[00:00:00] Lucas: Welcome Daniel to the “Building and Growing Podcast”. We're very grateful to have you here, today!
[00:00:06] Daniel: Thank you! A pleasure to be here, always good to chew the fat with you, Lucas.
[00:00:12] Lucas: Excellent! Thanks so much! Daniel joins us from Integrated Finance. He is one of the co-founders there. Do you want to start off by giving us a bit of an introduction to yourself and to the company?
[00:00:24] Daniel: Sure, I'm Daniel Cronin. I'm a co-founder and COO & CCO or if we were in Silicon Valley, it would be CRO, of Integrated Finance. Generally, I oversee all Operative and Commercial aspects of the business. What does Integrated Finance do? We are a software service company, build and management platform for FinTechs looking to launch FinTech products.
[00:00:56] Daniel: You can kind of look at us as a core bank for young FinTechs. We have a focus on getting FinTechs connected to multiple banking as a service platforms and FinTech friendly banks. Whereas, some of the maybe larger players in the industry like Mambu, they would typically focus on much larger integrations to either the schemes themselves or to tier one banks operating in multiple territories.
[00:01:26] Lucas: Okay, excellent! So you're helping support younger FinTechs to connect to different financial service providers. Do you mind telling us a bit about, what the journey would've been for a FinTech, prior to Integrated Finance launching, and what problems you're solving through the product?
[00:01:49] Daniel: Sure! Well, I suppose I can tell you a little bit about myself and the founders of integrated Finances, background, because it's really our own problem that we were trying to solve. It was our own itch that we were trying to scratch, as it were. We are second time founders in the FinTech space. The first time we went and got a license with the UK regulator, the FCA, to offer a financial service to small-to-medium enterprises. As a young FinTech we struggled to entice any tier one bank to work with us! And because we couldn't get a tier one bank to work with us, what that meant is we had to kind of do a patchwork knitting of tier two banks and other FinTech friendly services together in order to make it look and feel like our customers were just interacting with one financial entity. The problem we had when doing that, is in the 90s and 2000s you could partner with a tier one like Barclays and get access to fantastic great British Pound payment infrastructure, fantastic single European payment area infrastructure, SEPA, SEPA Instant, you name it. You could get access to US Dollars either via Swift or on the local market on say FED or ACH. They had built correspondent relationships with most of the tier one players in each jurisdiction.
[00:03:31] Daniel: And so, if you partnered with Barclays, you could effectively give all of Barclays’ services to your own customers and then you would improve upon that service by targeting a particular vertical or sector of the market. Maybe they were getting weak exchange rates because they didn't have the volume to get a good exchange rate directly from the bank.
[00:03:53] Daniel: Maybe it was a lending solution, maybe it was an international payment. You name it, it doesn't really matter! As a young FinTech, no bank wanted to touch us, we just presented too much risk and not enough reward for them and so, what we ended up doing was going to the, and I mean this with no disrespect, banks that had very little international footprint, but they had a very compelling offering in their own jurisdiction.
[00:04:22] Daniel: So, we partnered with ClearBank, United Kingdom and got a fantastic Sterling (Pound) offering. We partnered with a bank that powered a lot of FinTechs, a few years ago; they no longer serve FinTech now, that was Deutsche Handelsbank we got access to Euro clearing. We ended up working with another bank in the United States to give them local access to the Dollar market.
[00:04:46] Daniel: And it was really a stitching together of all of these solutions to give our consumers a banking service that could compete against the tier one players in the market. But it was extremely difficult. The problem was with all of these integrations to different banks, our integrations started taking longer and longer to develop, execute and deliver.
[00:05:14] Daniel: Because more and more of the logic of that bank was being accommodated into the backend that we'd built. Yeah. So yeah, we'd built a hodgepodge solution of Banks that were willing to support FinTechs. Precisely, because we posed no risks to burning their correspondent banking relationship network!
[00:05:37] Daniel: So, either the FinTech didn't operate overseas, sorry, the bank didn't operate overseas; so it had no dependency on a foreign currency to run its typical operations or had no correspondent banking relationships at all. So, there was no exposure that the FinTech brought damage to that bank's own revenue stream. Part of the problem with the likes of Barclays, Deutsche Bank, JP Morgan is, they've got very large correspondent banking relationships, and you need those correspondent banking relationships to be able to establish global operations. If you don't have global operations, you'll never be able to entice in the blue chips - the multinationals, the mega corporations. Apple isn't going to bank with Barclays in London, if it doesn't have access to Dollars.
[00:06:39] Daniel: Apple will want the “suite of currencies” they need to operate worldwide with every bank in the world! And part of the problem a FinTech poses that bank is they effectively delegate risk. If a bank says, I will work with you, say Revolut or TransferWise, what they're really saying is: I trust you to use my payment rails in a responsible way and the likes of Revolut and TransferWise are sufficiently staffed and resourced and have technological capacity to spot things like money laundering, fraud, very quickly. Whereas some of the younger FinTechs in the space, maybe don't have either the expertise or the capital to expend on non-revenue generating activities such as that.
[00:07:28] Daniel: So, the risk for Barclays or Deutsche Bank to let a young FinTech on their rails, is too high. Because, if that FinTech makes one small mistake, there's a very high chance that Barclays will have correspondent, let's say, JP Morgan or whoever the Dollar clearer is, they're saying, you've exposed our network to money laundering,
[00:07:54] Daniel: we're going to turn off your access to US Dollars. If you turn off Barclay's access to US Dollars, you can kiss goodbye to any NASDAQ, Fortune 500, FTSE 100, all of the big companies that currently depend on someone like Barclays to operate their global operations. That would be kaput!
