In this interview, we talk with Luka co-founder and head of growth at Berlin-based fintech Get Penta, who is in the process of re-thinking banking for small and medium businesses. Penta went live with their account, what they call open beta, this week and we have the exclusive podcast interview here for you. Tune in to learn more.
Our listeners know Luka from his two extensive interviews, where he told about his entrepreneur live before Penta. You find them both here:
Learn more about Penta on their website.
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Hey everybody and welcome to a new episode of Startuprad.IO your podcast show with news and interviews from Germany.
Jorn (00:22): Welcome everybody, this is another episode of Startuprad.IO, your news and interviews from Start Up country Germany. Today I have two people with me speaking literally. There is one person with me in my room here in my small study crammed together and we are doing it together for the first time. Don’t worry about if you hear noise or something, it is our first time meeting each other, it is just very crammed here. Also, we have a guest, Luka. You just want to introduce yourself briefly?
Luka (01:23): Hey guys I am Luka and I am a founder of Penta, which is a bank for SMEs.
Jorn (01:25): Great, then I do have here with me in the small space John. John do you want to tell the listeners something about you?
John (01:30): Hi, I am Joern’s best friend in a way that is why he brought me here. No, just kidding, I am interested in Start Up radio and I am trying to join these guys so I am trying to get the experience and see how it is going on here and then we can kick it off from here.
Jorn (01:33): John is our new addition to our Start Up Radio team and the big advantage of him, he also speaks French and he is also a native speaker of Arabic, that means we are going to have in future, hopefully, some podcasts in Arabic. Or if you are out there and you speak Arabic and you want to do a Start Up interview in some relation to Germany, just reach out to us. That was so far enough advertising to come. You ended up in Start Up space; can you tell us how this came about? It is a typical question because you don’t go to school and say ‘I want to be an entrepreneur, I want to set up a bank’. You go to school and say ‘I want to be locomotive driver, I want to be an astronaut or I want to be whatever’ but, no entrepreneurship. How did this happen to you?
John (02:01): I started my first kind of business when I was 13/14 with a friend of mine. I grew up in New York where we were selling sneakers; expensive Nikes and Jordan sneakers we sold for $500/$600 in the streets and from there I have always had a entrepreneurial drive especially growing up in New York. I moved to Paris for university where we were playing with some ideas ultimately and at 19 we set off and we travelled for a few weeks and looking for investments for this crazy idea of machine learning application and we ended up raising 500,000 through an institution and for a few years we were working on that. It has just been different even a ride of different startups even after that I have been helping others and then I came to Startups and ultimately came to Penta because I realized how big of a need it was. We will get to that in a bit.
Jorn (03:16): I know that you studied at an American university in Paris and interestingly enough I did a semester abroad there. The world is really small. Can you tell us a little bit about what you got there, like the system of education and liberal (03:20 inaudible), does it really affects the people and the decision that they are making and how bold they are in taking risks and are they entrepreneurs and doing startups?
John: I think more or less that was one of my advantages, I started studying Philosophy and I realize two years into it I actually hated anything to do with Economics, Politics, Philosophy. So then, I started learning Computer Resources and taking other courses, luckily The American University of Paris allowed me to do so I was allowed to take these courses and I had a lot of time on my own and I was mingling with hundreds of different students from other classes. I was able to (04:00 inaudible). One thing led to the next, my first event started up in school. It was a complete trip coming from academia to being an entrepreneur but I definitely would say that studying in a liberal school definitely helped me. I really don’t know, it is really about the choices I made. I just wanted to do something more fun, school was a bit boring and I needed something more exciting.
Jorn: Talking about fun, my listeners know that, that I do have a strange sense of humor but just want to make it clear. When you were selling sneakers on the streets of New York that was completely legal right?
John: Yea, I was paying taxes actually.
Jorn (04:42): The other question was – you have been talking about travelling, and trying to discover new ideas, John and I are consultants, so we are taught to use tools, and I do get the feeling that entrepreneurs do get more with experience with a feeling; with an additional sense. How did purge it and what are your recommendations for other entrepreneurs?
