Picking and choosing your bank products like you pick and choose your TV streaming products is inching closer to reality every day. With more and more Fintech’s finding creative solutions to provide consumer-centric experiences and more and more financial institutions realizing the need to serve an evolving consumer base, the “bank-as-a-platform” is slowly melding into reality.
Enter stage left, Railsbank with an innovative solution to tie the regulatory compliance capabilities of the banking firms with the consumer-centric and cost effectiveness of the Fintech’s.
Railsbank is being touted as the first real solution to providing a “bank-as-a-platform” service. Leave it to Nigel Verdon, a seasoned Fintech founding veteran and financial minded stalwart to be the face of this change.
S.I.C. recently sat down with him to discuss this meaningful change in the industry and how he and his team at Railsbank are providing a simplified solution to providing a vast set of banking services to consumers in a truly innovative way.
CL: Nigel, thanks so much for taking the time to speak with S.I.C. today. You have quite an impressive and lengthy resume in the financial world from investment banking to founding other Fintech startups like CurrencyCloud. Can you talk a bit about your career that has led to this point.
NV: To tell you the truth, I have been in and out of starting up since 1996 when I founded my first startup. Since then, I’ve worked on both sides of the equation between large financial institutions and startups, including my time spent building CurrencyCloud.
Starting Railsbank is really a natural transition that balances my experience of working on building financial startups and understanding the world of large financial institutions.
CL: For those who don’t know can you speak a bit about how you define Railsbank?
NV: Railsbank is a platform which connects the Fintech world with a global network of small and midsize banks with just five lines of code. It acts as the key to connecting financial institutions that have the regulatory capability with the technology startups that have the consumer user-friendliness and appeal.
CL: The constant debate out there is that either Fintech startups will win or large financial institutions will. Railsbank would seem to question that notion by being the tie between both. How do you think about the future of the financial world?
NV: When you break it down, the reality is the financial institutions and startups need to work together. Banks will never be displaced because you need balance sheets around the world as a safety net of funds, and you need their regulatory knowhow and capability.
I am quite astounded at times how naïve some Fintech founders can be. To believe that they can single handedly change the whole banking industry that’s been in place for over 700 years without change, because it largely works to be honest is foolish. That does not mean however that we don’t need the startups. Fintech startups provide the connection between banks and customers which is the real broken part of the financial system. Taking responsibility for the custody of money and assets is a big responsibility and not one that the Fintech’s can necessarily handle even if they think they can.
So how I see the future is the banks will continue to be the provider of wholesale lending services and the Fintech’s will focus on what they are good at, which is product development and providing good price points to win. By staying focused on user solutions and allowing the banks to provide generic banking solutions is how our financial system will be shaped as we move into the future.
CL: Speaking of financial institutions, what segment of this market is Railsbank looking to focus on?
NV: We are focused on supporting the small to midsize banks that are looking for opportunities to operate in the digital world. However, we prefer not to work with startup banks because of the inherent risk these organizations are taking on. More established small to midsize banks are our core focus.
We find that this segment of the market, though established in terms of banking capability, are much easier to work with than with larger banking companies. We typically have access to the CEO and / or shareholders of our banking partners, so we can develop a relationship with the bank that allows us to go live within three months of our first discussion.
The larger banks are in the mindset of developing their own single-bank APIs. With that mindset they lock themselves into being a single bank service provider as opposed to a global multi-bank solution that our FinTech customer want; which is why we focus on building a global network of small to mid-sized banks.
The elephant in the room for larger banks, is that there is still the issue of compliance / risk on-boarding, and no matter how good the tech APIs a large bank has, onboarding a high risk customer still takes upwards of 9 to 12 months, which does not fit into our FinTech Customer proposition - to be live and connected with a banking relationship in 2 months.
If however, a larger bank wants to distribute Fintech product to their customers, that larger bank is welcome to join our banking network as a consumer of FinTech products.
However, the focus and our real passion is in providing Railsbank’s capabilities to Fintechs and small to mid-sized banks with a mindset for providing improved digital financial services.
CL: One of the large pain points Railsbank is looking to serve is helping young fintechs manage regulatory challenges. What are some of the largest challenges around regulation that Fintechs seem to struggle with the most?
NV: The first thing you need to recognize is that regulation can’t be avoided. For instance, Transferwise thought it could obtain a license in two months. I had to advise the organization that it would take a great deal longer.
So the first thing you need to do is respect regulation and work within the regulatory environment even if you don’t have a lot of compliance experience. FinTech companies typically are classified as high risk companies, which makes the services they provide to end customers high risk for the banks.
The banks end up bearing this risk cost if they decide to work with a Fintech. What we are able to do through Railsbank is use our unique Compliance Firewall technology is to enable Fintech’s to prove that all their processes and transactions are compliant with their compliance manual in real-time and allow the banks to validate this. This is the first time this has been available in the World.
We essentially take a high risk product for the banks and reduce it down to a medium and low risk product through our embedded Compliance Firewall technology.
CL: In trying to provide this assurance around regulation, does that create challenges in scaling the business internationally?