[00:08:12] Daniel: And the 80/20 rule, banks make 80% of their revenue from 20% of their clients! They don't want to put that 20% of their clients at risk for the sake of a young untested FinTech! And, back to the point I was getting at, that's what we were, we were a young untested FinTech. So, we had to partner with banks who had no exposure to correspondent risk, and were willing to take a punt on an increase in volume going through their network, so, they had larger deposits to be able to lend against, by working with FinTechs that had the capacity to attract a higher number of customers, whether that be B2C or B2B. So just to tie that one off. Having built all of these integrations, probably quite poorly by the end, we realized there was this new layer of FinTech friendly banking options called Banking as a Service; it's where a more established vendor like a Currencycloud or a Railsbank in the States, you're getting say unit bond companies that had poured more energy into ensuring that all of the sorts of things that a bank doesn't want to facilitate such as potentially fraud, money laundering, non-compliance on client money regulations, all of that sort of stuff.
[00:09:39] Daniel: These banking as a service players were slowly abstracting that problem from the bank to themselves, and they had the capacity to support younger FinTechs without exposing the bank to the same level of risk and we realized at as Founders of this FinTech, that there was nobody trying to abstract the differences between all of these Banking as a Service APIs.
[00:10:06] Daniel: So that we could give one compelling, either interface or technical gateway for these FinTechs to be able to access this plethora of new technology. And ultimately, why did we start Integrated Finance; it was to solve the problem that we had, when trying to integrate all of these best players just to get to market with either an MVP or a slightly more fleshed out product.
[00:10:32] Lucas: So, we covered a lot just then and I think it's really important just to sort of compartmentalize it, to ensure that we can break it down in a simple manner. I'm thinking for example, if my parents are listening to the podcast, I want them to be able to understand.
[00:10:53] Lucas: So, the narrative was, there were a lot of smaller FinTechs such as, the previous company that you founded, out in the market. Barclays and other large incumbents may have offered a very wide range of services, when it comes to making bank transfers or holding foreign currencies. However, the risk for them to onboard smaller FinTechs was too high and the smaller FinTechs also had quite a large integration burden on them. So, what you guys did, was build integrations to smaller banks and then you realized actually if we build one, API or interface, we could connect to all of these smaller banks, as well as, some of the banking as a service provider like Currencycloud and others to provide not just the payment rails, but also the compliance and regulatory aspects. So, KYC, anti-money laundering and other regulatory requirements would be fulfilled. So, in terms of the benefits, you've got, the FinTech reduces its integration time, for multiple providers, they also are assisted with the regulatory and compliance pieces. The larger banks, or any bank involved, knows that there's a particular quality standard that they're going to receive from any clients flowing through Integrated Finance.
[00:12:44] Lucas: So, their counterparties know that things are going to be done in a compliant manner. And, you really benefit because you're able to open up a new part of the market. Although I wanted that to be a concise sort of summary, it ended up being a bit longer than I wanted, but would you agree with that?
[00:13:11] Daniel: Sure. So, I guess the way to unpack it is, what is the benefit for the consumer of product? We built this thing for ourselves badly, in a previous life the venture was successful and we exited somewhat successfully! But really all we were trying to do was solve our own problem, which is how can we take our product live faster, without investing time in stuff that our customer doesn't care about. We were losing sleep over how to ensure that the accounts that we generated for our customers were going to be in our customer's name. So that when Sofa Limited (a made-up company, I am just pointing out what's in front of me in the studio), wanted to pay their invoice to a textile manufacturer in, I don’t know, Ireland or Turkey. Textile manufacturer received the payment from Sofa Limited, instead of them receiving it from payments broker or PSP one or Transfer X or whatever the name of the FinTech supporting that transaction is. We would lose sleep over how can we onboard Sofa Limited in a smooth and easy way, that's not going to dissuade the financial controller or the FD or the CEO or the accounts payable clerk from completing this onboarding journey that is quite intensive. We lost sleep over how do we give these guys fantastic exchange rates?
[00:14:55] Daniel: And what we realized is our customer didn't care about the why, our customer didn't care about the how, they cared about the output! They cared about the thing that they had touch points on. And what does a customer have touch points on - it's an “interface”. So, we were pouring all of our energy into table-stake stuff that didn't make us any different from a Barclays, that didn't make us any different from a Revolut, didn't make us any different from a Chime or a Wise or a Starling Bank. We were pouring all of our energy into just being able to do the same things as them.
[00:15:36] Daniel: By the end of it, we didn't really have a lot of capital, willpower or engineering resource to go and create some compelling reason for the customer to use what we build instead of what our competitors were building. And so, boiling it down all Integrated Finance is trying to do is to divert your attention, resources and capital to where it matters.
[00:16:02] Daniel: If you are starting a financial service, presumably, there's a problem you've seen in the market that needs to be solved. But if you expend all of your energy on just being compliant, regulatory being compliant, commercially protecting your client assets in the way that you're supposed to, converting currency in the way that you're supposed to, assigning a name or to a bank account in the way that you're supposed to, you're going to have no, unless you're super funded, unless it was Adam Neumann starting a FinTech today, unless you're hyper funded, you're going to invest all of your energy on something that isn't going to make you win your customer. And there's a fundamental problem with that equation. If you're spending money on extremely important stuff, being compliant, protecting your customers,
[00:16:57] Daniel: you're not going to win customers. You need to be different from what's out there in the market! And presumably an entrepreneur doesn't wake up in the morning and go: oh, I'm going to start a payments company! Well, what's that payment company going to do? What problem is it going to solve? I didn't think about that.