John (05:09): So ultimately, since I was a kid I have been reading a lot and when I came to university, I started reading a book or two a week and I remember reading this one quote from Warren Buffet where he said ‘when I started off, I was reading 8-900 pages per day’ and I said if I wanted to do anything serious with my life I have to read a lot, especially to make up for my age. But of course, practice is nothing without actually doing it. So then I set out and say I am going to try this out, the things I have learnt. So it is a mixed with all the books. Like I said, I have always loved academia in a sense but you have to apply it. So I am trying to apply what I am learning constantly. It is mix of tools but it is also a mix of actually experiencing it because theory and practice are the same, in theory but not in practice.
Jorn (05:55): Can you take us then to the journey of how you – of course you are an American but nonetheless how you came from Paris back to the states. Did you first start up – you have also shared with us an article when you did wrong in Startups that you published and we are going to put it on the show of course. Can you tell us, our listener, a little teaser, and little appetizer, what is in there, in this article for them, and in your own words your experience, everything, lessons learnt and stuff like that?
John (06:31): Actually, I think I have made every single mistake possible. I was the Chief Executive Officer of that Start Up and we were spending 15,000 on flights. We were making the worst decisions, it was just an awful team, and it was awful chemistry. It was completely my fault because I was just running the whole show. So I was just the biggest deceiver of it all and I was just trying to put people to the side. I was trying to do this – I mean, I was trying to… let us just say I was just a terrible person in running that company and that is actually the main reason it went to hell. But it is really about everything, how you choose your partners and in that Start Up I realize that you have to choose your partners the way you would choose your spouse. You are going to deal with these people for the next 7-10 years and you are going to marry them. So it is –
Jorn (07:20): So that doesn’t necessarily means that you take the most sexy person you can get as a partner to set up a venture with?
John (07:26): Not at all, not at all. It is a lot of merit of course but I thought about what this person is going to bring to the table so it is not about the sexiest person in the room, it is also the smartest and most important, the person who can accelerate the fastest, so it is also based on potentials. I look at myself and I am nowhere near perfect but check my team right now, we are smart and we have a lot of potential to accelerate potential.
Jorn (07:51): Just coming back to one of your statements, I like that – 15,000, you can do quite a lot, where did you travel? You are going back?
John (08:02): We were just making a lot of flights. The Start Ups was based in LA, we were going to a lot of meetings. One of the subjects I wrote in the article was ‘meetings are a complete waste of time’ and I still believe that today so a lot of that money was spent on these meetings and you go to these meetings and you realized that – I’d say 110% of these meetings, or what was said at the meetings could be done on Skype. So a lot of things we found out in person we realized that we don’t want to work with this person. But instead we spend, I don’t know what it was, let us say 1500 per flight just to get from one place to the next and that was absolutely a waste of time so. Also this for an example, lawyers which I can get into as well but I think lawyers for a startup are a complete waste but in the beginning you made a vow that the last thing that you need to do is copyright and the file pattern, it is just not worth it. It is not where your concentration should lie. In the beginning that is where our concentration lied, the things we executed the best on, we didn’t have to do at all. Essentially, we didn’t prove our market, we didn’t prove that there was a need for the product. We concentrated on and got distracted with other things.
Jorn (09:12): To me, it sounds pretty much like from a mindset of a big corporation, doing a lot of meetings, doing a lot of legal stuff, into the startup world and –
John (09:24): Yep!
Jorn (09:25): and twist your point of view accordingly, would you say that is true?
John (09:28): Absolutely! Absolutely, that is right on point.
Jorn (09:32): Before we proceed, just – you lived in New York, you lived in Paris, what were the best and worst parts of it? Disclaimer, we have someone working for us in New York – Christian, mental high five to you in New York City. What we experience for example, our listeners can tell when there is rain, when there is snow the internet quality goes down dramatically because they are getting water into the cables and therefore the quality goes down dramatically. There is some down sides to live in New York but what have been your upsides and what did you like about Paris, and what do like right now living in Berlin, what would be interesting to hear from an international perspective?
