Reinventing Banking for Property Managers - with Enrique Sanchez from IESA (Aareon Spain)

[MUSIC] A good and better finance product can provide various benefits to the users. Often one of them is a better access to financial products. In today's episode, I'm speaking with a Spanish company that makes it easier for property managers to run the financial activities for the clients. This customer group has been mostly ignored by traditional banks and there were no tailored products available. My guest is Enrique Sanchez, who's the managing director of ESA, which is part of IRON Group. ESA offers an ERP software for property managers and launched an own banking product last year. I'm speaking with Enrique about why they decide to offer financial products, what the benefits for the customers are, and what they've learned since the launch. Welcome to the Embedded Finance Review Podcast. My name is Lars Markle. Every two weeks, I'm interviewing the builders and shapers of Embedded Finance. And are you curious how to monetize your client ecosystem? Then take a look at Connect Pay, the sponsor of this podcast episode. Think of Connect Pay's Embedded Finance as the engine under your business hood. Financial and non-financial businesses can leverage the scalable banking or the service solution to create more opportunities for clients in the EEA. Discover seamless payment and financial experiences. Visit ConnectPay.com. And now let's dive in. Hi Enrique, how are you doing today? Welcome to the podcast and in what part of the world are you actually located right now? Hi Lars, thank you for having me today here. Right now, I'm in Madrid. Yes, I have facilities. I'm in my office. Madrid is home for me. Nice, nice, nice. I'm based in Berlin. If my listeners know, I actually is a sun shining right now. But otherwise, I still see a lot of snow. I guess it always when I talk to people in the more sourds, getting a little bit envy about the weather. I guess this is the same today as well. Yeah, today's cloudy here as well. Although we have three days in a row, very, very sunny and very, very nice days, but today's cloudy here. Great. Let's dive in. Previously in this podcast, I speak with a lot of different companies from around the world who build embedded finance products. I'm typically most excited about companies like yours. Those companies who are not fintechs, who are not banks, but they develop and offer financial products. And obviously from my side, but from the embedded finance industries, there's a lot of interest to understand better what kind of products, what the kind of financial products. But before looking into detail in the financial products, I'm actually first quite keen to understand a little bit the companies behind there. We spoke about this in the pre-chart as well. There are two go-banns. There's yes, there's a rear-run. Different companies in the background, the mix would be great, I think, for me, but also for the listeners and Riga, if you can describe a little bit these different kind of companies and what their core business is before we dive into the financial product offering. That, absolutely. Well, it's a software company that was said at 40 years ago, actually, it's our 40th anniversary this year. And we develop an ERP, especially customized for property administrators. And we have also a portal, which is kind of a meeting point for PAs, property administrators, sorry. Homeowners, associations, owners, tenors, and contractors around the building. It started as a software company, of course. But along these years, we have developed some business layers. Now we could say that we have a field tech business layers on top of that. Also, a legal tech layer. In some aspects, we are kind of a marketplace as well. We finally provide with products and services for PAs, for Honeowners, associations, and contractors and owners and tenors around the building. And Arion is the absolute leader in real-estates of our solutions in Europe without a doubt. Okay, that means, like, for my understanding, or for the listeners. Yes, there is the Spanish unit, so to say, or the Spanish brand that Arion is using. And the software that you are providing in the Spanish market, like for homeowners and in the real-estate segment. Those are similar companies, also in other European countries, under potentially other brands, but also under the Arion group, right? Yes, that's right. And can you describe maybe a little bit like the, I mean, you said, of course, Honeowners associations, specifically, I guess, look at this Hone, associations a little bit more in detail, but like, what kind of companies are exactly using these software products? I mean, others understand all of them have maybe properties to manage, quite keen to understand what do they exactly do in this kind of software? I mean, maybe there are some people out there who are in the similar industry and know very well what this means, but maybe for those of us who don't know so much about the space, what do they exactly do with the software? And maybe, all it's very interesting for me is, what size of these businesses? Are these like more like small family-owned businesses or other speaker cooperation? Quite keen to also get some light under that. Yeah, yeah, for a very understanding of the Spanish market, for example, from my colleagues in North Europe, now I have learned that, for example, in Germany, 30% of the units are social housing. But it's a little different here, only one or two percent of the total market in Spain is social housing. So mostly, everybody here lives in a Honeowners association. These Honeowners associations are run and managed by a professional, that is called here, property administrator. There are 15,000 property administrator here in Spain, and they usually manage all around the buildings. The issue, they mostly receive that the owners must pay to keep the building in good shape. They contract with different