[00:17:16] Daniel: That's not how entrepreneurs work. They usually worrying about the bleeding edge problem that's going to make a difference in this world. But having tried to start a revolutionary FinTech, what I understand is your resource quickly dries up on the stuff that customers don't care about, we're trying to solve that problem fundamentally.
[00:17:36] Lucas: Fantastic. Yes. You summarized that in a much more concise manner than I did, so thank you! And just in terms of solving that problem, do you want to just highlight, how it is that the FinTechs are connecting? Is it through one single API?
[00:17:53] Lucas: You mentioned as well, that they're able to check their balances as well. Is there a separate API for ledgers and transactions? How does it work?
[00:18:05] Daniel: Sure. So, the youngest, hungriest and wanting to start fastest FinTechs will sit on top of our core and they'll often take our user interface.
[00:18:18] Daniel: We always recommend to our customers, don't rely on that because the more of our customers that use our user interface by definition, the less differentiated you are. But for entrepreneurs new to the space, it can be a really helpful and effective way for them to get the market super quick and learn
[00:18:38] Daniel: what is it that their customers do and don't like about this type of an interface and go and build your own out to make sure you're solving your own niche. Slightly more seasoned entrepreneurs, will often just take our core, and our APIs and they'll go and build their own interface themselves.
[00:18:56] Daniel: And there's times where our interface makes absolutely no sense. If you are launching an investment portal and you want to show your customers returns, but you want to be able to generate accounts so that they can wire funds into that account, maybe participate in some investments, my system won't see how your investments are performing; so why the hell would you want to use my user interface? Whereas, if you are maybe just generating a more standard type of bank account, maybe with a bit of cross border or user interface it will work just fine for that type of user. But largely we say, if you're going to use our user interface use as a launchpad to build your own, because we are not going to be able to differentiate your product if you're depending on our front end. The most seasoned, so the most technically astute will usually just use our APIs. Our core has the majority of functionality exposed either for posting or pulling information from that core as well as being able to initiate workflows on our APIs. So, some customers will just do API integrations,
[00:20:07] Daniel: the vast majority will do API and use our or core or back office, and some of the younger FinTechs will take the interface too with the user interface for their own customers.
[00:20:19] Lucas: Got you! And you touched upon an investment management use case, just then could we almost step away from FinTechs and almost financial service, institutions as clients, are there other use cases across say property management or other industries where Integrated Finance would be applicable?
[00:20:46] Daniel: Absolutely, the market in general is trending towards placing existing financial services into places where they don't exist. There was, a smarter guy than me, who I'm kind of stealing that statement from, but his definition of “Embedded Finance” (like can't for the life of me, remember his name, but I'll find it after. So, you can credit him into comments). He basically said Embedded Finance is the positioning of existing payment technology
[00:21:19] Daniel: into circumstances where it doesn't exist. And whilst we don't regard ourselves as Embedded Finance, we regard ourselves as an “Aggregator of Tools to Launch Financial Services”. We have been approached by a much wider array of use cases than I first anticipated.
[00:21:44] Daniel: So, there's a wealth manager who wants to digitize an investor portal, he's been handling investments from US investors into African SMEs in FinTech. for 4 years. Now, he wants to systemize or systematize that by offering each of these investors their own account that they can pay into.
[00:22:11] Daniel: It solves for the business because they can reduce the headache of thousands of people paying into one account. But also, they can add incentives to use that portal now because, as soon as you issue someone an account, stickiness tends to trend up.
[00:22:31] Daniel: Long term, they might use that account for other things, if that's within the allowed function of the service. But if you have an account with a balance on, people tend to log in to check what that balance is doing.
[00:22:47] Lucas: Yeah. So, and I mean, just thinking out loud, for another use case, these employers on record and umbrella companies like Deel for example, you still need to enter repayment reference when you send your money away.
[00:23:02] Daniel: Absolutely! Ultimately, sometimes when I talk about this, people think, oh, wow, I never thought of that! You did think of that, just the framework or the lens through which you're listening to, what I'm saying is probably not tuned to what we're doing, it's bank account issuance.
[00:23:24] Daniel: Think of the millions, billions of people out there who have bank accounts. What are they doing with those bank accounts? Yes, there's going to be a high degree of trend and similarity, but you can do whatever the hell you want really. Or use cases so the investment portal property managers are definitely interested in this because they can effectively issue an account per property that they rent, and that reduces the complexity of managing tenant refunds or anything else. One of the most interesting use cases, we were approached by a divorce law attorney based in Texas and again, this is part of the embedded finance march, they realized that post settlement, parent A, parent B were often coming back to them because, there was a constant challenge to managing the maintenance of child support payments and a number of other things.
[00:24:24] Daniel: So, they wanted to create an app, that would kind of diary share the child, so the parents would always know, okay, this is your week, this is my week. And then they realized, oh, we, we can maybe add some kind of loyalty for kids stationary, healthy food, play areas, we can get discounts from leisure centres. And so, when they were thinking about how can we make this a more compelling and engaging tool for recently divorced couples who have children, they thought wouldn't it be great if we can create bank accounts for parent A and parent B. They can manage the childcare costs through that and they would have a personal financial management tool to track it all. And of course, there's the negative aspect of it, where for one reason or another parent A isn’t paying or even worse are paying, and parent B is disputing the fact that they've received those funds. Often it would revisit the courts.
[00:25:30] Daniel: And the courts would have no way of validating who was telling the truth there, because they couldn't get access to those accounts without going through a lot of more litigation. So, by being able to generate the accounts and give read-only access to an authority, the court all of those disputes in theory could disappear overnight.
[00:25:49] Daniel: Now, this is exactly where I go back to what I was saying a minute ago, if that Texas divorce law company spent time building ledgers, managing balances, working out how to assign parent A and parent B's name to a balance. The product would never go live! But there's so many fantastic tools out there that you can connect to, that you can really give a super compelling interface for any kind of niche right now.
