EXCLUSIVE: ‘At your service’ – Pedro Barata, Feedzai and Jörg Howein, Solarisbank in ‘Discover Sibos 2021’
The niche banks of today might well be the mainstream providers of the not-too-distant future.
In particular, ‘purpose-driven’ challengers – ‘purpose’ being shorthand for whichever environmental and societal benefits feature on their triple bottom line of profit, people and the planet – have made huge strides in customer acquisition over the past year and a half. Such neos might afocus on the underbanked, for instance, the environmentally-conscious or an ethnic group. They appeal to people across the generations who’ve had cause to re-examine their values of late and seek out a bank that more closely reflects them.
Accenture calls this emerging demographic the ‘reimagined consumer’, following its survey of 25,000 people across 22 countries, which found the pandemic had made half reconsider their personal purpose. Among other things, that’s driven unprecedented interest in ethical investments. According to Triodus Bank, a pioneer of sustainable finance since the 1980s, COVID-19 has motivated one-in-five UK adults to explore ethical funds, a figure that increases to 35 per cent among the under-35s.
Tomorrow – a German sustainable finance startup that’s put yesterday’s banking model behind it and uses account holders’ money exclusively to invest in sustainable projects – has seen the impact of the world ‘resetting the dial’ on its account opening, too. Since launching its mobile current account in March 2019, it’s attracted more than 80,000 customers, 20,000 of them in the first half of 2021. So, how do it and others cope with such rapid expansion while maintaining the same level of innovation, all the while doubling down on compliance and security as regulated processes come under the pressure of numbers?
Like many next-gen startups, it’s decided to be selective about what it builds, what it buys and where it partners to achieve its goals. So, while its in-house team continues to concentrate on developing analytics around carbon-neutral spending and investment, and designing sustainable products, the architecture on which that all hangs is devolved to European banking-as-a-service (BaaS) provider, Solarisbank – which also acts as issuer for Tomorrow’s eye-catching wooden debit card. Solarisbank, in turn, now relies on global financial crime gladiator, Feedzai, to ensure that its systems are robust and compliant in every territory for which Solarisbank provides its banking, transaction and lending services.
In an ‘as-a-service’ world, whether you’re a standalone startup, a speedboat launch from a legacy bank, or, indeed, a platform provider, 2020 demonstrated that it makes little sense doing everything yourself.
“Around 80 per cent of our accounts have been opened in the last 12 months or so. We are growing quicker, every month,” says Jörg Howein, chief product officer at Solarisbank, who’s overseen the building of a broad product suite, ranging from accounts to cards, lending and digital assets, and to which will soon be added brokerage services.
“When we started, in 2016, it was all about going to the market quickly and one decision we took at the time was to make ourselves responsible for transaction monitoring and compliance processes,” says Howein. But as Solarisbank clients rapidly expanded their customer base during the pandemic and traffic across its platform increased, it recognised that approach was unsustainable. “So, last year, we brought in Feedzai as a provider for a specific part of our infrastructure.”
At the same time, Solarisbank became the first German bank to shift its entire operation to the public Cloud, migrating its core systems, digital products and databases to the Amazon Web Services (AWS) platform. The two moves, combined, positioned it to scale across Europe in 2021. The bank’s decision to partner with Feedzai has not only relieved pressure internally, but has also given Solarisbank access to financial crime data that could reveal way more about emerging threat patterns than it could ever hope to discover from its own platform. Now, it benefits from insights gained from Feedzai’s artificial intelligence monitoring hundreds of millions of transactions every second of every day.
“We’re learning from the very big boys, because Feedzai has banks that are larger than us on its platform [four of the five largest US banks included]. That helps us to get better quicker, and that’s what matters, in the end,” says Howein.
For Pedro Barata, head of customer success for EMEA at Feedzai, there’s mutual benefit in the partnership. “For us, internally, it was such a strong proposition and such an ambitious project,” he says. “And we knew that we could learn from Solarisbank because I think the bank-as-a-service is the future, and we believe we can contribute to that future with our technology and know-how.”
And not just to individual banks, but to the way finance develops more broadly.
“Look at the problem of the underbanked,” says Barata. “You have a lot of people who want access to financial services, and one of the reasons they are not allowed it, I believe, is because banks look at onboarding through a very traditional lens.
“One bank we worked with that wanted to go from a 50 per cent acceptance rate to a 95 per cent acceptance rate, came to realise that if its fraud levels weren’t to increase tenfold, it had to redesign its entire fraud and fincrime strategy. “We’ve seen some people try to build the technology and processes themselves. They realise how complex it is, to not just build but also to maintain, because it’s not enough to just have something up and running; you need to continue to innovate, continue to adapt. It’s a huge, huge resource hog and even well-known tech companies, that might have tried it once, are coming to us now and saying ‘you know what? This is too hard. It takes too much time. Let’s do it together.”
The same logic applies to using a third-party banking platform, says Howein.
“Building a bank, in all its dimensions (compliance, risk, the core banking system, etc), making sure those processes are super-stable, super-solid, getting a licence, fulfilling all the requirements, and then the effort needed to scale such an organisation, make it efficient, automate things on the account and cards side… for a neobank that is starting in the market – in fact, for any type of bank or for anybody who wants to embed financial services in any way into their product offerings – going with a provider can take much of that burden off your shoulders and enable a quick launch.
“With Solarisbank, you can build and go to market in six months maximum and, with us in the background, you will always be more efficient, because we do this already for close to two million accounts. So, in effect, you’re not starting from scratch; you can leverage the efficiency we have already built and benefit from where we have been investing to create an efficient platform, at very low cost, at the per account/ per card level.”
In that way, Howein argues, even the nichest of neos, with a potential market capped in the hundreds or even tens of thousands of customers, can build a business proposition that makes financial and operational sense, allowing it a foot on the first rung of a ladder that might otherwise be out of reach. And so, the banking-as-a-service model is creating a choice of financial service providers as nuanced and individual as today’s ‘reimagined consumers’.
Barata believes the movement towards banking that’s more representative of consumer’s values, as well as a service that’s more personal and more intuitive to experience, is now unstoppable.
“If you look at the adoption curve, these banks have moved from that early adopter clique, to the general population; you’re seeing older generations, more traditional generations coming in. I think these banks will continue to gain market share by going into different demographics. This is a very hard-to-stop trend. The fact that you have incumbents launching digital spin-offs is just recognition that this is the new normal.”
And the inevitable pressures caused by such growth can be passed back to a platform provider. “Bottlenecks happen on many different levels as you scale,” says Howein. “While with a few thousand customers, you will still be able to handle some things manually, at 10,000 or 100,000, those manual processes don’t work anymore, and suddenly you need to invest all your resources in automating them. At the same time, you need to keep your regulator and supervisory bodies happy, who will be questioning your processes all the time, and forcing you to make them better.
“Building and growing a banking business can be a tedious process and going with a BaaS provider can take much of the burden off your shoulders.”
The unexpected flush of business during the pandemic, forced Solarisbank to embrace the Cloud, and, in Barata’s opinion, it’s the only way financial organisations can now build for change.
“The fact that you don’t have to worry ‘is my database ready for this,is my network scaling at this point, is the monitoring in place or not?’ means everything is much easier,” he says. It’s also much better from a cost management perspective. Over the last 18 months, for instance, banks needed to focus on how to capitalise, how to help clients – not how to change hard disks and scale up databases.”
Cloud-based services were a god-send in a time of unprecedented stress and, given that experience, Barata’s advice to any neo is this:
“Build knowing that whatever you believe is going to happen, there’s a 50 per cent chance you’re wrong, so you might as well factor that into the technology.”
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