DIGITAL TRANSFORMATION: WHAT NEXT FOR NEOs?
Is it time for loss-making challengers to plot a slightly different course? Valentina Kristensen from (the very profitable) OakNorth and Andy Renshaw from financial software specialist Feedzai, share their thoughts Fintech was born out of a mission – to free consumers’ finances from the shackles of incumbent banks. Typically powered by the smartphone in people’s pockets, we’ve had one hell-of-a-ride of a products revolution in the last decade. But incumbents have retained one huge advantage, and it’s, ultimately, the most important advantage of all – profitability. Almost a decade on, the fintechs that burned that technology path are, for the most part, still addicted to fundraising cycles just to keep skin in the game – they can’t drive growth from revenue. And that means the price tag that the market puts on those companies is key. “Many firms are chasing the valuation, rather than the value they’re actually delivering for customers,” observes OakNorth’s Valentina Kristensen. She speaks from a position of strength: OakNorth Bank is that rare thing – a profitable neo that delivered a 2020 pre-tax profit of £77.6million, a rise of 18 per cent on the previous year. So, the views of its executives are worth listening to. “And you see a lot of fintechs still trying to be all things to all people, whether that’s crypto exchange, selling gold, etc,” Kristensen adds. The implication being ffnews.com
that over-diversification is contributing to their perpetual lack of profitability. Valuations in the fintech sector recently have been stellar – in July, Revolut was valued at £24billion, ranking it higher than high street rival NatWest. N26 was pegged at £9billion when it went into a £900million series E round in October, giving it a higher market cap than Germany’s second biggest bank. Both are currently operating at a net loss.
Many firms are chasing the valuation, rather than the value they’re delivering for customers Valentina Kristensen, OakNorth Bank
Money is not the only issue. Since the incumbents began launching a flotilla of speedboat banks, the challengers are themselves being challenged, which, says Kristensen, only reinforces the argument that neos should double down on what drove them into business in the first place – answering a specific customer need. That increases the chance of building a game-changing product which is difficult for rivals to copy, she says.
“It’s better to ask ‘how can we do what the iPhone did to the mobile phone market?’ and create something that is so much better than what went before, not something that’s incrementally better. “If you’ve only developed features, the big banks can come in and replicate them. Whereas, if you create something that’s exceptionally better, the moat that will give you – that competitive advantage – gets wider and deeper.” Kristensen puts OakNorth’s success – the bank has lent £6.5billion to UK firms since gaining regulatory approval in 2015, and made just over £1billion of net new loans last year – down to having just such an unwavering mission. That and the use of Cloud technology, which has seen OakNorth develop and license software to customers including Capital One, Fifth Third Bank, SMBC Bank and ABN AMRO.
Agile say and agile do A particularly smart thinker (Albert Einstein, in fact) said: “The measure of intelligence is the ability to change.” Andy Renshaw, SVP of product strategy and management at AI and financial software specialist Feedzai, believes that neos, having long preached agility in their tech stacks, should practise it in their business models, too. Issue 22 | TheFintechMagazine
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