[00:26:17] Daniel: The problem isn't a lack of choice anymore. The problem is potentially, it's too much choice and difficult to validate, which is the best tool and Integrated Finance was not a big part of this opportunity where we came into try and assist was, they were great, they were fine in the States, but in the European market, it was difficult to understand; who could do what under what regulatory framework.
[00:26:43] Daniel: And we acted as a consolidator of connectivity options to all of these different ways of generating accounts, managing payments. And they went and focused on building a super compelling app. Now, a lot of these ideas, maybe don't come to fruition. But the fact that these ideas are now being allowed to flourish, is just a testament to the amount of growth in technological access to financial services that there's been in the last 10 years. And certainly, I don't think Integrated Finance could have existed 6 or 7 years ago! Because, the APIs were not mature enough to establish any kind of connectivity standards across them.
[00:27:30] Lucas: Those are some fascinating use cases. And what I really hope people get out of this, is the fact that when you say FinTech, people think about a “cool App” for example, whereas this is some real powerful and meaningful value that could be delivered across any sort of society. These APIs allowing Lawyers to audit Child Support payments without it going to the court, that will save a lot of people, both in the public and private service, a lot of time. People feeling more comfortable when they're investing money or paying their rent, that they're able to audit those payments themselves. FinTech Apps are all well and good, but I think this is the unspoken part of FinTech that's not discussed enough.
[00:28:37] Daniel: Yeah. I definitely think like, what is the end game for most kind of supportive industries. When I say supportive industries, a product or service that sits around an industry to enable that industry to happen. The end game should be to get it done as efficiently as possible. So, cost goes down, time goes down and the third thing at least I think, is the behaviour friction goes down. And so, everyone in financial services understands that people don't want to log into a bank to manage their financial services. They want to be able to access the data where it's most needed.
[00:29:31] Daniel: They want to be able to perform activities where it's most needed. And I think there'll be a big trend over the next 10 to 15 years, where maybe not in the upper echelons of the corporate world, where you can hire teams and teams of people to take care of this in the most efficient manner.
[00:29:52] Daniel: But for everybody else, there should be an assumption that your financial service will be where you need it most! I can't for the life of me, figure out why your bank account isn't connected to your inbox, for example. It would make total sense if your business at least, that your financial app.
[00:30:15] Daniel: So, if you were working with Barclays or JP Morgan or a Stripe or whoever, it would be auto connected to your inbox because when somebody sends you an invoice, how are they sending you that invoice? They're emailing it to you. Wouldn't it be fantastic if your inbox had connectivity with your bank, so that you could hover over the payment click.
[00:30:37] Daniel: And you would autoload the details for that payment. Rather than you having to download the PDF, maybe open it up, open up your bank App, definitely type one or two missing digits or put a decimal place in the wrong place, and have either the payment fail, the wrong person receive it and claim that they didn't receive it in some cases. That happens because you're performing a task outside of the zone where it's most effective and I certainly think there's a huge march from financial service providers to get their service to where the consumer isn't having to change any behaviour in their daily operation.
[00:31:22] Lucas: Yeah, absolutely! And I think we're seeing that, little by little, in some areas.
[00:31:27] Lucas: So, Receipt Bank, which I think is now called Dext took out a lot of that friction for expenses. Just take a photo of their receipt and OCR technology pulls that into zero and that can flow through the bank for reconciliation. But there's still a lot of innovation yet to come in that space.
[00:31:51] Lucas: So, Daniel, do you mind talking to us about your fundraising experience? Particularly given that you launched during the pandemic and we're moving towards another or we're already in another difficult economic period. So, it'd be great to hear your thoughts about fundraising and building during difficult times.
[00:32:14] Daniel: Sure. We closed our seed round roughly about a year ago now. We were fortunate enough to get backed by fantastic investors - Octopus Ventures were our lead. The guys at 500 Global, have been immense for us as well, and probably unfair to call them plucky, but I'll give him a shout a VC called Superseed that invested in early-stage technologies that have customers. All of those guys were super fantastic to work with. But they were one of a small pool of people that we'd obviously approached to raise funds. And our experience was,
[00:33:04] Daniel: it's tough! You're ultimately trying to approach people that you've never met before and convince them that you and your idea are going to succeed. Not have a chance of success, but are going to succeed! And you'll you come up against a lot of outright negativity.
[00:33:33] Daniel: In some cases, your idea is stupid, this is never going to fly. You come up with a lot of objective criticism which is very helpful too! And my favourite was some VCs will project, what they want your product to do, onto your answers. And so half the time, what you end up finding is
[00:33:54] Daniel: you either run with it and say: yeah, that's what we do! But the reality is, this is not the investor for you. If they're already projecting a vision of your product that is tangential or in the opposite direction to your own. But the main experience I'd say is it’s sails!
[00:34:13] Daniel: When you're a seed stayed company, you've got very little data to give independent validation to your idea. You don't have years of upper trajectory or downward trajectory to show what your business is performing like? You don't have a large customer base for them to be able to go and validate what is this product like?
[00:34:40] Daniel: You don't have a huge number of employees that they can go on Glassdoor and find out what are the employees saying? So, it's a numbers game! Getting out there, putting energy into making sure that you've got access to the people who might be interested in your space.
[00:34:57] Daniel: And then convincing them that it is the right solution. Probably the biggest bit of advice I could give to a founder is if you're going to do this, understand momentum! If you close five deals in the first month that you're talking to the VC, irrespective of what you're doing they're going to be interested in learning more.