John (10:19): I think New York is a great place. Without New York, I wouldn’t be here where I am today. You can always leave New York but New York can never leave you. I feel like I took a lot of that with me. It is always a hustler mentality, where everybody is trying to make money; everybody is trying to do something new, trying to do something different. Nobody wants to be a copycat. I think that is cool, I like the mentality. I actually haven’t been back to New York in 3 years. I still have a lot of friends there. I think New York is an absolutely great place. I do like Europe but I feel like America is very innovative and I think in America great things are happening but I feel like Europe is not necessarily lacking but I feel like there is so much potential in Europe and it is ultimately coming to Paris. I think the ambiance in Paris is actually amazing. There is a whole creative vibe to Paris that I have found beautiful and that is where the whole thinking started. That is when I now realize it is essential part of it and there is certain things I want to do in life and there is I don’t and I wasn’t going to let anything stop me from doing the things I wanted and I think if I didn’t have Paris then I wouldn’t have realized that. Because New York, and I think everybody can agree with this especially your friend in New York, they are a very conformist people. You can finish high school, go to college to get an internship to get a 9-5 job. You can do this and get a mortgage. This is very typical, I wanted something different. That is why I moved to Paris. I was able to move to Paris, I was always looking for new things and looking for new challenges which brought me to Berlin and I think Berlin is such an innovative place and people are really fighting for it. Actually one friend came from New York to Paris and he said ‘it is the most beautiful city I have seen but there is no innovation, it is dead, nothing is moving’. It took me a while to realize that until I moved to Berlin where things are really moving. Things are really innovating.
Jorn (12:08): I can relate a lot to Berlin because I lived for years in Berlin, I did my Masters in Berlin and it is the place to be if you want to have a Startup, it is the hub for Startups for now, I would say.
John (12:18): Yea and the city is even growing
Jorn (12:20): And I would like (12: 23 inaudible).
Joe (12:29): Yes we love Frankfurt and I live in Frankfurt but my heart is in Berlin.
Jorn (12: 33): I want you to tell us about the Hoyt in Berlin, the working space. The idea of this alternative working space how you – like you want to attract more people in your team, so just tell us about it and why it is different and why did you choose it. I would also like to notice that Frankfurt is usually associated with Vintec. There is a lot of talk about Startups leaving London or either Berlin or Frankfurt where I do have to admit in the newspapers Berlin look to be more active. Why did you not decide on Frankfurt?
John (13:12): I will first answer that – I was working in a startup where more/less, I was the technical aid. We started working in a co-working space called Mine Space. I thought it was pretty cool and we started going round the business but I can’t get too much into that. The business was to come together with a lot of co-working spaces. I thought the Hoyt was really cool but the funny thing is, the press had actually wrote that we were at a Hoyt and we were going to go to a Hoyt but a lot of things changed in the meantime meaning that they didn’t accepted a Startup boot camp so in the meantime, a lot of things with the Hoyt when we were not there. But I had been to a Hoyt and I do know the people who were running a Hoyt Berlin. If you are a startup and you want to meet people around you, get to the point where Berlin and Frankfurt got to the chance – I have been to Frankfurt a few times as well but it was by chance that I found an attractive offer so I thought I’d come out there. I think there is more resources, an essentially stronger network. I have a lot of people there as well so it was also personal decision more than a business decision. I think it is good, a number of (14:28 inaudible) out there. A payment app, which is called ‘Cookies’ is out there. I know a bunch of Vintecs which are out there, just to name two, but I think Vintec is booming. It really comes down to software; it is not necessarily about Vintec and banking. I mean a lot these software – nobody is creating a new mortgage product. People are building software to change the financial industry, a bit of a different take to it all.
Jorn (14:44): A lot of our partners – some of our partners – are of all are in Berlin, we have spoken to Zumec and Zirk and for us being in Berlin is a great place to be.
John (15:15): So let me move to Penta a little bit now. If I have a startup now with small, medium enterprise, why would I use Penta, why would I not go to a traditional bank or a competitor of Penta? We talked up front and we read information you provided us. We just to have to tell you, you are on the founders of Penta Bank.
Jorn (15:33): Can you just tell us a little bit about what Penta is doing and then answer John’s question because we have to take our listeners with us.
Joe (15:38): Sure absolutely! After my partners and I, we were building a lot of businesses and we realize that – I mean for the first time – I will get to the Europeans but when we first started up, we were using Wells Fargo and we had to go to the branch to send international payments. They didn’t have international payments online. Ironically – this was a couple years ago but ironically, Wells Fargo just allowed that in the middle of July 2016. So it is pretty Stone Age. The European ones took us 4 weeks to open a bank account in Germany, and that is the average I have heard. All my interfaces were actually terrible, the processes are slow. There is no real kind of countdown. We started speaking to a lot people and we said ‘how is your bank, what is going on with your bank, what are you using?’ they said ‘my bank is expensive and my interface is awful’. We realized that a lot of people had the exact same problems. What we did, we started doing research ‘how do you build a bank’ – that sounds absolutely nuts. So we did some research into some other bank, for example, like number 26, monitoring in the UK; those are more recent and a few other banks and we said ‘hey if you essentially leverage infrastructure from others, if you partner with the right people – I mean you can build a bank. I just want to make it clear, we are not a bank, we are not calling ourselves a bank, and we don’t have a banking license. We are partnering with somebody that I am not ready to disclose right now as we are haven’t finalized anything but we are partnering with somebody to white label things for example Wire Card, Solaris Bank, Fueder, just to name a few, to be able to offer the banking service. I hope I answered your question but ultimately we were facing this problem and a lot of our peers were as well.
