Amsterdam: Finextra is on the ground at Money 20/20 Europe, attending a host of sessions to provide you with key highlights from the most popular sessions throughout the conference.
Below are Finextra’s highlights from day two of Money 20/20 Europe.
‘A listing is for life, not just for Christmas’
Diving in to the morning’s headline session, Julia Hoggett, CEO of the London Stock Exchange Group (LSE) spoke with Olga Zoutendijk, board director, Julius Bar Group about how traditional institutions are finding purpose their business in ways that go beyond profit, namely ESG.
“I see it in terms of the real world outcomes it produces,” Hoggett explained.
Looking at the history of how the ESG markets developed, Hoggett stated that it is clearly segmented, and this is at odds with how we need to transition to the low carbon environment. In response to this, she has coined a phrase around the mentality she hopes to instil in the LSE, which is ‘how to we make ESG BAU (business as usual)?’
Of course, Hoggett furthered, that not every company which seeks to list on the LSE is going to have an impeccable track record - particularly around ESG - and it’s in the interest of the exchange to work with these companies and help them to understand and improve. However, she believes that there are fundamental shifts going on not only with regulation, investors and stakeholders, but around the architecture and infrastructure surrounding ESG, and evolution must continue.
“There is no difference in my mind between a public and a private company - and we need a taxonomy delivered by the regulators which recognises this. We also need to shift the language around this.”
Raising Hoggett’s past experience working with the FCA, Zoutendijk asked if regulators are truly able to keep up with technology, or whether they get in the way of innovation.
Hoggett responded that the speed of technology tends to outpace regulation, and in order to understand the situation properly, it is important to step back and ask what regulation is meant to do, and that is, to protect consumers. “The fact that regulation is technologically enabled doesn’t impact this fundamental purpose. We need to recognise this as part of the evolution of regulation.”
Upfront collaboration between big tech and regulators also plays an important part in this evolution, and Hoggett commented that in the process of building a safe system, the first conversation must be a framing conversation around what is wanted and what is needed - rather than waiting until after the fact to chase down those who break the rules. This approach is welcomed by most players, Hoggett added, as “over 95% of the time when I was a regulator I wanted the same thing as the firms I was regulating."
When it comes to working with fintechs, Hoggett noted that traditional institutions have plenty to offer, in fact, “our technology is at the heart of the way we do business - like any fintech.”
Since 2014, Zoutendijk acknowledged that the UK has produced twice as many unicorns as any other European country. The LSE has played a major role in these companies being able to scale through listings. While 2021 is off to a strong start - looking at the track record, she asked Hoggett whether she has any advice for founders who may wish to list.
Hoggett offered two pieces of advice:
- It’s your process, own it. The listing is how you function as a company for a long time to come. Don’t be focused just on the entry point - yes this crystallises value - but, it is the staging point for everything that you want to do next.
- Do it your way: work with regulators and companies, but find your own ‘best way to market’.
While the LSE has several strong examples of successful listings, not every listing reaches 'Wise' levels of success. Zoutendijk asked Hoggett to explain how the LSE deals with listing that go awry: “A challenge for the LSE not giving advice to companies to list or otherwise. We also have the capacity to bring people together, we can help them find mentors and advice to assist with this decision making and approach.”
Importantly, Hoggett furthered that the exchange doesn’t view a company coming into the LSE as a primary transaction, “the reality is that we have an ongoing, continuous relationship with these companies.”
Circling back to the topic of ESG, Zoutendijk concludes that “Being a big hairy unicorn is not the only formula for success. It’s ok to be a slow growing, smaller company with a positive impact is equally important.”
Hoggett’s parting takeaway to fintechs toying with the idea of going public: “A listing is for life and not just for Christmas”
Being ‘Wise’ about designing for scale from the get-go
Introducing Kristo Käärmann, co-founder and CEO, Wise, moderator Shamir Karkal, co-founder and CEO, Sila Inc, asked Käärmann to describe what exactly prompted him to begin what is now one of Europe’s leading fintechs.
When Wise got started in 2010 the idea was simple - Käärmann explained that he had discovered that banks use a very different exchange rate to you might expect when using international payments: “When it first happened to me, it wasn’t just expensive, it was embarrassing because I didn’t know why it had happened.”
In a money swap agreement Käärmann started with a friend, they were able to circumvent the banking process altogether and decided this was something that they needed to pursue.
Asking Käärmann about the early days of ‘Transferwise’, Karkal commented that the firm followed quite a different path from many (if not most) other fintechs, namely because it has managed to become a (highly) profitable company.
