Can you describe Loot in 5 seconds?
We help young people know more about their spending so they can do more with their money.
You’re very close to achieving 2.5m transitions through Loot. What have some of your growing pains been to get there?
It’s been the hiring and structuring of a team, and selling them on the constant change (which is very exciting). People want a kind of certainty in an environment where everything’s changing constantly. We’ve built a brilliant team and we’re very happy with how that’s gone.
There are things that you don’t realise are going to be so time consuming, and they suddenly become a lot of your life. You set up as a tech company but the truth is that you’re working in banking and with people’s money. So there’s a lot of operational work in the business before you’ve even got to the point where you’re worrying about usual tech things like how to acquire them users, how to build the products. Quite rapidly you’re working with two distinct teams with very different focuses, one technical and one operational. It’s a great challenge, but it is hard.
Many of the fintech startups we’ve seen arrive in the last five years have built tools specifically for budgeting and money management. When you think back to your first bank account, first pay slip, first experiences with money, what do you wish you had back then to help you out?
I still think it’s a lot of the simple features. Interestingly, it’s a lot of the stuff that our market already has. Payment notifications, clearer transaction lists. It’s that core, basic functionality that I wish existed on my HSBC app now because it’s actually quite simple stuff. Show it to me in normal language, tell me exactly what’s happened, tell me what’s available.
What I think is exciting is how people are getting quite specific to a demographic. Take Tide for example (a bank account built entirely for freelancers). There’s suddenly a company thinking fundamentally about freelancers’ needs. I think that’s the next stage.
With most of the core functionality, it’s hard to see where that goes next. Everyone is doing budgeting, making it easy to put money aside, rounding up the change, all these nice features. But it’s more about my specific needs at the point I am at in my life and who I am, and for there to be a brand focused on that is just great.
What’s the mood and relationship amongst matured startups and fintech businesses in the industry right now? Is it a tight-knit community or is it fiercely competitive?
We’re very friendly with everyone and quite deliberately so. It’s a friendly industry! There are areas where it makes a huge amount of sense to collaborate. Simple stuff like if we were looking to choose a supplier, I can pick up the phone and ask any of our direct contemporaries “Hey, should I go for this company or that company?”
There are some places where it’s proved amazingly powerful. We all unfortunately have to face financial crime. It’s horrible and not a part of the business we particularly enjoy, and no one wants to compete on this. So we collaborate. When I left Monzo [Will was briefly at Monzo in 2016] we worked with a company called Fintrail to pull a group of us together and share basic information, and now that’s about 50 businesses in the UK.
If you have a financial compliance team, they know the people at other fintechs really well and we just share information. We obviously can’t share certain bits of data, but you can share typologies and problems. In the grand scale of it all, we’re all still tiny. Even the fintechs who are bigger are absolutely miniscule in the scale of a Barclays or a HSBC. All who succeed here help to build an acceptance of the message that current accounts don’t just have to come from these big, legacy banks. If one of us succeeds we all succeed. So we choose to be less competitive for those reasons and because we have a particular demographic that we’re focused on.
At 45 employees, you’re a similar size to us. Take us through your workplace culture and also the structure of how you all work together.
We’ve put a lot of time and effort into this because we realise it’s so important for our growth needs. We have a good set of values that we ongoingly review. Values like ‘show your character’, ‘be yourself’, ‘act fearlessly’ (which is getting people to speak up and own things). There was a little bit of resistance over whether this was a good use of our time, but we’ve now structured how we hire people, how we reward people, how we talk to each other as a team. And you realise that the soft stuff is actually critical.
How do you see PSD2 changing the way you do things at Loot, and do you see other banks and fintechs using open banking as competition or something you’d welcome?
We have a particular view on this, which is that customer adoption will take longer than people predict. We thought that last year and thankfully we’ve been right so far. If you talk to someone about the internet in 1997, they would tell you that next year you’re going to do everything online. But they were wrong. You didn’t start buying flights online in 1998, it was a good ten years later. What they didn’t predict was the scale of what happened. No one predicted Instagram or Facebook. So you’ve got the same thing here – yes, we do think PSD2 and open banking will radically change the way people embrace and interact with their money on a retail and business level, but we don’t think it’s going to happen soon. We think ‘go and solve an existing problem that exists today, learn the deep reality of that problem, then you’ll be in a much better position to offer that service’. You’re better off solving an existing problem and solving it well. Then you can consider the opportunity.
We may be wrong, but we don’t think the regulator is pushing realistically for this to be adopted immediately. They're the British government, their timeline is infinite, and it is understandably not fully commercial. As a good regulator (which they are), they would rather it took a little bit longer and worked well than we all went too fast and went wrong. Consumer behaviour in finance is very slow too. When you finally prove something is better, consumers will adopt it. No one really knows what could be done with this yet. There are a few tools out there that are cool, but is that what consumers really want?
At Kyan we use the VR/AR ‘hype’ example a lot. Many of the uses right now are nice, novelty things. Like experiencing a rollercoaster ride whilst stood in the middle of a shopping centre. That’s cool, but the it’s not life-changing or particularly useful. Those uses just aren’t ready yet. But they’ll come, no doubt.
Yes, exactly. We definitely think the scale is huge. We put PSD2 and open banking into the same area as blockchain. There’s an enormous opportunity there for businesses to share their information. But we don’t know that there’s a first mover advantage. Google was the sixteenth search engine, Facebook would have been into the hundredths of social networks. Loads of people had already tried stuff before they got started. It just seems worth solving an existing problem today and really learning what the mechanics are and then making the move at the right point.