Jorn (17:21): Sorry to be a little bit mean here but you say you offer better banking services? And what I do understand, you want to make it easier, you want to make it faster for your clients for small and medium enterprises? And I would also say for people, contractors, and freelancers’ right?
Joe (17:42): Our initial target market essentially for our first string of data high tech companies, 3-30 employees who make below 1,000,000 in revenue per year and you are right I didn’t actually answer the first question. To begin, the processes are very slow, the processes are very terrible and they are expensive essentially but we don’t want to just concentrate on core banking where we are often just processing transactions and basically that is it. That is going to be commoditizing in the next five years. Every single bank in the world, hopefully, is going to be offering those services online and they are going to balance accounts in real time. That is not where we are focusing, that is definitely something that we first have to solve because if we don’t solve that, we can’t do the other things. But some of the things we are doing, we are completely redefining the user interface and how a bank communicates with its customers. Particularly for us, we are atomizing the whole process and we creating this – I don’t want to get into too much details but we are creating this type of system where our user is directly sees in their account and they are able to atomize and everything around it, so for example, scheduling invoices or scheduling payroll, as well as senior accounting or automating accounting from the beginning, which goes to the different tools, services and apps that we want to integrate. So it is not just about payments and deposits, it is also about the tools that this can use to us and eventually empowers themselves and this comes from, let us say, cash flow management. If you understand how your business is doing from a liquidity standpoint, you see that you are running low on cash coming up to pay day, we can offer you a loan directly from a third party service which you are able to take out within minutes. We will introduce to other b2b lenders and invest products that allows you to put your money in a safe place or a more rewarding place. So it is a matter of tools with wrapping that around the great user experience and interface for businesses.
Jorn (19:45): I do understand that. I also think it is very, very useful because anybody out there who has ever run a business, they know first and foremost, the most important thing is your liquidity. Everybody tells you it is the team but the team will soon be gone when you dint get to pay them. Always keep track if your liquidity and always do forecast even though it is only Excel – only simple Excel sheeting can help you a lot.
Joe (20:13): Yes sir.
Jorn (20:14): Are you going to redo because the experience is very, very good. There are some apps out there that would highly profit from being reviewed by Startup, let us say it that way, but in the end, on the other side, you still need partners to work with maybe a white label bank behind you that do have a banking license or maybe partners. My question is here how can you actually be different in the services you are offering here because there is banking grounding that you have to follow this rule and do and this and that. You have to be faster and better than the banks. I do understand the names, the bank that you are potentially working with they are better, they are faster but they are still banks so they have to other side and regulations of the stuff. They will also need all the legal papers that you have there. Maybe they are processing it faster but you do have to wait two weeks for some papers to be issued, it will still take two weeks. How can you accelerate that here?
John (21:25): That is a great question, actually nobody has ever asked us that before.
Jorn (21:34): It is something I want to know from the beginning so
John (21:35): When –
Jorn (21:37): I am sorry, I am a consultant in this area that is why I am curious.
John (21:35) : So when you starting off and you are speaking to this white label partner, you sit down in these workshops and you outline the different functions that you want to create, if you to KYVC, know your customers especially when you are on boarding a customer data bank. Our listeners, basically when you are in Europe, you just have to show your passport and in America, you have to show your social security ID.
Joe (22:02): And that is right and so if we are for example retail. We moment we can do retail banking with individual account within about 8 minutes. For businesses, it is much more difficult because you have to verify the executives or the officers of the company as well as see that the company is registered. So there is something that you have to do ahead of time that you have to sit down and agree with your white label partner how you are going to do it and what you plan to do. At the moment, we are sitting down with a couple of our potential partners and figure out what we are going to do and how we are going to do it based on their approval to see if we are compliant with German regulatory body or we have the green light to go ahead. So it is actually – a lot of it is pre-planned. We can already foresee what problems we will have and what problems we won’t have so coming to the question of will it take two weeks, it won’t take two weeks because we will know months in advance how long it is going to take. Si it is more about execution than it is essentially about the waiting time.