providers, they should contractors, they maintain themselves with the building, they pay all the voices of the building, water in electricity, etc. And is it fair to say, let's take a very concrete example, let's say, maybe not I, but somebody is building a completely new building, a new complex, maybe in Madrid, and basically the property is now finished. That means at that point of time, typically, we put the owner or maybe the company behind us, but they would then look for companies, this kind of like a personal company to basically help run all these things. So basically, this company that is right right now is providing services for these owners of properties. Yes, but there are not many so simists here in Spain. So mostly what happened is that a company starts and finish the building, then sell the units to people and then these owners who contract the property administrator to manage all the things around the building. And those two buildings are property managers and basically take care of the stuff that is in regard to the whole building. Everybody has their own units and takes their own four walls, as you say, but then of course the property manager is responsible maybe for the outside wallets of the building and the roof and all these kind of things. And is it unfair to say that with ESR in Spain, but also maybe Arion and other countries, the software now that you provide is basically for these companies who manage these properties. So then quite keen to understand what do they exactly do with, let's say, what is the core features of ESR software that most of these customers would use? Yeah, the main product that we provide with the property administrators is our ERP, is the tool that they manage the buildings with. They define how many units are in the building, who are the owners, who is going to be the budget, the girly budget for the building, they issue the monthly receipts, the monthly quarterly receipts, that the owners must pay to keep the building in shape, they contract many times signed on behalf of the owners, the contract with contractors, and take care of the building in almost every aspect. Even when there is some kind of controversy between two owners, they are kind of a referee, you know, to solve the problem. Understood. And did you say the approximate market figure for these service providers are like 15,000 in Spain? Yeah, 15,000. Okay. And they basically use your software or basically to perform all these connectivity in regards to the properties. Yes. Our figure is like approximately 80% of the PAs are using our software now. Okay, interesting. And now let's come now to the financial products. I think you're in the reduction. You mentioned already there's a I think it's a FinTech layer, a legal layer as well, like different kind of like aspects that probably will see ERP you kind of like going into. So obviously here on the embedded finance review podcast, quite keen to understand the little bit better, the FinTech product, the financial product you're offering. So maybe you can you can describe the the call product offering, and then maybe we can dive a little bit into details as well. Yes. Well, two years ago, we realized that property administrators and home associations were not top customers for traditional bank, because they are on a small group. The PAs are in a small group. They didn't have a customized bank account for them. So we We realized that we were in the best position to come up with a unique product for me. And maybe to describe, I mean, maybe for a person like me, who's basically in Germany, who doesn't exactly know how this homeowner association work, who would open this bank account? Is this like the service company who's providing the services? Would they open a bank account or who's actually the entity owning this bank account? Or maybe in the old world, who is that person walking to the bank branch and trying to open the bank account? Yeah. Following the law, every homeowner association has to point out a president of the homeowner association, who is the legal representative of the building. Okay. So the president and the PA come together to a bank office to open the bank account. And that's basically like how, to believe, let's say in the past, how this would have been happened. So basically, there are no this, let's come back to example, there's a new property in Madrid. Company build it, finished it, sold 20 units to 20 different individuals. And then one of the first things, these 20 different parties, individuals who are sport, these different flats, they have to obviously contract a company who manage the property that will be discussed up before. But also an addition have to appoint a vote for a person who's becoming like a legal representative because at the end of it, but what I'm guessing is now you open a bank account and what I assume correct me if I'm wrong here, the bank account is opened. And then every, let's say, it's all equal in this case, all 20 individuals party pay in maybe on a monthly or yearly basis, they pay in a certain amount to this bank account, which is then being used for expenses that are related to the whole building. But obviously, it wouldn't be right that the service company is owning this bank account and having access to those funds. I mean, they might be having access to the funds to spend them in the name of the, of the whole owner association, but at the end of it, it's not their money, right? So this is basically the reason why the, the point is that every single year, the president of the, of the building of the whole non-society change in by law. Okay. So every year, the, the property administrator and the new president, an old president must go to the bank offices, oh wow, physically to change the person who is authorized, you know, to transfer money or to pay receipts or whatever. And so it's happening the neck for PAs and the presidents, you know, to spend a lot of time