[00:35:23] Daniel: However, if it's a three-month due diligence process and nothing happens in the second and the third month, all of a sudden, you're a lot less exciting now! If you imagine that exact same story, you had one customer in the first one that you spoke to them, and five customers by the end of that exact same window,
[00:35:44] Daniel: you still have the same number of customers, but now you're demonstrating trajectory, growth, excitement. And so having that, having that growth is fundamental to the success of your business anyway, VC or no. But if you're engaging with outside capital, you better than well make sure that your business is exciting, whilst you're talking to them and beyond.
[00:36:11] Daniel: If you hit a rough patch when you're talking to VCs, it's you're almost dead in the water.
[00:36:19] Lucas: Yeah. So that's very interesting in terms of using momentum, almost timing some of that traction to when your fund raising in order to communicate that back to the VCs and maybe ask for more money or get better terms on the sheet.
[00:36:39] Daniel: Absolutely! And I want to be super clear, I'm not saying sandbag deals if you're a start-up. You're only hurting yourself, if you're doing that. You need to be growing as fast as humanly possible. What I am suggesting though is, if you're going through a period of, I don’t know, technical consolidation,
[00:36:58] Daniel: rewriting code that you know, you need to rewrite for the business to be able to scale, if you are planning on hiring and that is temporarily distracting from growth objectives, those are not the right times to approach a funding. That is the right time for execution.
[00:37:20] Daniel: And we get approached by a lot of VCs who I would be interested in talking to, but not right now. Because I've to focus on delivering on my quarterlies, delivering on this year's objectives to ensure that the business is ready to take any kind of capital injection in future. Taking money when you're not ready for it, taking money when the business isn't ready for it, is pretty stupid in all honesty!
[00:37:47] Daniel: So, focus on your business. Do what you need to do to get the business ready for scale, then execute on the scaling. Those are the times to approach for funding. That's if you've got the good fortune to be able to time it. If you're a struggling founder you can potentially just ignore everything that they said.
[00:38:12] Daniel: And if you need that cash, you've to go and hunt for it.
[00:38:16] Lucas: Okay. So those are really good tips for the fundraising part. But what about once they've raised the capital, do you have any sort of tips on the deployment of the capital, maybe diving into say metrics. We've seen a lot of companies
[00:38:33] Lucas: go on a sort of growth at all cost trajectory previously. Now, I suppose they’ve fallen almost out of favour. People aren't judging companies by how many employees are going to hire over the next 5 - 12 months, or the number of customers, that they're onboarding each day. There's a lot more of a focus on say customer acquisition costs.
[00:38:58] Lucas: What are your views on metrics and the deployment of capital?
[00:39:03] Daniel: Sure. So, I know we had a chit chat about this a little while back, and I gave you a silly analogy but I’ll probably use it again. The main thing I want to make the founder aware of, is understand the market that you find yourself in.
[00:39:17] Daniel: In expanding economies, here is a kind of a winner takes all strategy. A grow at all costs and whoever the last person standing will either just gobble up the market from a consumer or perspective or they'll gobble up their competitors. Obviously, we've got anti-monopolistic laws in place to stop that from being too damaging, but its
[00:39:47] Daniel: just a fact of the matter, the larger you get sometimes to acquire large share you'll take some of your customers. But understand the market that you're in. Is it a market flooding with capital, or is it a market dry like the desert? And so the example I gave you last time, I think was look at it in the natural world.
[00:40:13] Daniel: What do you see happen in a jungle where resources for growth are abundant? Sunlight. nutrients and rainfall, all of those things are abundant. And so, what happens everything grows sky high but why is it growing sky high? To squeeze more of those resources out of their competitors and into themselves.
[00:40:38] Daniel: Trees grow bigger roots so; it commands more of the nutrients from the soil and more of the water. Trees grow higher, so that they're the ones that capture the sunlight. That is the fight for survival in a high resource market. But in contracting markets where your resource and I'll use the natural example again, where maybe water is not easily available,
[00:41:09] Daniel: maybe there's a lack of top soil, maybe the nutrients in the ground aren't that good. So, for example, in a desert, what type of planter animal does you see proliferate out there? Well, one of the obvious kinds of token ones is a Cactus. Cactus are extremely efficient resource.
[00:41:31] Daniel: They can go a long time without a “capital injection” – water. They can survive in relatively dry earth where the there's not an abundance of say, “customers”. My analogy does fall down on the sunlight aspect, but we're just going to have to give me some artistic license for that!
[00:41:50] Daniel: And so, in the non-natural world in a deeply unnatural world, a Limited Company or a PLC or an INC or whatever you are in, effectively imagined organization, a corporation, you have exactly the same things. Expanding markets grow at all costs, hire as many as employees as you can to ensure that your product is in better shape and constantly improving compared to your competitors in a contracting
[00:42:23] Daniel: economy where resources are becoming more and more scarce. Ensure that what you are doing with your resource is for the health of the long-term of the company. Crucially, the first thing you need to ensure is survival. If you don't survive, you will never be able to get through the survive till the good times.
[00:42:46] Daniel: And just being a little bit more careful about your capital and understanding you're raising from people who want to hear that you are thinking about the worst-case scenario. Because nobody wants to invest X into a company that splurges it all at the wrong time and goes bust, a year before the good times we're rolling in again!
[00:43:12] Lucas: Absolutely! And just thinking about sunlight. I think sunlight could be interest because there's always interest in products, whether it's in a good time or a bad time. But interest doesn't necessarily correspond to then, let's say water. So yeah, the sunlight doesn't correspond to water or capital being around or the top soil being correct.
[00:43:38] Lucas: So hopefully that rounds it out analogy. So, look Daniel we've covered a lot today about what Integrated Finance does, particularly around the APIs that help FinTech and businesses from other verticals to create accounts, complete KYC checks.
