Moven and Accenture team up to sell digital tools to banks

To play a little loose with an old Al Capone aphorism, Moven realizes that it can achieve a lot more with a mobile app and a bank than with a mobile app alone!

Ketharaman,

It's not that simple. We've already achieved more alone with our mobile app than most banks globally with a fraction of the funding, and a team of 30 people. But to get to 50 million users, we need either charters in a dozen countries and $50Bn of capital adequaecy or bank partners in those countries willing to pay us to use our App... tough choice? Not really, not when you realize that VCs don't see a charter as an asset and they won't fund that because they think charters are a commodity. 

At this stage it makes sense, but not because we need banks for their awesome bankingness, but because KYC and Cap rules make it more cost effective to partner than go it alone. That and the banks we're partnering with recognize we're doing it faster, cheaper and better than they can, and they'll pay us for that edge in their markets.

BK 

@BrettK:

TY for the detailed clarification.

I never thought banking was as simple as a mobile app and always knew that it had many complications like charter, capital adequacy, KYC, cap rules and all that. I can bet that the same VCs who don't see charter as an asset in the hands of banks would call it a "deep moat" had it been in the hands of a neobank.

Since times immemorial, BFSI has been a large vertical for the IT industry. For some IT companies, BFSI is larger than all their other industry verticals put together. So, banks have always been partnering with tech providers to achieve an edge in their markets. Just that many IT companies have focused on playing the "faster, better, cheaper" card in a more finessed manner that has allowed them to operate cash positively and without VC funding.

KS

Simple economics. In the US alone there are 8-11,000 FinTech Startups depending on how you measure it. Of those, 11,000 start-ups there are only two bank charters funded GoBank and BankMobile (and BankMobile isn't really a start-up). That means 99.9% of investment is not going into banks. In fact, the $30Bn of VC funding going into FinTech this year is more than all the digital transformation budget of the US banking system. 

Of the top technology firms Apple, Google, Microsoft and Facebook - their employees averaged $350,000 profit per employee in 2014. For Citi, Wells, JPM Chase, and BofA - their employees averaged $53,000 per employee. VCs know that investing in banks compared with technology is a bad investment. 

Carry this to it's logical conclusion and there's more investment going into disrupting banking than keeping the paradigm going, and the profitability, speed and innovation of FinTech firms won't be beaten by incumbents anytime soon.

It's not Moven that needs to work with Banks to survive. It's the other way around...

BK 

@BrettK:

"VCs...investing in banks"? Ha ha. I thought the financial services industry invested in VC funds. 

Banks have been around for ages. Financial services is the most profitable sector in FORTUNE 500. When banks fail, the government bails them out. On the other hand, when fintech companies fail, nobody bails them out; for some fintech companies, being acquired by banks is their only way forward; for some others, continued VC funding is the only way to survive. In a frothy economy, there's nothing wrong with any of this but it's a major leap of faith to believe that banks need neobanks to survive!

Then why aren't VCs investing in banks? They're investing in the utility of banking and disrupting banking, but just not in banks. 

Railways have been around for ages. Doesn't mean you don't invest in Aerospace because it will move more people, faster. Telephones have been around for over 100 years. Doesn't mean you don't invest in the Internet. The reality is banks will still be around for ages, but the lions share of new consumer action will be in the technology interface to consumers, and the bank interface. In some cases that will be one and the same (i.e. the bank will have the tech), but in ever increasing numbers the bank will be hidden in the back somewhere at best, or superfluous at worst. 

Your claim that Financial Services is the most profitable sector is not backed up by the facts - see the 20 most profitable companies in the world. The fact is we're pretty evenly split between technology, energy, and finance today. My point was, that as efficient creators of return, technology companies are much more profitable employee for employee than finance. Which is why they'll continue to get the lions share of investment moving forward. 

I thought I made it crystal clear why VCs don't invest in banks when I said "financial services industry invested in VC funds." Fact is, financial services puts money in VC funds, which are invested by VCs in other sectors. It's not possible for VCs to invest in banks. 

In any case, who cares which sector gets VC funding? Does Amazon receive VC funding? Does Apple? Like these companies, banks are post-IPO companies that operate in the phase of investment cycle that is well past the pre-IPO phases in which VCs invest. When VCs themselves admit that only 20% of their portfolio brings them returns, investment by VCs means nothing except to the startups receiving the funding because, as I said, many of them won't be around without that funding.