in the national offices, etc. And then focusing again a little bit on the, on the past, let's, let's describe it the past, where these two individuals would walk into a bank branch. You said, I think initially already that it was not always easy for them to, let's say, to find a bank or to open a bank account. And I'm not sure if you have a view on that, but how it generally like banks thinking about these accounts for the whole owner association. Like from my perspective, I mean, typically when it comes to banks and these kind of like bank accounts, obviously, they are either, I don't know, either they want to make money directly with these bank accounts or obviously potentially through, through cross-selling of other products, insurance products, investment products to individuals. I guess this second option is not really here any, any, any realistic scenario. So basically they have to make money with the account itself, which again might be also probably quite complicated depending on the requirements. So was there like one bank potentially who was like really focused on these kind of home owners associations or did that more depend on where the president has his home bank account, the first president and then tried to kind of get to the end of the, yeah, absolutely. Right. The point is that they are not top customers for traditional bank because they cannot offer the and selling a lot of a large portfolio or financial products. The only thing they can do is offer a bank account, maybe a credit card or a debit card in 10% of the times. Once every 20 years alone, if they need money to repair the fascia or the food or whatever. But they are not like all their kind of customers that they can offer very complex financial products, etc. So that's the point because there is not customized and personalized bank account from traditional banks for PS and home associations. And that's the point that we realize, okay, our customers need it. Actually, the property administrators ask us to say, okay, why don't you think of opening a bank account for us? What was your first reaction when customers told you that were you like excited, yes, let's offer financial services or rather has it to get into the space at all? Well, actually, I thought, well, they're right. They're right. Because it's true that they spend a lot of time doing routine tasks that could be automated and they are spending a lot of time wasting actually a lot of time in a bank office. Some of our customers said, okay, I spent one morning a week in the bank office doing some routine stuff. We thought, all right. We need to do something. It's real that many years ago, we started another financial product with what is a financial aggregator. Every day, we download all the bank movements from the home association bank accounts into our ERP and then we have robot that we design rules in order to account in all these movements automatically into our ERP. And it's used right now is more than 7,000 PSR using these tools and are very happy. So we thought, why not? Why not? Step forward, you know, a little more and open this digital bank account. So we started thinking about this. We did the research with the Spanish central bank to say, okay, what would we do? We need to start to get our own license. We realized that it was a long path and it was very time-costing to get our own license. So we open the range and say, okay, let's find out if there is someone else outside that we can partner with and be very quick, you know, to launch this product. So we started conversations with five different potential partners. We reached an agreement with Juan as a banking necessities platform and is working. I must say, it's working very, very well. We understand each other. They have been very flexible trying to understand because they are friends. Their headquarters are in Paris and they didn't know exactly how this market worked in Spain. They have been very flexible. They have followed our guidelines, you know, and recommendations and the collaboration is going very, very, very fluid. It's great to hear now. I think how you have described it with potentially a look for your first step in financial services or I mean, you described it as the aggregator part, the Fintech term, like I know, first you used open banking to access existing bank accounts and basically you only use the data than to feed into a system, but obviously as you describe it, there's a benefit of getting these data into your systems, but obviously there's still a lot of other hassle that the customers have with like opening these bank accounts and managing it outside. But I would then quite keen to understand, I mean, we spoke now quite a bit of questions around the old times, how bank account opening and the process works on the old time now from what I understood. This is now Tukuban, the brand that you launched where you offer these financial products in cooperation with Swan to home associations in Spain. How can you describe like very high level, like how does the customer journey look like? I would assume it's a pure digital product. That means the home owner, president of the home association sets that home and goes through the whole process. Maybe you can shed some light on how it now looks like for these to open a bank account. Yes, sure. The beauty of this product and what makes it absolutely unique is that it's fully integrated into our ERP. So in this ERP, there are a lot of docs that are usually are needed to open the bank account etc. So we don't need our customers to enter the docs anymore or again. Because we have some already. Because we have already into the system. So for example, to open a new bank account is at two steps, a digital process, very simple. First of all is they choose the home associations they want to open the bank account for. We realize the docs and then they say, okay, we approve all the tens and conditions that are needed to open the bank