Forecasting FinTech: Views from Life.SREDA


In the emerging FinTech hub of Singapore, VP Sales (APAC) Xavier Marcillac sat down with Vladislav Solodkiy, CEO and Managing Partner at Life.SREDA, a venture capital firm focusing on investments in FinTech, mobile and Internet projects.

Previously, Vladislav was VP of Marketing at Life Financial Group. Under his management, Life.SREDA began hosting the annual fintech conference “Money of the Future” and publishing "Money of the Future", a widely-recognized market research publication.

Thanks so much for taking some time to speak with us today. Let's start with recent news: what impact will Brexit have on all of us?

I think it is too early to talk about the influence of Brexit on FinTech, too soon to speculate the end of London as a FinTech hub. Ultimately, to become a hub you do not need to be part of Europe. You need to have enough smart people, capital, ideas and freedom to create something new. For example, Singapore is not part of Europe but is on the way to becoming a leading fintech hub. All things evolve as we all mature.

Banks have now embraced collaboration with FinTechs, from having a FinTech as their R&D department to truly embedding FinTech services into their own processes. What’s next for banks? 

I think that right now no one, except banks like BBVA, is taking any real steps in FinTech. If you check how many FinTech deals come from the banking side, it's maximum 24-26%: not a big impact to the industry. 

InThe Innovator's Dilemma, author Clayton Christiansen always repeats: "Do not try to create something new inside your company, you will kill innovation." Do it in parallel, without putting same KPIs for yourself on your new business. He even advises to provide new offices, titles, dress code, everything new. And when the new thing becomes bigger and stronger, do not try to take it inside, but rather mete out parts of your current business, little by little.

So how can banks do this? Do you have an example?

Look what happened at Apple. When Steve Jobs returned as CEO, he brought in Jonathan Ive and gave him new offices in another building, with new KPIs. The intention was not to make the gadgets better but to create new ones. Now nobody remembers that only 10 years ago, Apple was a completely different company. It's not a story of changing mindsets or rebuilding, but of two parallel businesses, where the old one dies and a new business prevails. 

Right now most banks still do not believe in FinTech. Thanks to FinTechs like Strands, some are starting to think about it, but 99% of them are not thinking the right way, because they always think in terms of which services would be complementary to their core business.

Come on, look at it vice versa! Which services of your core business will be complementary for your future business? FinTechs may be small today but they will become a core element of banks' future business. Banks should not try to absorb FinTechs immediately inside their business; they will kill them. 99% of banks do not understand this. Only banks like BBVA truly do.

99%? Really?

As individuals, they understand. But within these giant, complex organizations, maybe they select some start-ups to put inside their core business to get their bonus, but finally nothing serious happens.

It's like if a traditional car manufacturer asks an inventor to create something new while maintaining partnerships with oil companies and therefore supporting high oil prices. The innovator needs a free mind, without limitations or obligations to work with the same 30 colleagues with their biases and KPIs. Freedom to create something from scratch. Banks never think about something from scratch, they still think about building on top. 

Is there a future for FinTech diverging from close collaboration with banks? 

Cooperating with banks can be useful, but in this partnership the partners are not at the same level. Right now, it looks like young kids coming to play a game with the grown-ups, but it's not so serious. This is why we do not see real collaboration today. 

Technical and legal reasons prevent banks from being real partners. They lack open APIs, they do not have human resources dedicated to FinTech integration, no agenda or vision of whom they want to work with or not. There is a lack of transparency in choosing the right partners. 

I believe Banking as a Service (BaaS) platforms need to be the "middle man" by connecting banks and FinTech start-ups. They are specialists in terms of listening to customers, unlike banks, who are better at building the same processing centers or card issuance factories. To work directly with banks is very hard today. BBVA or LaCaixa might know how to build APIs very fast and how to work with FinTechs, but others do not.

BaaS players can also provide opportunities for banks to build APIs faster and better than if they do it by themselves, to prevent banks from hiring new people or providing wrong KPIs to current staff. Banks just need to leverage their infrastructure, that's all.

How do you see these BaaS partnerships creating value?

I think it will be similar to the market value Amazon Web Services (AWS) provided in 2006 or 2009. Jeff Bezos thought if he invested several millions in IT and servers, he could then try to fight with new e-commerce players by depriving them of the same infrastructure. But if those new entrants could create the same infrastructure, they would be more serious competitors. For him it was an investment, not expenses. Now 12% of Amazon's turnover and 62% of profits come from AWS, more than from e-commerce. 

Same for banks: they can try to fight with FinTechs, or try to choose the best ones, or lend their infrastructure to BaaS players. They would work immediately with their own balance sheet, no investments for the bank. And this would represent new revenue streams for the bank.

How do you describe the "Fintech Bank" model? 

What do I mean by "FinTech Bank"? Combining all FinTech services could cover all potential customer needs. Why should we embed new players inside old players? To interconnect new players is faster, cheaper and more effective. For example, FinTechs like Square can attract many customers very cost-effectively, but have issues with margins. On the other hand, players with high margins like P2P lending platforms struggle with customer acquisition and risk profiling. But combining customer acquisition channels with data about potential borrowers and high-margin products would result in a very successful and profitable company.