Can you tell me about your tech stack? What tech challenges do you have, and what tech challenges do you see in the sector?
We’re on AWS and we use Docker as a smart way to deploy faster. I love Docker because you can tell someone like me who’s not an engineer what it does. I have an incredible respect for our engineers. We are a software builder and we do it on a supplier stack, so we only focus our engineering time where we think our customer is. And if someone can produce us a commodity product well (something like payment processing) then why would we ever build our own? Focus your engineering where it matters. Software is infinite leverage, it’s amazing. You’re constantly hitting these problems where either you can build it yourself or integrate with someone else. Take something like Jumio – it’s magical. I now don’t have to hire a huge team of people who know about, for instance, Colombian passports. There’s a centralised point with an API and they are working with thousands of customers globally. That’s an amazing tool and to be able to link in to, and means that we have an ability to on-board customers in a compliant way without needing to build a huge operations team. That’s magic in my view.
Where we are seeing costs explode, especially in legacy banks, is in customer operations, compliance, monitoring, and so on. The dream is 100,000 customers by one customer services operative, and we’ve been ruthless about this from day one. These are the places where software can be used for leverage in an extraordinary way. Right now it’s just simple things like offshoring but eventually it will be AI and machine learning.
Finding our way to that can be a really simple thing — something as simple as sitting in a Slack group with your competitors and asking them questions that aren’t competitive. It’s these little incremental steps that are incredible.
You’ve worked in Nepal, India, Kenya, Dubai, Brussels. What has working in these regions taught you about banking services?
It’s amazing seeing what’s outside of your own blinkered world. It stops you thinking that the solution is what’s sitting in Old Street or over in California, and that’s particularly relevant for finance. We’re in a place where we’re doing incremental improvements, but in parts of the world the gains are exponential for someone who for instance is poorly banked in certain locations. So I don’t really think that the competitor that is going to challenge us all is going to come from the UK, America or the European Union. I think there’s every chance that they will come from somewhere that no one anticipates.
I worked in Kenya in 2003 and if someone told me back then that it will become a banking technology hub I’d have really questioned that. It was a fantastic place to work but I would never expect that and that’s fascinating to me. What gets solved in certain economies fascinates me and I think by looking at that and what we do here, it’s one of the things that stops us just chasing after the hype.
I’ve got friends in Nepal and their banking needs after something like an earthquake affect them in a way that is vastly different to the problems of a successful East London-living hister type. The joke about first world problems is real. You’re at risk of concentrating too much on making things more swanky and cool-looking. What’s important is the ability for me to send money to friends in Nepal—without going through the big charities—to a village that had limited electricity eighteen years ago. Being able to send money there via my phone is extraordinary and that’s what has stopped me getting into the shiny brand hype.
We can quite comfortably say that many fintechs have achieved more in the few years than most high street banks have achieved in the last ten years, at least from a product perspective. What do you think hampers large banks’ innovation and agility in this market?
It’s just not where they make money, and I think this is a big misunderstanding. I’ve worked in banking for a long time, and they just don’t make money on this stuff. It’s a loss-leader and they’re confused by it. They’re not seeing a defensible position from any startups. They’re just looking at this and waiting to make their move. They may be looking at someone like Atom though, who are executing incredibly well with their banking license. They’ve got a really good balance sheet now and that’s given them a baseline to make smart moves in the industry. That would be more scary to me as a bank – not just their tech, but their business model. For us it’s all about going out to find a demographic that the banks are confused by – that’s more appealing to us. Tide again is a good example; the banks don’t know what to do with freelancers, and it’s a growing area.
The banks are quite friendly to us because we’re not telling them we’re going to give them a bloodied nose. We see that they all have a future if they’re clever about how they adapt..
The jury is out. There’s a temptation to say banks are going to collapse in front of these lovely new brands, but they’re all pretty smart in my view. Looking at the industry right now; Tesla looks shiny and appealing and their cars are beautiful.
But Ford aren’t going to disappear…
Exactly, Ford aren’t going to disappear. Tesla is making some interesting mistakes in my view. They are spending a lot of time building commodity features like batteries. Why become an expert in a commodity feature like that? They aren’t necessarily going to reinvent manufacturing because it’s just productional line manufacturing, because there are experts in that. Software too; they won’t take that route because there are already experts in software. It’s interesting if you then look at your industry and think where the commodity bits are; the payment processors, the payment gateways, the card manufacturers. We all kind of know who the winners are there, so we go and integrate with them. But there are some people trying to do a lot of that for themselves and we do think that’s a bit of a waste of time. Trying to build those commodity products as well ourselves is not something we’d look to do, as they’re the experts on it.
Keep an eye open for Tech Tales №7. We'll be chatting to the CMO of a wealth management company who harness AI to build a personalised investment experience for customers.
Looking for a previous Tech Tales?
Tech Tales №1: Megan Caywood, Chief Platform Officer, Starling Bank
Tech Tales №2: Jonathan Lister Parsons, CTO, PensionBee
Tech Tales №3: Josh Hart, CTO, yulife
Tech Tales №4: Edmund Greaves, Deputy Editor, Moneywise
Tech Tales №5: Elise Nunn, Head of Ops, Plum