[00:44:04] Lucas: We touched upon the ledgers, the transactional ledgers, and you've also provided us with some insight into fundraising and the importance of momentum when fundraising and how to survive a contracting market. Really focusing on being a cactus in order to conserve resource!
[00:44:31] Lucas: I just want to check if there's anything else that you want to add about Integrated Finance at this stage?
[00:44:38] Daniel: Sure. I think my description of it was rather meandering at times, mainly because of the focus on why we started in the first place, but just a hammer home. We're a core that connects to banking as a service-platform and the auxiliary tools that entrepreneur needs, in order to go to market and being specific
[00:45:02] Daniel: we get you to market with all of the table stake stuff that is necessary for you to go live. But it's not going to give your customer a reason to use you, that's where we want you to pour your energy. So, what do you need to go live? Most FinTechs want to present bank-like experiences, so we connect to account issuers like Currencycloud Railsbank, ClearBank,
[00:45:30] Daniel: LHV Pank and another of other partners who enable the generation of a bank account for an end user, whether it's a business or an individual. We speak to processes if you want to create cards and debit those accounts through processes. One of our preferred partners that we're working on building an integration with right now is GPS.
[00:45:53] Daniel: But taking a step earlier that we also do the validation of the individual that you might want to provide this financial service too. So, we have ongoing relationships with a number of KYC providers in the space. Once you've KYC them, generate an account in our system and potentially use one of our partners to issue a debit card.
[00:46:17] Daniel: You're probably going to, want to monitor the behaviours of that individual. Because even they're not a bad actor, on account creation doesn't mean they might not become a bad actor afterwards. So, we were currently building an integration with comply advantage for a lot of the features that they helped to mitigate the risk of use of those accounts.
[00:46:40] Daniel: And like boiling it all down, we generate accounts, we allow you to make payments in and out of those accounts through the banking as a service platform of your choice. We handle currency exchange; so, if you're generating accounting Euros and Sterling. Perhaps you want to offer a service where someone can convert or a system will process all of the logic that allows that one, to happen
[00:47:08] Daniel: and two, for you to generate a revenue on it. And then we orchestrate the flow where you are sending data across multiple institutions whether it's onboarding, then generate account, then release payment, and then screen the payment. We orchestrate the information that flows through your system so that all of those disparate systems can work in sync.
[00:47:31] Daniel: And the idea is, “we worry about that; so you can give a reason for your customer to need all that”.
[00:47:41] Lucas: Excellent. So, you're really helping them go full circle. You're helping the FinTechs go full circle and focus on why they want to serve customers.
[00:47:50] Daniel: Exactly! Aggregate the ingredients and assemble them!
[00:47:56] Daniel: You worry about what the ultimate recipe of those ingredients is going to be, we'll just make sure they work!
[00:48:04] Lucas: Excellent. Excellent. And Daniel any final takeaways for founders or CFOs or even people who aren't necessarily founders that are watching the podcast?
[00:48:17] Daniel: Sure. I suppose a couple of things we are one of odd businesses for founders. And the most natural thing you can
[00:48:31] Daniel: do when there's four founders have got 25%, 25%, 25%, 25% of the company. But that's a really stupid thing to do. If you're going to go into business with people, you need to be able to have hard discussions, with each of the most important people in making that company successful.
[00:48:47] Daniel: So, I have the hard discussions early, is one Founder going to be putting in money and the rest are going to be taking sweat equity? Is one going to be doing this full-time and the other is going to be doing it part-time? What do we think the independent value of everyone is? And what can they bring to the business?
[00:49:07] Daniel: You need to have those discussions so that you get some kind of alignment on ownership structure. Because I've seen so many Founders get into rapidly deteriorating relationships with their co-founders because one person feels he should be getting more, or one person feels somebody else should be getting less.
[00:49:29] Daniel: And those are probably fair assumptions, but you need to have those discussions before you go into business with somebody. If you allow those sorts of things to go unaddressed from day one, you're asking for a deterioration of trust in the most important components of your business for you to be successful!
[00:49:51] Daniel: So, one, sort out your cap table, and don't just go 50:50 if you really think it's not 50:50. And then the second thing is, if you are a sole Founder, again, you ignore everything I said there, because you get a 100%, but it’s extremely tough entrepreneurship is it's basically an uphill battle.
[00:50:15] Daniel: There's an assumption that founders have the “Life of Riley” and they can command armies of people to do stuff for them. The reality is, it's an inverted pyramid where all of the problems rolled down to the Founders. And so ensure you have somebody who understands your problem. That you can confide in and blow off some steam with. I've certainly benefited from the two companies that I've founded in moments of high stress, being able to offload on someone crucially who understands the problem.
[00:50:47] Daniel: My wife is fantastic. But often if I'm having a stress on a mundane detail that 99% of the people would have no clue on. And the remaining 1% would have no clue on without context. It's important to be able to offload on that 1% and try and get some of their advice and be able to explain your problem and have someone understand it.
[00:51:15] Daniel: That's why a lot of founders get mentors and coaches. Find someone that you can blow off that steam with. And make sure that you don't overburden yourself with your own problems.
[00:51:27] Lucas: Look, two very, very good takeaways; about the cap table structure and aligning all of the founders. And I think, mentorship and almost coaching for sole founders is something that doesn't get enough air time because you don't want to just surround yourself with people who say:
[00:51:54] Lucas: yes, or a great idea! I think mentoring and coaching is a very good opportunity for constructive criticism and different perspectives to be shared. Particularly when it comes to understanding smaller niche problems. Well, Daniel, thank you so much for joining us today!