Of course Financial Services is the most profitable sector. It's backed by facts from the hyperlinked FORTUNE magazine article. While you can find the full article here (http://ow.ly/d/3jtk), let me quote the relevant section:  

"the financial sector boasts the highest total profits of any industry group
in the 500".

Ketharaman, not sure I agree in terms of possibilities of VC’s to invest in Banks. I think they have many other reasons to avoid banking, i.e. return time-horizon, barriers to entry, banks over-complicating their business model (future regulation will guide banks to this conclusion), etc.

More importantly - VC’s invest in FinTech, as they play on the knowledge that banks will do anything to avoid competing for customers on price and therefore put significant resources and funds into their customer experience. So VC’s are only going where the pockets are very deep, if they are successful, and they are sure to get well compensated….

Brett, the problem with all this will be that consumers will continue to get the benefit of a better customer experience, but at a much higher cost than the technology could actually achieve. It must be frustrating for the FinTech companies to build cutting edge technology, but see less than 50% of the technologies potential realized (application and/or costs savings) due to the legacy banking systems in place and the over-diversification of banks ensuring they struggle to leave this legacy behind!

If somebody builds the BRAND that is solely aimed at leveraging FinTech developments, it’s certainly possible to deliver the customer interface and cost efficiency, while maintaining a strong capital base, compliance regime, profitability, etc. So banking is profitable, but can be hugely profitable - so maybe you are both right??

It’s going to be fun to see who is brave enough to overcome those barriers to entry and gets their first….

@ColinC:

TY for your comment.

Far as I know, VCs can't / don't invest in post-IPO companies. In any sector. Period. Have you heard any VCs announcing investments in Apple or Amazon, for example?

At least in India, banks provide the most awesome, tech-mediated banking experience. Maybe they were late to get started with their offerings but take any hot field in fintech - social media or online account opening or mobile banking or P2P payments, to name a few - banks offer the most complete solutions in the market today e.g. Kotak Jifi, Kotak Instant, ICICI Pockets, HDFC Chillar, etc. Nonbank tech companies made a lot of noise and attracted a lot of VC funding , but very few of them have gone past their original offering, which is nothing more than lead generation. While banks still can make a lot of improvement by making their solutions more frictionless, I'm convinced by developments over the last 2-3 years that customers can get the most awesome banking experience from banks, not nonbanks. Whatever be the underlying reason, that's what I see on the ground. (The jury’s still out on how many customers really want an awesome banking experience).

Five years ago, I'd have agreed with your views about what constitutes fun. But, by now, enough VC funding has already gone into enough fintech companies and enough realization has struck enough people that overcoming barriers of charter, capital adequacy, KYC, and all that requires far more money, skills and patience than the VC industry is capable of mobilizing.

To me the real fun is to see how VC funded, ex-wannabe-bank-disruptor fintech companies reconcile themselves to merely providing self-proclaimed awesome technology to banks and how, in that role, they’ll fare against more deeply entrenched, financially-sound, traditional IT companies who got where they are without threatening to kill banks. The arena has shifted to good old competition in the tech industry.

Ketharaman,

I'm sorry dude - you're living in a dream state.

There are 36 FinTech Unicorns worth more than $1Bn today (http://finovate.com/fintech-unicorn-list-36-companies-34-more-closing-in/). That is hardly a failure of VCs disrupting financial services my friend.

BK 

Ketharaman, there are plenty of examples of public companies being taken private again by VC firms, one example being Boots UK the first FTSE 100 company to be bought out by a private equity firm. And indeed the company I work for has passed from public to private ownership. I agree with what you say there are some banks that are innovating and that seems to be happening particularly in India and Australia/NZ and Eastern Europe. 

I'm sorry @BrettK, you're living in a confused state. A fintech company that sells to banks is their supplier, not disruptor. It’s silly to claim to both work with banks and drive them out of business.