account and it's done. Or I don't know, issuing the monthly receive that the owners must pay is literally a one-click process into the system. They say, okay, this is their home association. I want to receive the receive, then the system realized. that this building has a two-band bank account of saying, "Okay, it's done. Don't worry anymore. All the remitants are issued and the process is okay." Or, I know, when the president of the Hongan Association changes, the only thing the PA has to do is update the documentation that is saying, "Okay, the new president is this guy and then we send a check to the phone number and email to this new person." I'll say, "Okay, we update the docs and that's it." So, we save a lot of time to have money and since everything is or almost everything is optimized, we can reduce the monthly fees that the Hongan Association of Paving are paying, actually. So, we are trying to save at least 40% on the monthly fees that they are paying. Almost everything they need to do is inside and integrated into the systems. I think the typical embedded finance language, when we talk about embedding financial products into other software and solutions, I think it's always a typical example. I think here it's also very clear as well. In the old days, you have your ERP and your bank account. Yes, of course, you can, as you described, download the transactions on a daily basis and feed them into the ERP system. But I think everybody can very easily understand when this is directly embedded in the ERP. There is so many more benefits because you can basically operate or use a financial account exactly where you're needed because typically you might even so you can feed the data in. There's probably a couple of steps you have to do in the ERP and then you have to switch the person who's using it as to switch them to the bank account, to the online banking does it over there, then switch back and operate it there or basically operate to systems. That's obviously now embedded into one. And furthermore, we are implementing some checks and alarms that we know that usually the proper damn instead of myths, for example. When a new contractor is issuing a receipt to the bank account, we put it at the flag and say, okay, this is the first time this contractor is issuing a receipt. Are you sure it's okay? Or for example, if the monthly watering receipt is increasing 20% over the monthly basis, we raise a flood and said, okay, this time you're paying 20% more. Maybe you have a leak in the building, so watch out, you have to control this or that. And for the future in our room, there are a lot of things including AI that we can check patterns from similar buildings and say and make recommendations to our customers saying, okay, you have the same profile. This building has the same profile that others around the area and you are you are you have 20% more colors in watering and electricity. So you are throwing tons of CO2 to the atmosphere and you should reduce it. So we recommend you control and check this or that. And I guess you could always argue while these features could also be offered and implemented with the aggregator/open banking solution because you also have the same kind of like financial data. But then again, from reality, reality, what I know as well is once you operate this bank account and you have full access, real-time access to all the transactions, you also start thinking about them very differently because now it's not just a different financial provider who's offering these services and you try to to match the data, but this is your product now. So you're taking it to another level to think what else can you would do in. And I guess especially the comparison to other properties is something which of course only a company like yours can basically do where you can say like give guidance to the president to perhaps what is potentially something worthwhile to look into. Yes, of course data protection is a very important theme for us, but respecting of course that the protection we can make recommendation and of course there is a lot of thinking about this because I think we can help customers to reduce their monthly receipts and health, you know, the country to reduce the general consumption in water and in electricity. Water is a very important thing here in Spain. And then I really remind me when did you or before listening as well, when did you launch this product like when did you go live with Tukoban and what is your what is your plan with promoting these products right from what you described right now from my external view. I would say well the most easiest parties to target if those who don't have a bank account yet basically those who are getting started very fresh and they don't want to visit their local bank branch those probably would be like good parties, but in where you also describe there are quite some benefits including cost saving when switching from a traditional bank to your solution. So quite interesting how you're currently thinking about the go-to market, the promotion of these services and maybe how also would it look like in the next months or years when when it needs better understanding of the customer usage. Yes, absolutely. We set up this product last May, last year and right now more than 500 PAs per administrator are using the tool. Monthly around 50, 60 new PAs try and test the tool and open two or three bank accounts. Monthly we are opening, I would say like 400 new bank accounts. And yeah as long as they are using the tool and they spread the world and the experience you know more customers are approaching us and say okay I hear a lot of good things about this product. I would like to try with one of my buildings whether one of my honours associations and experience if what other colleagues are saying is really true. And of course it's quite obvious that what I just realized that obviously you target the PAs right there. So