[00:52:19] Lucas: It's been fantastic! And anybody interested in learning more from Daniel, I would certainly recommend reaching out to him. He is a very approachable fellow.
[00:52:32] Daniel: Absolute pleasure is always, Lucas. Thank you for having me.
[00:52:36] Lucas: Thank you, Daniel.
[00:00:06] Daniel: Thank you! A pleasure to be here, always good to chew the fat with you, Lucas.
[00:00:12] Lucas: Excellent! Thanks so much! Daniel joins us from Integrated Finance. He is one of the co-founders there. Do you want to start off by giving us a bit of an introduction to yourself and to the company?
[00:00:24] Daniel: Sure, I'm Daniel Cronin. I'm a co-founder and COO & CCO or if we were in Silicon Valley, it would be CRO, of Integrated Finance. Generally, I oversee all Operative and Commercial aspects of the business. What does Integrated Finance do? We are a software service company, build and management platform for FinTechs looking to launch FinTech products.
[00:00:56] Daniel: You can kind of look at us as a core bank for young FinTechs. We have a focus on getting FinTechs connected to multiple banking as a service platforms and FinTech friendly banks. Whereas, some of the maybe larger players in the industry like Mambu, they would typically focus on much larger integrations to either the schemes themselves or to tier one banks operating in multiple territories.
[00:01:26] Lucas: Okay, excellent! So you're helping support younger FinTechs to connect to different financial service providers. Do you mind telling us a bit about, what the journey would've been for a FinTech, prior to Integrated Finance launching, and what problems you're solving through the product?
[00:01:49] Daniel: Sure! Well, I suppose I can tell you a little bit about myself and the founders of integrated Finances, background, because it's really our own problem that we were trying to solve. It was our own itch that we were trying to scratch, as it were. We are second time founders in the FinTech space. The first time we went and got a license with the UK regulator, the FCA, to offer a financial service to small-to-medium enterprises. As a young FinTech we struggled to entice any tier one bank to work with us! And because we couldn't get a tier one bank to work with us, what that meant is we had to kind of do a patchwork knitting of tier two banks and other FinTech friendly services together in order to make it look and feel like our customers were just interacting with one financial entity. The problem we had when doing that, is in the 90s and 2000s you could partner with a tier one like Barclays and get access to fantastic great British Pound payment infrastructure, fantastic single European payment area infrastructure, SEPA, SEPA Instant, you name it. You could get access to US Dollars either via Swift or on the local market on say FED or ACH. They had built correspondent relationships with most of the tier one players in each jurisdiction.
[00:03:31] Daniel: And so, if you partnered with Barclays, you could effectively give all of Barclays’ services to your own customers and then you would improve upon that service by targeting a particular vertical or sector of the market. Maybe they were getting weak exchange rates because they didn't have the volume to get a good exchange rate directly from the bank.
[00:03:53] Daniel: Maybe it was a lending solution, maybe it was an international payment. You name it, it doesn't really matter! As a young FinTech, no bank wanted to touch us, we just presented too much risk and not enough reward for them and so, what we ended up doing was going to the, and I mean this with no disrespect, banks that had very little international footprint, but they had a very compelling offering in their own jurisdiction.
[00:04:22] Daniel: So, we partnered with ClearBank, United Kingdom and got a fantastic Sterling (Pound) offering. We partnered with a bank that powered a lot of FinTechs, a few years ago; they no longer serve FinTech now, that was Deutsche Handelsbank we got access to Euro clearing. We ended up working with another bank in the United States to give them local access to the Dollar market.
[00:04:46] Daniel: And it was really a stitching together of all of these solutions to give our consumers a banking service that could compete against the tier one players in the market. But it was extremely difficult. The problem was with all of these integrations to different banks, our integrations started taking longer and longer to develop, execute and deliver.
[00:05:14] Daniel: Because more and more of the logic of that bank was being accommodated into the backend that we'd built. Yeah. So yeah, we'd built a hodgepodge solution of Banks that were willing to support FinTechs. Precisely, because we posed no risks to burning their correspondent banking relationship network!
[00:05:37] Daniel: So, either the FinTech didn't operate overseas, sorry, the bank didn't operate overseas; so it had no dependency on a foreign currency to run its typical operations or had no correspondent banking relationships at all. So, there was no exposure that the FinTech brought damage to that bank's own revenue stream. Part of the problem with the likes of Barclays, Deutsche Bank, JP Morgan is, they've got very large correspondent banking relationships, and you need those correspondent banking relationships to be able to establish global operations. If you don't have global operations, you'll never be able to entice in the blue chips - the multinationals, the mega corporations. Apple isn't going to bank with Barclays in London, if it doesn't have access to Dollars.
[00:06:39] Daniel: Apple will want the “suite of currencies” they need to operate worldwide with every bank in the world! And part of the problem a FinTech poses that bank is they effectively delegate risk. If a bank says, I will work with you, say Revolut or TransferWise, what they're really saying is: I trust you to use my payment rails in a responsible way and the likes of Revolut and TransferWise are sufficiently staffed and resourced and have technological capacity to spot things like money laundering, fraud, very quickly. Whereas some of the younger FinTechs in the space, maybe don't have either the expertise or the capital to expend on non-revenue generating activities such as that.
[00:07:28] Daniel: So, the risk for Barclays or Deutsche Bank to let a young FinTech on their rails, is too high. Because, if that FinTech makes one small mistake, there's a very high chance that Barclays will have correspondent, let's say, JP Morgan or whoever the Dollar clearer is, they're saying, you've exposed our network to money laundering,
[00:07:54] Daniel: we're going to turn off your access to US Dollars. If you turn off Barclay's access to US Dollars, you can kiss goodbye to any NASDAQ, Fortune 500, FTSE 100, all of the big companies that currently depend on someone like Barclays to operate their global operations. That would be kaput!