NV: Not at all. Railsbank is purely a tech company. What we provide is the compliance technology to manage the compliance risk.
The old way of managing these compliance processes is error prone, validated via after the event audits, relies on PDF manuals and labor intensive processes. Railsbank’s Complaince Firewall technology provides all of this in real time without any of risks associated with manual processes.
CL: Without major regulatory hurdles to overcome across countries, what are your plans to for growth moving forward as you approach full launch of the product, and what are some of the challenges you face?
NV: We are launching in January 2017. We have our first partner bank that will give us Pan-European coverage and we have a second bank that is signing up in the coming weeks.
Having these two banks live and up and running in 2017 will give us a complete European story. From there we will then be looking to other jurisdictions in 2018 as we grow.
The services we are launching with are enabling FinTech companies to issue individual bank accounts for their end customers across Europe as well as SME bank accounts. These end customers will be able to obtain direct debits, receive and send money into those accounts and be issued prepaid cards.
People doing open banking are largely only focusing on retail and data products instead of complete banking products. We look like a complete set of banking product for API rather than just focusing on retail customers we also look to serve the SMEs.
CL: What is the monetization strategy for Railsbank?
NV: We will be charging the Fintech companies an API charge to access the platform. The charge will look, feel and consume just like any other online service they are likely to use.
CL: On your LinkedIn, you mention that what gives you a buzz is working with inspirational like-minded people focused on a common goal. Can you talk a little bit about what you saw in Clive Mitchell, your Co-Founder, and the type of team you are trying to build at Railsbank?
NV: Clive and I have known each other since we were just thirteen years old. We went to high school together and then University together as well. We have built companies together before. Throughout all these years we have known and worked together, he has always shown himself to have the same set of values and approach to building businesses.
The next step that we are working on now is to attract more people that have similar sets of values as ourselves.
CL: Railsbank feels like it takes us another step closer to the so-called “platformification” of banks. Is that a trend you are hoping to ride with Railsbank, and do you see this becoming the reality of consumer finance in the near future?
NV: I think we are creating the first real platform as a bank. Many people are talking about it but we will be the first true “banking-as-a-platform”. We are the real innovators in this market.
I think of banking-as-a-platform as you select a set of services that you want to be connected to through Railsbank and the partner banks connected to our network provide the services they want to provide. This type of business model starts to become very much client driven as opposed to the way banks work at the moment. Right now banks look at it as it’s a privilege to be banked because the economics of banking smaller clients (SME or retail) just do not work..
We are changing the economics of banking considerably. Banking precludes financial inclusion because a bank’s current customer acquisition cost is $350 per account. The lifetime value of a typical customer is $250 dollars.
We change that model radically because of the way we work in the supply chain. A bank can now acquire a customer for just $4 and the lifetime value of that customer is $70 per account. By using Railsbank and connecting the Fintech world we can help promote financial inclusion that would typically lack the economics to be possible.
My founder and I really believe in using Railsbank as one of the tools to promote financial inclusion.
The Minute Rundown with Nigel Verdon
CL: If you could provide one piece of advice to someone considering starting up what would it be?
NV: Believe in what you are doing and have a lot of tenacity to make it happen. Don’t be concerned when you are wrong. When you startup you work in a world of 100% wrong, the whole journey is taking the idea and over time proving its 100% right. That’s the journey you are on. It’s about proving that people should buy it and that the value proposition works and the metrics of the business model works.
CL: What would you like to see improved in terms of financial inclusion in the UK specifically?
NV: What we would like to see is for-profits and others actively working to promote financial inclusion. One small example of the type of impact we can have is if someone is currently unbanked in the UK they can’t pay bills by direct debit. This means they pay to use services like broadbank with higher fees fees that really impact their financial wellbeing. Just by being provided access to a bank account they can pay by direct debit and reduce their bill expenses by 15% or more on fees alone. That’s quite meaningful to an individual who doesn’t have much money.
CL: Between being a chairman, founder, CEO and active volunteer, what do you like to do in your free time?
NV: I am a very active guy, and definitely enjoy a variety of activities like building electric guitars and playing music to skiing, sailing, mountain wlaking and cycling in the outdoors.
CL: If you could pick one founder to emulate yourself after who would it be and why?
NV: There are so many wonderful founders but Richard Branson for me sticks out. He has really trailblazed across so many frontiers and is quite an inspirational guy.
Nigel Verdon is a startup veteran with immense experience and success under his belt. Despite that you can tell he continues to be focused on one thing: Pursuing the next idea to help improve the financial system even more.
His tireless efforts to improve the financial ecosystem, in conjunction with his pragmatic view on solving financial service with a mix of old school regulatory wisdom and new school technology flare are enabling him to do things in the Fintech ecosystem.
As he and the team launch Railsbank in 2017 it will be exciting to watch how they help create the new age of the much talked about but to date low substance, “bank-as-a-platform” market. The wave of the future is upon us, and Railsbank is providing the key to make it all work.
Thanks for reading and be sure to check out more about Railsbank here.