The businessman who makes profits from EU red tape
The Single European Payment Area comes on stream in February and Sentenial is ready for action, writes Donal O'Donovan
AN obscure line in the Lisbon Agenda back in 1990 was missed by most observers, but it sent Kildare man Sean Fitzgerald scrambling for a solution to the European electronic payments muddle -- when it couldn't be found he set up software company Sentenial, to provide the solution himself.
The line did no more than set out an aspiration to replace the EU's then 15 different bank settlement models with a single code.
"I was working in an international chemicals business and we were coming to understand that it was relatively easy to consolidate factories in Europe and work across borders -- but much harder to consolidate receivables and administrative processes," he recalls.
"The reason was there wasn't one payment instrument, each country had a totally separate system -- it became clear processes could not be centralised," he remembers.
It's why the line coming out of Lisbon about establishing a Single European Payment Area (SEPA) caught his eye, when for most people the decision to establish a single currency -- now the euro -- was the big news.
"The currency came first, but it is only one payment instrument -- the cash element," says Fitzgerald, who after two decades is totally absorbed in the minutia of how the SEPA process would develop.
The theory behind the political decision to shut down old legacy payment systems and go for a common scheme to serve 500 million people is that the efficiencies created will add as much as 3pc to European gross domestic product (GDP), he explains.
SEPA will finally come into effect in February this year, and Fitzgerald is ready.
Over the past 10 years he's built up a software company based out of Maynooth in Co Kildare that now employs 188 staff.
Their moment has finally arrived -- but it's the beginning rather than the end for the huge project, he explains.
"I saw this as something that was going to be a huge disruptive business opportunity -- every bank and every company has to disconnect and re connect their payment systems," he explains.
"That was the regulatory driver."
At the same time the technology was changing. Fitzgerald's back ground was in IT hardware -- the printed circuit board industry in particular, but the problems thrown up by SEPA would need a software solution.
"The pipe, the ability, to delivering software was getting bigger and the technology was developing to sustain delivery of software as a service (SAS)."
In the old days software companies created a product, put it on a disc and installed it on the buyers' computers. The user was charged a license fee.
The problem of payment systems had gotten under his skin, but Fitzgerald had a day job, working as an executive for Shipley, now part of Dow Chemicals.
"SEPA had gotten onto my radar, but it wasn't the companies business and it wasn't going to happen for a while," he recalls.
In the meantime he played around creating systems to help manage payment processes in his own time.
The trigger that eventually pushed him to go out on his own was a conversation with his local bank manager, at home in Maynooth in 2003. That's 13 years after "Lisbon".
The bank manager had a customer who wanted to set up banking accounts with direct debit authority.
"He didn't want to do that because the customer might make a mess of it and the bank manager would get it in the neck."
Fitzgerald said he had the solution -- the "front end" system he'd been developing at home, he had his first client. He just didn't have a business, at least not yet.
Early customers were subscription-type business including the then rapidly-growing gym sector.
"Word spread a bit, but it was all happening informally, bank managers at the time had a key role in business customers," he remembers.
Fitzgerald hadn't yet given up the day job, and wasn't ready to take on full time employees.
"I knew a bit about the technology, but not an awful lot. I went down to DCU and I recruited three guys part time," he explains.
The young team began developing more sophisticated software.
The three graduates who joined in 2004 as Sentenial's first employees are still with the business; Brian Hanrahan, Ciaran Hanly, Enda Dowling -- and today make up much of the senior management team.
So the grand idea of SEPA was not happening but Sentenial was up and running. Fitzgerald quickly gave up the day job and the business started to expand.
"Revenue built up quickly in 2004 and 2005, we went to the UK and won first our customers there -- again in the payment processing side working within the old national payment rules."
"We were always aware of the SEPA objectives, we always built that idea into the business," he explains.
That came at a cost.
"From a very early stage we got the ISO qualifications and the information security standards."
"It was an investment cost early to do that -- but it would have cost more to put them in afterwards, this business was built to be a big business."
That investment carried on even in 2006 and 2007, when it looked like SEPA might not happen.
One thing that gave Fitzgerald the confidence to carry on was a relationship he had developed with Charlie McCreevy, the former minister and EU Commissioner.
Conversations with McCreevy convinced Fitzgerald that SEPA would happen.
They hit the road, attending banking and trade shows, positioning themselves as experts, and setting up offices abroad -- initially in London.
Costs were starting to mount.
London mattered because banks would be the big users of SEPA processing systems, but by 2007 and 2008 those lenders weren't the cash rich customers they might have been. Banking was on the floor.
For Fitzgerald that simply created a new opportunity.
"Banks now have highly constrained capital budgets which lends itself to our mode of service," he explains.
If banks were to create their own new payment structure that cost comes out of their capital budget, but buying in software as a service is current expenditure.
Hiring in a software provider like Sentenial means the onus for keeping systems current is on the software provider, not the bank, which also suits lenders, he says.
It's a bug bear of Fitzgerald that when it came to winning the big bank contracts they initially did better abroad that at home.
"Our first two banks RBS and ABN AMBRO -- prior to their merger, we only won bank customers here after we proved ourselves abroad," he says.
That hesitance among Irish institutional clients is just a fact of life, he says, but notes that in France -- which remains a powerhouse of innovation -- the habit for customers is to buy French.
As a small, young software business Sentenial partnered up with bigger more established players to win those first banking contracts -- prime contracting with incumbent suppliers to get a foot in the door.
As they got more established that was no longer required.
"You have to be good at contracting -- leave no hostage to fortune. They all try to hold the intellectual property (IP), you have to make sure you have the flexibility to achieve your business objectives," he says.
To do that you need to be clear about what those strategic objectives are. For Fitzgerald its always been about building up a big European business.
SEPA would be the trigger -- but once it comes into effect two months from now, it wont be the end.
"We had started out funding ourselves but we needed money to internationalise," he explains.
He secured backing from a group of "high net worth individuals," crucially including Kevin Lomax -- who had build up listed IT giant Misys.
Given the scale of the business the cash raised has been modest -- around €7m since 2006.
Sentenial has a turnover of around €14m and is profitable -- just, but a step up in expansion will require a further round of growth capital, he says..
Options on the table could include a stock market flotation or, more likely private equity backing, says Fitzgerald.