[00:08:12] Daniel: And the 80/20 rule, banks make 80% of their revenue from 20% of their clients! They don't want to put that 20% of their clients at risk for the sake of a young untested FinTech! And, back to the point I was getting at, that's what we were, we were a young untested FinTech. So, we had to partner with banks who had no exposure to correspondent risk, and were willing to take a punt on an increase in volume going through their network, so, they had larger deposits to be able to lend against, by working with FinTechs that had the capacity to attract a higher number of customers, whether that be B2C or B2B. So just to tie that one off. Having built all of these integrations, probably quite poorly by the end, we realized there was this new layer of FinTech friendly banking options called Banking as a Service; it's where a more established vendor like a Currencycloud or a Railsbank in the States, you're getting say unit bond companies that had poured more energy into ensuring that all of the sorts of things that a bank doesn't want to facilitate such as potentially fraud, money laundering, non-compliance on client money regulations, all of that sort of stuff.
[00:09:39] Daniel: These banking as a service players were slowly abstracting that problem from the bank to themselves, and they had the capacity to support younger FinTechs without exposing the bank to the same level of risk and we realized at as Founders of this FinTech, that there was nobody trying to abstract the differences between all of these Banking as a Service APIs.
[00:10:06] Daniel: So that we could give one compelling, either interface or technical gateway for these FinTechs to be able to access this plethora of new technology. And ultimately, why did we start Integrated Finance; it was to solve the problem that we had, when trying to integrate all of these best players just to get to market with either an MVP or a slightly more fleshed out product.
[00:10:32] Lucas: So, we covered a lot just then and I think it's really important just to sort of compartmentalize it, to ensure that we can break it down in a simple manner. I'm thinking for example, if my parents are listening to the podcast, I want them to be able to understand.
[00:10:53] Lucas: So, the narrative was, there were a lot of smaller FinTechs such as, the previous company that you founded, out in the market. Barclays and other large incumbents may have offered a very wide range of services, when it comes to making bank transfers or holding foreign currencies. However, the risk for them to onboard smaller FinTechs was too high and the smaller FinTechs also had quite a large integration burden on them. So, what you guys did, was build integrations to smaller banks and then you realized actually if we build one, API or interface, we could connect to all of these smaller banks, as well as, some of the banking as a service provider like Currencycloud and others to provide not just the payment rails, but also the compliance and regulatory aspects. So, KYC, anti-money laundering and other regulatory requirements would be fulfilled. So, in terms of the benefits, you've got, the FinTech reduces its integration time, for multiple providers, they also are assisted with the regulatory and compliance pieces. The larger banks, or any bank involved, knows that there's a particular quality standard that they're going to receive from any clients flowing through Integrated Finance.
[00:12:44] Lucas: So, their counterparties know that things are going to be done in a compliant manner. And, you really benefit because you're able to open up a new part of the market. Although I wanted that to be a concise sort of summary, it ended up being a bit longer than I wanted, but would you agree with that?
[00:13:11] Daniel: Sure. So, I guess the way to unpack it is, what is the benefit for the consumer of product? We built this thing for ourselves badly, in a previous life the venture was successful and we exited somewhat successfully! But really all we were trying to do was solve our own problem, which is how can we take our product live faster, without investing time in stuff that our customer doesn't care about. We were losing sleep over how to ensure that the accounts that we generated for our customers were going to be in our customer's name. So that when Sofa Limited (a made-up company, I am just pointing out what's in front of me in the studio), wanted to pay their invoice to a textile manufacturer in, I don’t know, Ireland or Turkey. Textile manufacturer received the payment from Sofa Limited, instead of them receiving it from payments broker or PSP one or Transfer X or whatever the name of the FinTech supporting that transaction is. We would lose sleep over how can we onboard Sofa Limited in a smooth and easy way, that's not going to dissuade the financial controller or the FD or the CEO or the accounts payable clerk from completing this onboarding journey that is quite intensive. We lost sleep over how do we give these guys fantastic exchange rates?
[00:14:55] Daniel: And what we realized is our customer didn't care about the why, our customer didn't care about the how, they cared about the output! They cared about the thing that they had touch points on. And what does a customer have touch points on - it's an “interface”. So, we were pouring all of our energy into table-stake stuff that didn't make us any different from a Barclays, that didn't make us any different from a Revolut, didn't make us any different from a Chime or a Wise or a Starling Bank. We were pouring all of our energy into just being able to do the same things as them.
[00:15:36] Daniel: By the end of it, we didn't really have a lot of capital, willpower or engineering resource to go and create some compelling reason for the customer to use what we build instead of what our competitors were building. And so, boiling it down all Integrated Finance is trying to do is to divert your attention, resources and capital to where it matters.
[00:16:02] Daniel: If you are starting a financial service, presumably, there's a problem you've seen in the market that needs to be solved. But if you expend all of your energy on just being compliant, regulatory being compliant, commercially protecting your client assets in the way that you're supposed to, converting currency in the way that you're supposed to, assigning a name or to a bank account in the way that you're supposed to, you're going to have no, unless you're super funded, unless it was Adam Neumann starting a FinTech today, unless you're hyper funded, you're going to invest all of your energy on something that isn't going to make you win your customer. And there's a fundamental problem with that equation. If you're spending money on extremely important stuff, being compliant, protecting your customers,
[00:16:57] Daniel: you're not going to win customers. You need to be different from what's out there in the market! And presumably an entrepreneur doesn't wake up in the morning and go: oh, I'm going to start a payments company! Well, what's that payment company going to do? What problem is it going to solve? I didn't think about that.
[00:17:16] