iZettle has been on an amazing journey from a small startup to becoming an established player in the fintech space. Primarily, three things have helped us succeed during the last eight years. The first has been people and really finding the right talent and entrepreneurial mindset that you need to have in the environment of an early stage startup. Establishing a team that helps to drive and grow initiatives that might fall slightly outside of their given mandates but still enables progress and makes sure that things move forward.
Another important factor has been culture; being very agile in how you work and most importantly allowing for failure. In effect this means having a situation where you say ‘we could try to launch a product three times and fail horribly’ but the fourth time we actually get it into the market and on that basis, we’re still creating customer value. Allowing for that failure and for the continuous iteration of the product is critical.
The third aspect comes with the changing regulatory landscape that affects us and banks even more so. From the very early days, we have aimed at building scalability into our platform to make sure that whatever new products our wonderful engineers develop, they not only work in Sweden for example, but can potentially work in the whole of Europe.
Maintaining an entrepreneurial focus as we grow and expand has been a challenge. As new departments are created, boundaries can spring up between them. One way that we’ve been trying to manage this is through an agile way of working. For any given product you have a product team which of course comprises a product manager as well as engineers and marketing & sales resources. Then subject to complexity, you might add legal or compliance resources. Maintaining a company structure which is the equivalent of consisting of very many small startups allows you to exercise not only accountability but also speed within those given teams. You can also allocate resources between these various products in quite an efficient manner.
We are in this with the banks
As we are reliant on the financial infrastructure that our solutions are built upon, we need a really good, solid, stable and reliable banking partner who can facilitate that infrastructure for us. As innovation is our business, we also need a partner bank that is curious and wants to drive the development with us.
Collaborating with banks is a natural thing to do as we have two very different but very material strengths, especially in the fintech space. Banks are the experts when it comes to regulatory requirements and infrastructure while we have speed and tech. By being able to leverage both of those two together, I think we can build something truly great. We can say ‘we’re finding this problem in this market where we’re trying to enter, what do you guys know about that and how can you help us do this?’ I think it’s a very natural collaboration as well because our business model is directly dependent on the banks to be able to facilitate payments and help small businesses grow. Having the support of a really strong partner bank that we can rely on and can help us grow is one of the core things we need to put in place in order to be successful. From the bank’s perspective, they will receive higher transaction volumes if we are successful, so everyone is happy!
Another core requirement for us, and it might not be super exciting, is reliability and taking care of regulatory aspects. We need a banking partner that is very forward leaning when it comes to discovering new tech and trying out new things. We need a bank that is willing to take advantage of new developments and will try and see if it’s something we can commercialise on the bank side that creates added value for customers.
Instant wins with Instant Reporting
One obvious area for developing close partnerships is Open Banking. From my perspective, Open Banking really has two parts; the societal aspects and the part that appeals to me in my role as a Treasurer. If we look at the societal benefits of Open Banking, it’s really about democratising data and putting it back into the hands of the customer. Not only iZettle but also our peers in the market as well, will be able to build the tools that can serve small businesses and people in general. These tools can help them understand everything from their cashflow to their working capital, to how to execute payments through common platforms. Open Banking will allow them to piece together all of the various bits of data that they currently have in different banking setups and portals or that they might not even be able to access at all presently if it requires a costly ERP system. By leveraging open data, we can package that for customers and use it to offer solutions that will help them in their daily business. It will be truly exciting to see what will come out of it.
One new API that can be described as a commercial product from Open Banking is Instant Reporting which is very interesting to us. We believe from market research, not only in Europe but in the US as well, that roughly 82% of all SMEs go under due to poor cash flow management.
One new API that can be described as a commercial product from Open Banking is Instant Reporting which is very interesting to us. We believe from market research, not only in Europe but in the US as well, that roughly 82% of all SMEs go under due to poor cash flow management. Instant Reporting allows us to standardise a solution through Open Banking. We can gather the data, aggregate it and then at scale give our customers information on how they are performing. We can then offer advice on where they can leverage, how to improve their cashflows, etc. and truly offer them something that will assist in growing their business.
For Treasury specifically, Open Banking means de-risking our cash flows. Instead of producing a file, sending that file, someone receiving that file and reading it and so on, we’ll be able to remove a lot of steps in the way we communicate with our bank. We will simply look straight through the API and see in real time how our balances are looking, what kind of money we currently have and where it came from. With this instant knowledge, we will be able to react and reallocate specific funds fairly swiftly if required. In turn, we are not only de-risking our organisation but passing those benefits onto our customers to serve them even better by offering them propositions and products that require faster payments.
We think Instant Reporting is something that is truly great because it allows us to remove all of the legacy infrastructure we have in our current set up. Our current solution has worked and has proved scalable but because there are so many moving parts, operational risk is introduced every time we make a slight change to the infrastructure. Instant Reporting and other API services will give us instant balance updates and will also cut our response time in terms of being able to build in triggers. For example, if you have accounts where you receive money and want to move it somewhere else. Building in automated triggers and being able to execute on those as soon as money actually touches accounts allows us to have much more efficient cashflow management throughout our entire organisation as we start scaling. Instant Reporting or similar services in that suite of propositions would allow us to essentially rebuild our entire infrastructure.
By being able to use real time insights into what our balance actually looks like and what’s happening on our accounts, we will also be able to completely rebuild our entire payment set up. We can furthermore create additional services for our customers as we can also look at their accounts and see what they are doing. Did they get the payments that we sent to them and at what speed did they get it? We promised them a faster payment, was it really faster?
It’s a fun challenge and it’s completely dependent on how you build your infrastructure in the first place. It’s easy to smile when you’re only eight years old because all of your infrastructure is still evolving. As we build everything with a modular approach, it makes it fairly easy to take out a service and replace it with a new one and then push it to production without even taking down the customer facing part. This gives us room to constantly iterate the product in order to make it slightly better each time. If you have a system which is fully interconnected, it can be a big challenge to make updates.
Other areas where APIs can be used for larger corporates and on the treasury side are mass payments of everything from salaries to supplier invoices. De-risking those aspects as well and managing them in a more efficient way than is currently possible would increase efficiency and establish a level of automisation in the back office. For our corporate needs, we would definitely like to see a new solution for accounts payable and being able to facilitate mass payments. We would also like to see the possibility of making settlements directly through treasury management systems, not just related to accounts payable but also currency exchange, derivatives, interest rates, commodities, etc. and being able to add increased efficiency into those processes.
The way you use Open Banking will be completely dependent on if you’re looking from the perspective of serving corporates or serving private individuals. One area will see people stepping in and trying to utilise it is for scoring purposes and making cost of credit risk assessments. I also think you will see more players popping up in the fintech space who will place themselves as a shell over the banks. These companies will not only distribute these various services which they can access with the help of PSD2, they will also try to aggregate that data to try to help financial literacy throughout the various communities in the general population.
On both the corporate and banking side, I expect to see even more automation in the future. The larger Treasury Management Systems as well as ERPs will most likely build their way directly into these Open Banking channels to make cashflow management as well as the mass payments services more efficient.
When it comes to our customer propositions, we’re very much looking forward to being able to take this data and package it back to our customers. Our current free offering to customers allows them to access a full suite of analytics on their income side. Open Banking will allow us to complete that by providing analytics on the cost side which means we can give something truly powerful to our customers, which will be quite nice.
Subject to roll out and given that the infrastructure is available, we aim to rebuild our processes to be able to facilitate further transparency for our customers, giving them their money even faster and facilitating new products. We will be able to package products for them at scale, giving them automated solutions to help them improve cash flow management and working capital.
This new simplicity, speed and business insights to understand their own core business means that on our side we can effectively conduct the hard analysis or the hard aggregation of data and try to find the various patterns that are within the specific customer’s behavior. We can then package the data in such a way that it’s interpretable to anyone regardless of whether they are a finance professional or small business owner. Our task is to package the data in a fashion that adds customer value otherwise we’ve failed at what we want to achieve. We will also be able to offer customers advice based on benchmarks against their peers. For example, ‘you spend fairly similarly to your peers’ or ‘you can find benefits here’, ‘if you cut back here you can grow your business, etc’. As all of that data is on our platform, our aim is to be able to package those solutions in a way the will provide a key support in helping our customer’s business grow even faster.
Direct and automated
On both the corporate and banking side, I expect to see even more automation in the future. The larger Treasury Management Systems as well as ERPs will most likely build their way directly into these Open Banking channels to make cashflow management as well as the mass payments services more efficient. If that comes within the next year or the next five years remains to be seen, depending on how many banks open up and at what speed. On the customer side we would expect there to be the opening up of aggregation services to enable the facilitation of payments regardless of which specific bank the user has.
As well as summary services, there will be the possibility to gain an overview of what your total bank commitment looks like. Where banks are becoming more like transaction partners, other tech players will then facilitate payments and payment orders under PSD2 in the long tech network.
Looking ahead to PSD3, we would like to see even more openness. Obviously not everything can be opened up due to GDPR and other various compliance frameworks that one has to adhere to but the current regulation of PSD2 restricts the number of account types that can be opened. They therefore do not show you the full commitment or payment history. To be able to leverage benefits for our customers and to do this to the full, we would like to be able to show the customer ‘here’s your consolidated cash flows and your cash flow efficiency for four months’. Given the current scope of the regulations, it comes with a cutoff for how much we can do. We can of course save and aggregate the data and then package it but that will come with increased rights requirements.
A future of specialists
What I think we’re seeing right now is the same fragmentation we saw in the music industry in the 90s. Back then you used to have a structure where the record label hired the artists, produced the music, printed the CDs and then distributed the CDs. Following the market fragmentation that we saw, the music producer continued doing the very same thing, but the distribution part was taken into other channels. So you had entries of players such as Spotify or Apple and similar retailers who distribute these products. All else being equal this also meant that the music producers can now remove the complexity and costs of the distribution business and focus on their core competency of producing music and doing that really well.
I think we will see a specialisation or focus coming into the market space where it used to be essentially a one stop shop process. Sometime on the horizon we will see that the distribution of financial products and services will most likely migrate into new players. At the same time, you will see the transactional sort of traditional banks taking care of the more heavy lifting aspects such as KYC, regulatory structure, capital advocacy as well as the infrastructure of course.
Handling the distribution, new players will be able to offer a completely different kind of attention on customer experience. A bank needs to analyse its approach in this new space. Do they try to strip off a piece of their proposition to gain distribution through the digital space or do they look to becoming a transactional partner that facilitates services and maintains an ecosystem of developers who are competing amongst themselves to build the best possible customer solutions? Keeping a long story short, I think we’ll see distribution migrating out of traditional structures.
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