The Finovate list of fintech unicorns is neither accurate nor supportive of your claim that VCs are disrupting financial services (although I’m delighted to see the names of a few customers on it!):

• Housing.com (a customer) is neither fintech not a unicorn (or fintech). The market cap of this Indian real estate portal is $250M (Source: http://articles.economictimes.indiatimes.com/2014-11-19/news/56265742_1_helion-venture-partners-soft-bank-indian-realty-market);
• Dataminr, Kofax (another customer) and Zuora are not fintech companies;
• One97 (another customer), Powa, Square and Stripe are in fintech but they work on top of banking rails. Before them, transactions happened in cash and banks earned no interchange revenue. After them, many of the same transactions happen via cards and banks earn interchange revenue. Which makes these fintech companies resellers of financial services. If banks / cards / card network access are not there, these companies won’t be there. Period. They absolutely don’t have the potential to disrupt financial services.

Coming finally to the handful of companies like Klarna, Lending Club, Lumax and Transfer Wise in this list, they independently do what banks do and can therefore aspire to disrupt financial services. But, as WSJ points out, they’re currently bottom feeders that “fill the gap left by banks that have dialed back loans to consumers and small businesses” (Source: http://www.wsj.com/articles/chinas-lufax-valued-at-nearly-10-billion-in-recent-funding-round-1429164241). Therefore, it’s highly delusional to think that these companies will drive banks out of business anytime soon.

@JamesP:

TY for your clarification. Ever since I read about the KKR-led LBO of RJR Nabisco in the late '80s, I've been aware of public companies going private. The knowledge got refreshed when I read the old classic "Barbarians At The Gate of Dawn" belatedly a couple of years ago.

But there are huge differences in that model:  

• It's done by PE, which operates specifically in the Series C through to IPO and beyond phases. Which is totally different from VCs who operate in pre-IPO stage. 
• Semantics apart, the basic thrust of public company going private is almost diametrically opposite to that in VC investment. 
• In the case of public going private, management wants to do something without being answerable to Wall Street on a quarter-by-quarter basis; or PE thinks company has a lot of ineffficiencies or hidden nuggets of value or is worth more when broken in pieces and sold off separately, etc. 

Therefore, IMO, PE investment is totally different from the current context of VC investment. 

You're right about India, ANZ etc. I see many examples of innovation from banks even in the USA viz. Mobile RDC. If it's not as rapid, it has nothing to do with banks' capabilities related to tech. For example, why do FPS when you can enjoy T+3 float and the regulator seems to be looking the other way? (Personally, I don't consider EMV, Chip+PIN, 2FA as innovations but that's another topic!)

You're telling me Lending Club, Betterment and Venmo are bottom feeders now?? Seriously? 

For Moven we're working with banking partners purely through expediency, it means we continue to invest in CX and are able to aggressively grow in multiple countries that wouldn't be possible without a dozen banking licenses otherwise, but that's because we've chosen a retail path.

We're not selling partner bank's products so much as we're helping them rethink their connection with the customer. If banks were good at this stuff, then quite frankly Moven, Lending Club, Venmo, etc wouldn't exist.

You can satisfy yourself that we're bottom feeding on stuff 'banks don't want', but we're doing stuff banks couldn't do because of their cost structures too, and that is a structural and organizational issue that isn't being solved within banks today. Which is why FinTechs are leading the charge.

Sure partnerships are needed. Some acqusitions will take place. But if banks were so good at this stuff, then we wouldn't exist, we wouldn't have the funding and we wouldn't have the customers.  

BK - I understand the barriers to entry for banking start-ups in 1 jurisdiction, never mind multiple. But are you not frustrated that delivering great product via legacy banks fails to deliver the true potential to the end consumer?

Colin - Sure. It's essentially a funding issue. Do we want 50m customers whose lives we've changed, or do we want independence from the banking system?

We believe we can deliver the true potential to the end consumer regardless, after all if you've seen our latest product demo at Finovate, you'll see we've eliminate CA/SA, Overdraft, Credit Cards, Fixed/Term Deposit all with a contextual experience. Some have argued here that this is not enough, it's not 'disruption', but I personal say that is one of the biggest changes in retail banking in the last 100 years. That's huge!

Not only that, but we've eliminated the need to budget.

Name one bank @KS that even thinks like that! 

I'm with you Brett & agree we will see huge benefits for consumers - thats positive and you guys are doing a great job. However, I fear the consumer will end up paying for the service in other ways - unless we get more creative with that funding issue! Good luck

If you go back to Clayton Christensen or atleast my understanding of his seminal work on Disruptive Innovation; industry growth (and disruption) happens when the cost structure of an industry is fundamentally altered. The proof of this is long tail customers, defined as those that were not profitably serviceable in existing cost structures are serviced by the disruptors profitably. True industry disruption and growth happens here. 

