The real fintech-revolutionary with the dream of a digital money system
The Barion story started at the university and from a hobby project it has become a billion worth enterprise. The TrustChain Blog asked Sándor Kiss, founder and CEO of Barion Payment Zrt.
How was Barion born? Do you still follow the original idea or has it changed over time?
It all started at the University of Economics in Budapest where I was studying at the time and I was granted a scholarship in the Netherlands in the late ’90s. There were a few things over there which I really liked. One of these was a card that looked like a standard phone card with a chip. However, you could not only use it for making phone calls on the street. You could pay with it in the university clubs, in the canteen, in a bunch of shops and you could even use it for parking. For me it felt like a kind of digital money. And then it came to light that it actually was a kind of digital money. The card could be charged via ATM machines and what I really liked that you could initiate immediate transactions with it.
After the scholarship I came home to Hungary and we launched Sense/Net Kft. which operated as a classic web developer company already during the university years. It was followed by Enterprise Content Management but I didn’t let go the idea of a digital money system. Sense/Net had been already operating for a few years when we received a research and development grant for a cost optimizing system based on transaction fees.
We started the development process when it came to light that what we called digital money before actually qualified as electronic money from a legal perspective. The EU just released the draft version of its new e-money directive at that time and we were learning about the current legal background.
We were dreaming about having a digital system without cash, where the transaction costs are as low as possible, which is convenient for the users, where money can be transferred quickly, and one can pay either online or offline – and we have been developing this dream ever since.
We wanted to make a money system with the supervision of the Central Bank of Hungary originally, too. Our aim was not to operate beyond the existing monetary system. We wanted to stay within its frames. It was also part of the original conception that if it is approved by the client, we gather information about their purchasing preferences, so that we can provide them with better quality service.
Did you have any concerns about the customers being protective of their data?
We are only interested in purchasing preferences. However, we didn’t oblige anyone to provide information. If they approved, it was fine and if they didn’t, it was fine, as well. There are many people afraid of their data being misused, while they use e.g. Facebook without any restrictions. This is a grey zone. We still don’t know what the ideal state of this would look like. One thing is sure. If we don’t disclose any information about ourselves that’s not efficient, neither from the society’s, nor from our point of view.
We believe in the protection of personal data but if important information can be delivered to people, which is beneficial for them too, they will be open to that.
In the US, Visa and Mastercard sells Google the data relating to purchases, including the amount and the location of the purchase. This would be unbelievable in Europe. It would cause a huge scandal, people would be outraged.
How would you feel about this?
I would like to be such an important person that it counts but otherwise I wouldn’t mind. These stories are analysed by computer programs and they don’t judge me. For a computer program there is x and y and it doesn’t talk with people. The problem is when the data collected exit the given system. I would penalize these cases.
Barion brand is associated with more casual communication. Did the users accept it immediately?
Well, the reactions are mixed. For many, it is new that they are addressed in such a direct way. Our customer service desk faces many challenges, mainly due to the gaps in our customers’ financial literacy. There are significant deficiencies in people’s knowledge of the operation of debit card payment systems both on the side of card users and card acceptors. They are not aware of their possibilities, rights and liabilities. It has happened several times that the purchasers came to us to claim their money, when e.g. the shop didn’t deliver the given product. Nevertheless, shops are not really well informed either.
We operate a fraud detecting system (Barion Fraud Buster), which informs the shops about any suspicious transactions. Most of the shops don’t care about these warnings at all. We inform the merchants both via e-mail and API and later they don’t understand why money was credited against their bank account. Many customers don’t even know about their right to get chargeback.
Is the situation any better in other countries where you are present?
In the Czech Republic the end users are better informed. Although there are gaps on the merchants’ side there, as well, much more customers know the chargeback mechanism and they also make use of it.
Among the domestic service providers you were the first one to receive the certificate verifying the compliance with 3D Secure 2 standard issued by the two big card companies. Do you think this procedure is burdensome?
In the case of online purchases, operating in accordance with the new legislation requires a rather complex standard and there haven’t been enough time for it to develop. It’s a procedure with many steps, not all of which are specified in the relevant documentation. Loads of data need to flow, and in many cases not even their format is specified. It was one month before the deadline, by mid-August, when we could more or less agree with Mastercard about the exact content of the fields. While by this time everyone should have finished the development.
