Open Finance (the APIs). The company distributes this out of the bank and plugs its client into Sinqia.
In 2021, when we were selling Open Banking to banks, most didn’t know much about it. And that’s perfectly fine because the platform availability is a legal demand, and they’ll not make money on it.
However, we’re optimistic about the new products. I believe Sinqia will make good money in consulting projects and pricing APIs for banks.
Also, the smaller institutions will have the potential to fight the big ones. Best rate product with the best experience. The opportunity is Open Finance. But unfortunately, the market doesn't have the structure for that.
The existing offer doesn’t fit the market needs. As a result, banks will have to create a new product to offer user experience and enjoy the benefits from Open Finance. They’ll do that through M&A or in-house.
For instance, Itaú created a new application called Íon, while BTG bought Kinvo. Both are delivering one product associated with another aggregator. There is a lot of value there.
Giro: When a service provider has a market concentrated in a few players, generally, robustness is the most important criterion for the customer.
With many more players emerging in recent years, I have noticed a customer that is much more critical about the system's quality – in the same way, that now the consumer is to the financial institution.
In this sense, how does Sinqia track customer satisfaction indicators, and -- if possible -- how much do you think this impacts the customer's decision to choose the company?
Saldanha: Sinqia, in recent years, has been well demanded by the retail market (XP, Itaú,...) However, at the end of the day, current account everyone wants to have an automatic application for a checking account in the CDB.
Sinqia had to adapt. In technology, look at microservices, which transform large blocks into small infrastructure blocks where the cost is much lower and scales according to usage.
The idea is to understand the clients’ needs and provide a suitable API. We’re not investing in the front office because margins are tight. Instead, we’d rather sell usability, which has a tremendous value for our clients.
Giro: Sinqia is a company that carries out many M&A. Before 2018/19, acquisitions had a strong focus on customer acquisition and – more recently – began to have a complementation bias, acquiring competence that the company did not have in-house.
Sinqia has been addressing the issue by migrating customers to the same platform regarding the legacy system, which is great. Now, concerning the new product portfolio, how is the integration process going, and is there any synergy between the legacy and digital system integration process?
Saldanha: Integrating a system is easier than integrating a person. Integrate systems compete with roadmap prioritization. The big concern is when. Integration happens, but it depends on timing. The product depends on the overlapping and the company's internal study.
We realized the integration was very technical, but later it generated a much easier sales opportunity, with a much simpler cost of integrating with the customer. So, we decided to prioritize it according to the sale and avoid unnecessary complexity.
Sinqia considers integration one of the most important strategic factors for faster sales and deployment. So, there is a strategy for integrating solutions to reduce the cost of integration.
This is why we’re leaving more technical integrations. Instead, we’re intensely focused on our SaaS solution, integrated with Sinqia and a third party that bills consumption every time it passes through the integrator.
Because it's coming out of the integration technician. Integration is one of Sinqia's main strategic factors for faster sales and deployment. Or sell in SaaS, a Sinqia integration with a third party that bills consumption every time it passes through the integrator.
The product already exists and is running, mainly in funds (integration with market and registers). Our goal is to evolve and scale to take to all verticals.
Giro: Unfortunately, our time is up; Thanks again, Saldanha, for taking the time to talk to me.