IMHO the FinTech landscape suffers from the hype of over use of disruption but there is enough proof that some of companies are fundamentally altering the industry cost structure. The jury might still be out on who amongst them will survive the maturization phase or a bubble but ultimately a couple or so surely will. No one remembers who the Amazon wannabes were but Amazon survived and disrupted retail. Alternatively Amazon's survival did not mean that ALL the old brick and mortar firms ceased to exist but it has fundamentally changed the industry by expanding its base and some who couldnt make the shift in their cost structures just didnt survive. 

The same will be true for FinTech.  

Digital Technologies give the ability to create banking business platforms on B2C or B2B2C models.  

Just because you are FinTech shouldnt mean you are anti-bank. It should mean that you being a non bank are benifitting the customer's banking needs. If you are reducing industry cost structures and increasing the base and are able to execute through boom and bust cycles then claim disruption else lay claim to innovation. And if you are delivering technology to enable some of the banks to do so then that is actually quite cool too. 

I run a FinTech team whose members mantra is cheesily enough Customer First Banking (what else?). And while we are probably minuscle in the scheme of things and amongst the personalities referred in this discussion, for every little feature we strive for it to mean a material difference to the end customer else we drop it.

We dont strive to disrupt banks, we think that is for customers to do and they will.  

@Sudkes

At the end of the day FinTech and Banks need to work together, but in Moven's experience there are only a few banks in the world capable of understanding the value of digital engagement as a trade off. It's why banks like CBW, Westpac and TD, and admittedly BBVA (with the Simple acquisition) are so different.  

They get collaboration and they get that we bring something unique to the table. We couldn't do this without those partners. But equally I would like to believe they couldn't do it without us as

Great debate everybody. Brett said it best when he said "If banks were good at this stuff, then quite frankly Moven, Lending Club, Venmo, etc wouldn't exist." This is the obvious truth. Brett mentioned US company BankMobile, which is not a start-up. They are a division of a business focused community bank. They exist becuase most of the other retail banks are failing. They saw the success of Simple, Moven and others and said hey a bank can do this too. Over the last decade we have seen the rise of the disruption of last centuries banking model. This dusruption is littered with failures. Do you remember Wesebe? Despite all these failures, the growth of both FinTech companies and the investment in FinTech continues to grow around the world.  

Taken together, the last two comments could imply that CBW, Westpac and TD are the only banks in the world who are not good at this stuff and have chosen to partner with Moven. As for the others, this is where the classical "Crossing the Chasm" problem kicks in. According to Geoffrey Moore, the author of the eponymous book, many startups achieve initial adoption among Innovator and Early Adopter market segments of the market by using a certain storyline but the same story falls on deaf ears with the mainstream of the market comprising the Early Minority and Early Majority segments. This is because there’s a wide chasm in business drivers and buying behaviors between the two markets on either side of the chasm. What works here does not work there. The vendor can rail and rant against the mainstream market for not buying into its vision of the future. But that rarely matters. The mainstream market has been around for a long time. And, when it comes to banking, it's also the most profitable industry in FORTUNE 500. Therefore, it's usually the startup that fades away when it's unable to cross the chasm and VC funding is cut off. WeSabe - I even remember how its name was spelled! - is just one example of a wannabe disruptor biting the dust. But it was not the first and it won’t be the last.

Banks have been lending money for eons. To say that banks are not good at lending and that's why Lending Club is around is ludicrous. Now, if we're only talking about lending to borrowers of shady credit history, banks don’t want to serve this market and Lending Club exists to serve this market. According to the WSJ article I’ve quoted earlier, Lending Club and the bigger Lufax are bottom feeders that “fill the gap left by banks that have dialed back loans to consumers and small businesses”. Here's another Finextra article (https://www.finextra.com/news/fullstory.aspx?newsitemid=27372) that goes one step further and says, "UK banks have begun to refer some of their customers to alternative finance intermediaries such as Funding Circle and Assetz Capital". Now, if banks wanted this business, would they refer their customers to the alternative P2P providers?

Even the froth seems to be fizzling.

Once-hot online lending companies go cold in face of skepticism 

http://fortune.com/2015/06/30/lending-club-ondeck-shares/

"Lending Club, ... has seen its stock fall 50% from a high of $29 per share shortly after the company went public."