Although we were the only ones in Hungary to receive the certificate for operating the 3D Secure 2 system issued by Visa and Mastercard, the card acceptors behind us haven’t finished their own systems so they still cannot accept the authentication data which we would send to them.
The other problem is that in Hungary there are no debit cards protected in accordance with PSDD2 RTS. So for the time being it doesn’t get us very far that we have finished the system, since we still cannot launch it.
What is the real limit?
The Hungarian legislation referring to fintech companies means an enormous competitive disadvantage as compared to other EU countries. If there were 20-30 other fintech companies with the relevant certificate even in different fields, there would be examples to follow but for the time being there aren’t any more companies with such a certificate. And being a pioneer is always a very special burden.
There is a high probability that Barion will move to Lithuania or another jurisdiction with fintech-friendly legislation, where fintech segment is especially important for the government, which the companies can actually feel. We would like to work in an environment where there are also others who can help us and we are not left alone with the problems.
What is the Barion team and its atmosphere like?
Since in Hungary we are the only e-money issuing institute operating with the permission of the Central Bank, there are a bunch of things we need to find out. We work in close cooperation with the Central Bank, nevertheless, since they don’t have any example to follow either, there are a lot of things which we are learning together. This is a very exciting part of our work, which our staff enjoy a lot. However, those looking for the routine and familiar things, don’t feel good in our team. We often find ourselves in the unknown path, our work entails much brainstorming, and sometimes challenges come, for which we cannot prepare at all.
Which milestones have you celebrated with the company?
The first one was when we received the permission. Then a few months later we also celebrated the launch of the system. But even the first e-money payment transaction took place while we were having a few beers. The other big party happened after the Series A investment.
However, there were a few things that went real bad. For example, in the course of our international expansion we were already in the phase of preparing the agreement with a card acceptor, we had all plans and then right before the expected date of signing, the agreement suddenly failed. That was not nice. It meant a good half year suffering because we had already been developing, there were loads of legal work in it and we threw HUF 10-15 million around. The other hot potato was the time factor: we originally planned to enter the Czech market in April-May 2018 and we finally managed to start only in October.
How do these negative experiences affect you?
I am really resilient, usually don’t end up yelling, rather try to look for a bypass. The biggest challenge is to find the appropriate persons for certain positions. It is very difficult to find managers who have a startup mentality, are able to work hard and possess the appropriate skills and experience. There are positions where we have succeeded but there are also positions where we had to start to recruit again, which takes a lot of money and time.
It can be rather difficult to balance between leading Barion and private life.
My two children are the most important of all. I try to spend as much time with them as possible. Barion only comes after my family, although it is not always reflected in my time-table. It takes much effort from me and my wife to squeeze in everything.
What else do you have time for?
Two years ago I decided to learn ice skating because I really love ice hockey. I am a very enthusiastic fan of MAC Újbuda and Fehérvár but of course I support the Hungarian national team, as well.
I have been always watching the layers skating in the games, I was fascinated by their speed and by the fact how quick they have to make decisions. I also loved how beautiful the aesthetics of movement was.
At the age of 42 I enrolled in a senior skating course and I was stumbling on ice. By now I have started to take ice hockey lessons on a regular basis. I can make it twice a week. In the meantime my daughter started to play ice hockey as well. it looks like it had the effect that I was taking her to the games so many times. In the women’s world championship we missed only one game this year. I also used to paraglide but with two kids it would be difficult to fit it in. When I had more time, I used to read literature.
How do you see the future in respect of you and Barion?
We are just before the next investment so in the next six months it’s going to be all about the due diligence and finishing this phase. We would like to launch data monetization as soon as possible. So far we have focused on that more and more merchants use Barion. Currently we are contracted with more than 5,500 merchants accepting Barion in Hungary, the Czech Republic and Slovakia. In terms of international expansion, we would like to reach out to more and more countries and grow in the countries where we are already present.
The next steps can be Austria and Germany and we are also thinking about some of the neighbouring countries. If required by our partners, Barion will enter the Romanian, Polish and Croatian markets, as well.
Do you use cash?
Sometimes I have to but whenever I do so I tell them to have a POS terminal or rather open a Barion wallet. I already managed to convince my masseur.