Jorn (23: 05): Ok, so now I understand. So, you are basically give your potential client a checklist and if they come in with or if they approach you may be physically, maybe digital with everything they need to have, basically you are good and you can open an account, in let us say, 10 minutes? But if they don’t have it, it will still take time right?
John (23:25): Yea, we are completely digital so you won’t be able to sign up through as branch or person. But for example, you have in the beginning – if you are a business and you are signing up, your documents from when you registered, you can upload that before you have a call with one of our customer service representatives. We will probably finish online very numbers and I don’t want to promise any numbers whether it is minutes or hours but we are aiming for it to be done in the same day.
Jorn (23:50): For everybody who doesn’t know Germany because we do have hot lots of people listening from India.
John (23:54): My state up there?
Jorn (24:00): Yes. In the UK, there is the public register, in Germany we have the German version of NL TD or PLC; it have to be registered. We are talking about more or less official – we are talking about official printouts like it is a trading registered printout. You are going to have to show that it is validating, that this company is really not a hoax, it is registered with this court. You have to do it in the lower court in Germany and it is registered with this number with this part here and there and you can always go there and read everything up from there. Everything that is stated there also has what you call in Germany, public faith. That means that you can rely on everything that is written there.
John (24:53): That is completely right and that is exactly the issues we are trying to solve so we can do it extremely quickly.
Jorn (24:57): And f course, you are going to have a lot of people approaching you due to our interview. But how are you going to get our clients and we just talked about some current account banking and you are going to have a third party for loans, third party for investments, products. What are you going to actually offer the client except from the payment services?
John (25:20): Do you mean us as a bank or us as a whole product offering?
Jorn (25:23): Everything you got to offer.
John (25:26): One of our reasons that, if we can’t do something the best in the industry, we are not going to do it. So what are ultimately offering is what we are best at and what we are best at is to essentially offer the different product and services that makes sense for businesses? So different businesses have different needs, whether you are a one man’s show, a cab driver for example or you are a 3rd person business or a 300-person business. It is completely different. Ultimately, we are aiming to offer curetted services and tools for specific type of businesses. Essentially, our job to create what they need – a lot of it will be coming from us. A lot of it, we offering the products ourselves whether it be loan products and different products of course until we are able to get the license. We can’t exactly do that on our own but it really depends on what we see that a business see and what we can do to innovate as a company.
Jorn (28:20): Cool, just as I understand it, cool but how would you reach those people, like how would you get your target market and how would you convince theme
John (28:30): I am a cashless Startup and I need deposits and I need loans and why would I get Penta Bank and how would I get to know about Penta bank?
Jorn (29:00): Another question, is this playing devil’s advocate in a way, I really find it bold that you are going into the banking industry at a point in time like this, like especially in the German market, if you see those institutions like for example Virtue Bank and Comets Bank, like those guys have lots of problems and there are kind of so many critics of the banking industry. They are all saying it is going to be controlled by the European Central Bank for example, and the Buffing in Germany as a lower, local regulatory body. How do you see this as a challenge for you and how do you see this an opportunity? Bigger banks are having problems, how can you fill in and how can you actually survive and some critics are saying that banking is actually dying now?
John (29:52): That is actually a great point, I actually forget that. Please remind me but those are financial troubles. Those are regulatory perspectives. (29:59 inaudible) they are not looking too good from a financial perspective. They are leveraging themselves too much and it is typical banking, I want to say it is the same obviously, but it is quite similar. From that perspective, it is mainly financial problems. It is the same problems oriented around – it is usually on boarding customers and essentially offering the best services and the banks are creating this long-term effect with their customers where they we not allowed to, essentially the users to offer the same product they are offering. Whether it is loan product. We are planning on offering different services to everybody as a whole.
Jorn (30:49): That is pretty interesting. We will be looking forward to a new bank and of course, we would be more than happy to have you back on a second episode to tell us a little bit more about it.
John (30:57): Sure! Absolutely, absolutely.
Jorn (31:00): thank you for this Jorn.
John (31:02): Thank you very much Luka.
Jorn (31:03): Yes, thank you, great to have you here.