Mambu’s chief shares his thoughts on the prospects for lenders,UK fintech and…Brexit
Despite a return to growth for UK fintech a more muted outlook for the industry owing to a host of interconnected challenges ranging from regulatory scrutiny, macroeconomic risks and (of course) Brexit are appearing on the horizon.
While several UK firms have reached the arbitrary but coveted £1bn valuation, or ‘Unicorn’ status, in recent years and venture capital funding having bounced back from Brexit-induced uncertainty in 2016 the spectre of greater competition from established financial firms as well as tech giants looms.
Thinking back just a few years it was the height of fashion to talk of a quiet revolution in the City that would see bankers turfed out to make way for upstart disruptors. Now despite some of this coming to fruition many commentators now see banks swallowing fintechs and or the likes of Facebook/Google/Amazon swooping in and leveraging their enormous networks and data sets.
For Berlin-based Eugene Danilkis, CEO of Mambu, a digital banking platform for managing credit and deposits, the UK fintech market is one on which he remains very bullish, particularly for standalone digital disruptors in the alternative finance space.
“The UK is the fintech hub of Europe. There is also considerable effort from the UK government and regulators to bring more people into the banking system, encourage competition and make banking services more transparent,” he said.
As a consequence, this has led to new banks opening on the high street, numerous digital banks starting operations and tens of applications for banking licences, he says.
“This has made the UK a vibrant market and a frontrunner in terms of innovation. Some of these new entrants have already become household names like OakNorth, Atom and Starling”.
“It is more open and progressive than other markets, including the US, making it very attractive. There is also increased activity from established banks who understand the threat digital banks are posing and are investing in independent digital operations of their own where they can be more agile and innovative. It’s a concept we call ‘launching speedboats from cruise ships,” and makes us excited about this strong, dynamic financial services sector.”
The success of new entrants, however, means we have seen established institutions are starting to consider and often implement a response.
“They are being forced to rethink their processes, and consider investing in their own fintech instead of mega transformations as a way to bring down costs. They have to think about automation, transparency, data, scoring and assessments in order to produce a more insightful offering to customers,” he said.
Mambu provides Software as a Service (SaaS) to both traditional players as well as disruptors such as N26,Starling and New10. It has at least 180 live operations in over 45 countries and services about 4 million underlying customers.
While Danilkis clearly thinks incumbents have more than a fighting chance of survival he says we’re entering a rapid period of change for financial services that could see the phase of disruption to finance.
“[Incumbents will] have to think like fintechs in order to develop channels of servicing clients quickly, seamlessly and creatively,” he said.
He adds, that a period of intense growth and creativity in financial services is ahead in the near to medium term.
“Whether it is newcomers looking to make their mark or incumbents launching digital offerings, the sector is evolving rapidly and customers are the winners,” he said.
He says for fintechs to compete with established institutions technology is still the key differentiator.
“Consider N26 and Starling, he says. Both offer retail banking services in markets that are already well banked, but they differentiate themselves by leveraging technology to deliver simplicity, value and a unique user experience.”
“N26 has grown 500 per cent in just over a year. In the SME lending sector, OakNorth is growing exponentially through the use of technology to score, process and communicate with clients, making it a better, more flexible, faster experience and giving it the edge to compete against other established financial institutions.”
Danilkis also believes alternative lending from P2P and direct platforms still has a bright future despite the likes of Amazon, Goldman Sachs and RBS/Natwest getting in on the action. This is because its two addressable markets are still profoundly underserved.
“The first is using technology to provide financial services to people who did not have access previously. It is a market that would have once been considered too expensive or risky to serve, making it unattractive. Alternative lenders are using technology to creatively assess borrowers and deliver solutions, opening up a lower value but higher volume income sector.”
“The second market is well-banked consumers who are looking for a better user experience, offering them flexible and tailored solutions. Through the use of data, analytics and automation lenders can deliver a quick, unique and seamless service. This is a higher value sector and allows lenders to invest in technology with the aim of establishing a long-term relationship with customers.”