service company is not the home association directly because at the end of it you are at that point of time don't have a direct relationship with them. But obviously maybe a this a PA who is potentially managing a couple of properties and then maybe there's a new one or maybe just one where it's struggling with the bank at the moment and then takes a switch and then obviously this one PA is not just like potentially one customer, one bank account view. This could be a lot more depending on the size of service. Yes, our process more that more B2B2B or B2B2C approach than our B2B or B2C directly. We go obviously through our customers that are the proper administrators, share all the information benefits for them, for the honours association and then they decide to come to the president of the honours association or all the owners and say okay I'm thinking about this or I want to propose you this new product and this new new bank, new bank, what do you think about it? And you see a much of an answered with question but you said of May you launched it so I mean now you're recording it here midfieldery so it's not a not a full year yet but coming to a full year. Is something learned in the last year while offering these products that you that you didn't know before? Is there some initially I guess there was a very clear understanding or potentially you thought you were very clear understanding how the product should look like but then we all know like going out there was a new product and getting feedback from the market and something changes. Is there something that has changed in the last year for you? Yes of course because our customers almost every day come back with some new ideas or saying okay it will be great if you implement this or that or for example at the very beginning we didn't think about having our own debit card and now we realize that not every time not for every building but sometimes it's needed. So in two or three weeks we will be setting up our own debit card for example but that there are many other things that we will share that ideas that because they are using this tool every day so on average they manage 50 to 60 buildings so they have a lot of ideas that sometimes we didn't realize that they could be a really good idea. Interesting. Enrique the very first one very very quick question the podcast was also around ESR as part of our own group. Obviously now you spoke about the financial product took a ban that you launched in the Spanish market quite keen to understand as well is this like something that happens in the group only with ESR in Spain is there is there some kind of similar initiatives also in other European countries obviously the home owner association might be something very unique to specific countries but maybe not only Spain so quite keen to understand if in the group is also some let's say some embedded finance, FinTech activities. Just, well, pay is being a line of services for a long time in a real group. But there is no other country that has set up a digital bank account yet. But our colleagues are watching us and following, you know, the development of this new product and are eager to know more. Well, we don't know what what next, but yeah, why not to export this idea to other countries. Exactly. I mean, this is obviously with your company, the service you offer very tailors to the real estate and property management. I think in general in Fintech/Metat Finance, we're seeing a lot of different vertical software providers specifically that are some kind of an ERP element who are looking sooner or later to integrate some of these financial products. I guess it's like a new example. It's always extremely helpful if the current solution is rather painful. And I guess specifically, maybe not an expert in this, obviously, but maybe specifically the yearly change of president and changing these things is some additional friction in the process. So even somebody who was successful was opening a bank account still counters this issue on a regular basis. So it kind of pops some of their head as well. Why is there. I mean, now everybody not everybody, but we're seeing a lot of digital banks for out there. So obviously we are also getting trained like banks don't have to be clumsy and old school. Why isn't there something better for this account as well. And this might be makes your your marketing and go to market easier as well. And the digital bank accounts are ready mature now. I mean, I don't know, but I read that very well. Last year, I acquired like a million new customers in a year. So it's it's not these. It's trench to ignore on the side anymore, right? It's something like very very present and very, very reasonable. Great, great, very interesting things. Thanks for sharing all the insights. We connected a couple of weeks ago. I obviously read the announcement when you launched the product last year. It was always quite interesting to understand how the financial products work for the property managers. So thank you for sharing all the insights. If there's a list now out there or a party out there who wants to learn more about you and to the services, maybe specifically embedded finance product. What's the best way to get in touch with you or to learn more? Of course, all our channels are open. LinkedIn, YouTube, of course, our way to date and our telephone here at the office. So everybody's welcome to join us to being honest. Amazing. And I'll make sure to follow to see the next months and years, what kind of like other financial products you are potentially looking into or how the adoption is. So maybe we can do a catch up in a couple of years and take a review of the past years. But for so far, thank you. And yeah, until next time. Thank you for listening for more episodes and our weekly newsletter. Please visit embedded finance review dot com. And please reach out if you have an interesting embedded finance story to tell until next time.