London Fintech Podcast
00:10:28 · Nik Storonsky
[00:10:28] S0: Yes. It's true. And the reality, you know, why it happens is just because the bank is I mean, I've been inside. Right? So that I know a lot of departments. IT department is separate from, you know, a fax department. Fax department is separate from a relationship, banking department. Right? And, frankly, they they all need to make money somehow. Right? So what happens? IT department, you know, builds a system rather than sales will sell and they will take commissions. Traders will hedge it and take their commissions. So so company adds up. And a lot of things are not automated, but that's another problem. You need to run big teams, a lot of people to support the whole infrastructure. So that's why it becomes quite expensive in the end. But yeah, you're right, with $10,000,000 you'll get a better rate, but it will be interbank rate.
00:11:15 · Tony Clark, Nik Storonsky
[00:11:15] S2: Yes. And in terms of offering interbank rates, which was what you became known for first and now you've got half a million people, I can offer people bananas at the wholesale rate and I can sell them one banana at a time at a wholesale rate, but it would be very expensive for me because the price of one banana is very different from the price of a banana if you buy 2,000,000 bananas. How did you organise that? How did you give people interbank rates without having to spend a fortune yourself buying bananas not at the wholesale, let's call it wholesale. How did you get around the problem of you have to buy bananas at the retail rate yourself, but then you then sum them at the wholesale rate, is the opposite way around, of course. [00:11:55] S0: So, we effectively build a system, right, which is fully automated, which is connected to a few banks and a few equity providers, which also manages risk, right? So, the way it works, we have, you know, risk book with different cash balances and then there is hedging coming effectively like a few times a day when we hit certain risk limits. And it's all fully automated, we don't require army of people to run it. So that's our edge, right? That allows us to give to people interbank rates at no cost. [00:12:26] S2: And so you didn't go down the route that TransferWise always alleged that they did, but they didn't actually do in great size of trying to do it on a peer to peer basis. Apart from when you can do it, you know, if you've two people doing it at the same time, it gets crossed.
00:12:26 · Tony Clark, Nik Storonsky
[00:12:26] S2: And so you didn't go down the route that TransferWise always alleged that they did, but they didn't actually do in great size of trying to do it on a peer to peer basis. Apart from when you can do it, you know, if you've two people doing it at the same time, it gets crossed. [00:12:39] S0: One of the advantages of being in financial services, right, I just know how it is done in any instrument, right, in a bank. So, banks run, you know, automated market makers, right? It's a combination of, you know, peer to peer matching. But in reality, you know, the system is much more complex and advanced compared to peer to peer matching and produce, you know, much, much better results. So, we just implemented the same system on our side.
00:13:03 · Tony Clark
[00:13:03] S2: Yes, exactly. Which comes to the advantage of having a background in it. So originally the idea was that Fintech would do one thing really simply. So you know, foreign exchange or peer to peer or something like that. And everybody swore that's all they would ever do. But of course, as time goes by, things change. And the example that sticks in my mind at the moment is SoFi in The States who started with student loans. They've just raised a typical American fashion 500,000,000 US dollars, which is quite a lot of money. And roughly speaking, they seem to want to do everything for everybody. Actually And $500,000,000 probably gives you a chance of doing that. On a more modest scale than raising 500,000,000, you guys have raised some money. And you started by doing one thing, as you say, but then you're adding things on the side. So the brand started like that and we'll come back to the software side of it but then the brand has changed in terms that if you go to iPhone, iTunes, whatever the Apple thing is or Google Play, you can tell which one I am, you can download it and try it for yourself. And you add more and more services. So how does that go from a brand perspective? Because one day people are saying, oh Revolut, yes, they give great interbank rates, you've to go there and do your FX, to another day, oh yeah, do a current account and they do lending or whatever. Services do you offer at the moment if someone downloads you today and signs up with you?
00:14:18 · Nik Storonsky, Tony Clark
[00:14:18] S0: So yeah, as you mentioned, we first started with just a plastic card plus the ability to exchange money, right? So later we had a services such as cross border transfers. Now you can also borrow money with us. You will be able to buy insurance. You are now able to set yourself current account as well within three minutes. So already it is that all these features, they're not coming from us, but they are more based on requests from our customers, right? So all the time we're getting, you know, customer requests and then we effectively know that, you know, majority of customers they want to have, you know, current accounts. Some people want to have the ability to borrow money and roll it up. And then we simply build it and iterate and effectively fulfill the demand that we have. [00:14:58] S2: Which is the best kind of course, which is that you know that something is going to sell. You don't sort of sit in your little cubicle thinking, I've got a really good idea. And you work on it for six months and find out that it may be a good idea but nobody wants to buy it. [00:15:09] S0: Yeah, exactly.
00:15:09 · Nik Storonsky, Tony Clark
[00:15:09] S0: Yeah, exactly. [00:15:10] S2: It's demand driven. Now one of the problems we've had on a brand perspective is in the sense what to call yourself. And one of the things that Tom Blomfeld was saying at Monzo was one of his reasons for taking a banking license was it makes it much simpler speaking to journalists and customers than that because when you say 'we're a bank' they think oh yeah, we know what that is' and then he explains how he's a slightly different bank, we'll come to regulation in a minute. So you're not going down the banking route. As I say there's this awful phrase e money issuer or whatever it's called where if you told me what and you said oh we're an e money issuer I'd have to scratch my head and the average person in the city may not have So heard of I think I did use a phrase from your website global money app which I quite liked but how do you describe yourselves? If I say what do you do? What do you do? [00:15:55] S0: Well, we provide the financial services that banks don't provide as simple as that, right? We provide it at better price with a better user interface. [00:16:05] S2: So it's personal financial services? [00:16:07] S0: Yeah. I mean, for example, if you look at Amazon, like, I don't know, twenty years ago, they just started from selling books, right, online. And then they later expanded into tons of more. So what is Amazon?