In fact, looking back on their fundraising, Käärmann believes that they “probably didn’t need to raise the entire $100million - what we’re disrupting, our hypothesis is that is can be done so much more cheaply than the banks.”
The shift to profitability came around five-six years ago, and Käärmann added that the firm was actively strategising about how it would grow to the size it is today - without the need for expensive marketing. He noted that they have always been adamant about the need to avoid complicated marketing as a central pillar of the business. Now, around two thirds of Wise’s new customers join because they’re referred by friends or family.
What’s next for Wise?
Already moving roughly £5billion per month for customers, Käärmann explained that the process is still fractured and there is more for the firm to do. Speed, cost and convenience are target areas that Käärmann believes are most important to Wise customers.
“Customers care about speed, and they care about the amount that will arrive at the other end of the transaction. Our mantra is about getting less revenue out of our customers, and as a result, slowly the average fees we have to charge across our base is coming down.”
Raising an interesting question, Karkal asked if the banks Wise is embedded in (e.g. Monzo, N26) see the player as a competition - given just how many customers are using Wise services indirectly. Käärmann argued that the opposite is the case. Banks are happy to see customers who might be drawn to Wise come back to the bank itself with these embedded services, and secondly, Wise is able to offer a much better experience for the customer than many other players.
Rather than thinking about competitors in the traditional sense of the word, Käärmann prefers to think about it in terms of fees. “Banks charge SMEs and people around $200billion per year for international payments - that’s the problem that we’re solving. There are thousands of banks and none of them are competing on international banking because that isn’t why their customers joined them in the first place.”
“We therefore don’t have direct competitors, but there is a more abstract competition around how currency moves.” Käärmann concluded that the correspondent banks which lack transparency and have hidden fees are where Wise has its sights set.
‘Have we come this far only to come this far?’
Referring to the ‘partnership as a marriage’ analogy that has been sprinkled through several sessions during the conference, moderator Donato Pinto, partner, Pacemakers.io asked his two co-panellists to give a brief history of their relationship.
Back in 2015 when the Tink/SEB partnership began, it was not a common structure for banks to be teaming up with payment providers - explained Christoffer Malmer, head of SEBx, SEB. In addition to being highly unusual, Malmer also observed that in hindsight the relationship was massively asymmetrical. The decision to invest in Tink on top of adopting its services, was something that was taken all the way up to SEB’s board, and prompted plenty of robust debate within the upper echelons of the bank.
Daniel Kjellen, CEO and co-founder, Tink, said that at the time of Tink’s founding the payments context was rather bleak - there was no B2B market to speak of and PSD2 was yet to exist.
The very fact that Tink’s service wasn’t deemed legal at that time (given PSD2 was yet to exist), made it quite challenging to convince the bank’s decision makers to get on board with the partnership. This factor, Malmer laughed, gave rise to the inclusion of a clause which stipulated something along the lines of: “if it’s illegal put something in that says we’re going to be able to sure them!”
Acknowledging the good rapport between the two parties, Pinto asked if either panellist had any advice to offer those embarking on a new partnership.
Kjellen believes it’s important to acknowledge what isn’t working - the potential downsides of the relationship: “Putting these things on the table makes the relationship more transparent and it makes the problems easier to overcome.”
Malmer noted that when working with fintechs, trying to move fast and give good indications around project or timeline viability is important.
Pinto raised the perhaps unique dynamic in the Tink/SEB partnership, asking whether Kjellen felt comfortable taking the driver’s seat when negotiating with SEB at the outset.
“One of the perks of leaving your regular day jobs and starting your own business is that you don’t have to really worry about other people, because you have nothing to lose,” explained Kjellen. “You can be a bit stubborn.”
In fact, he furthered that a lot of big banks partner with fintech to get closer to another way of working, thinking, and culture, and it would be counterproductive to try and behave like banks.
The learning curve for banks doesn’t stop there, added Malmer, who argued that the buy vs build debate has progressed significantly over the past few years.
“In 2015 there was a long debate about whether we should build account functionality before we teamed with Tink, and now it’s clear that it wouldn’t have made sense for us to build in house. We’re trying to figure out where else in the paystack to differentiate ourselves, rather than trying to compete on the areas which are already being served.”
“I think I speak for many banks when I say this has been a seismic shift,” Malmer stated.
Concluding by addressing the ‘elephant in the room’ of Tink’s new partnership with Visa, Kjellen said that the firm’s thinking has always been based around trying to make the most out of the current context to reach global scale.
“For me, us joining Visa is about the exact same thing. How do we make sure we have a setting about us being able to scale this open banking product globally? Have we come this far only to come this far? Now the fun begins.”