Potential FinTech banks created only from new services would be low-cost operators that could provide unique user experiences. These services could be better connected between each other, with unique universal authentication, unique universal storage for customer data, and bespoke CRM systems for core services. 

FinTech Banks are about combining user experiences. Before the iPhone, other companies had created the same prototypes, but only Apple created the ecosystem. Same for the FinTech Bank model: without the ecosystem it is nothing.

So we are heading towards new ecosystems in FinTech and banking. How will they compete? What will differentiate them?

I think it will be the same story we see today between Android and Apple. Some will try to build proprietary ecosystems, like BBVA or Tesla. Others will try to build open systems, like Android, Linux or others. I prefer Samsung not because I'm fan of Samsung, in terms of design I'm fan of iPhone, but I want to manage my devices and have the ability to change internal components. Maybe it is just my choice...

Actually users will be segmented like this: those who want to do it themselves and those who prefer to have it done for them...

Absolutely. The biggest growth opportunity belongs to whoever can interact with third-party developers. Like Stripe: a small company but valued at 5 billion USD. All due to their ability to work with independent teams and create platforms for independent providers. I think the future belongs to these open platforms.

Back to the "FinTech Bank" model, how do you see it expanding in Asia?

Asia right now is the last player, to be honest (aside from Africa). But this is a major opportunity! Laggards do not have to comply with previous generations of infrastructure and can just leapfrog to the most recent technology. Most ideas have already been created in the US or UK, but in terms of market capacity and opportunity, Asian markets are much bigger.

Asia can become the number 1 hub for FinTech banks for several reasons: they will be created from scratch whereas in the US or UK it is harder to combine because they already exist, are already profitable, or are already trading on Nasdaq or another stock exchange. Here in Asia you have empty and fast growth markets, but the issue is how to combine the existing players in the best way. It is a question for everybody, not only for entrepreneurs. If regulators do not support this play, game over. If banks and investors do not put their money into this game, it will die. It is a very unique moment right now. 

Won't this somebody come from China? 

China already plays this game, I think the best way, but only inside China. Outside of China, the Alipay, Wechat and the like don't know how to expand into other markets. They have so many questions and opportunities inside China that they always choose to stay local, not go abroad. But they still have big pockets to buy players outside of China, which would be a very smart move, and a possible scenario. They already are one of the biggest investors in the US, mostly for knowledge (R&D) - to learn - not for expansion. Here in Southeast Asia, they will plan for expansion.  

It seems like almost all neo-banks, not only in the UK, are mobile-first and PFM-centric. What do you think of PFM as a core feature of the banking stack? How should banks benefit from PFM services? 

I thought PFM would be core to banking by now. It still can and should be, but in terms of customer experience rather than acquisition.

If we compare with mobile apps, we know now that Apple earns more from the App Store than from mobile devices. If customers had to be members to purchase mobile phones at cheaper prices or for free, that would not have been easy. They would rather buy the iPhone and use the ecosystem later. It's easier to understand the value of the ecosystem today.

Same with PFM. It's easier to attract customers with remittances, cards, loans, and trading and than to upsell or cross-sell with PFM. But PFM is absolutely necessary. Many players now are building their own PFM or buying PFM companies, like Wealthfront and Betterment, neo-banks and challenger banks.

Everybody is thinking about PFM right now, even Snapchat. We read rumours that Snapchat, after trying out remittances (that didn't fly), is thinking about something like online trading, like Robinhood, and PFM services, like LearnVest. Maybe it's just rumours, but rumours don't exist in a vacuum. 

How do you see PFM evolving in the coming years?

First PFM has to change focus from analyzing past transactions to setting up goals. Second, most PFM services can be valued from 100M to 200M USD at best, but for example just attracted 600M in new investments. This is also PFM, but about what you want to buy in the future. It is also a kind of financial service. They created services based on gamification logic and did not think about banks, but about e-commerce sites as partners. This is an answer for PFM services.

PFM players are so deeply involved in thinking about banks, but this puts up so many limitations. Other companies like Snapchat, Alibaba or even Pinterest have thought for years how to get into PFM. Pinterest is something like PFM: how to be better connected with e-commerce. Pinterest does not provide monetization but they provide a user base, this is also PFM. Pinterest is the biggest PFM service. 

Final insights on how to shape a brighter future for PFM?

First, don't think so much about the past but rather how to predict the future.

Second, forget about banks and think more about other players.

Third, to add more fun and gamification, introduce bots that can help PFM work better. Because if these services keep being so serious, not so many serious players will keep thinking in these terms.  

Very interesting tips for the future. Thank you very much for this insightful conversation, Slava. We wish you all the best.  

Learn more about PFM 

Xavier Marcillac, VP Sales APAC
Xavier Marcillac, VP Sales APAC

With over 20 years of experience selling the business value of great technologies to the financial services industry, Xavier is leading Strands business development in the APAC region.

Get Our Newsletter

Subscribe to our exclusive weekly newsletter to stay up to date on
FinTech trends, insights, and analysis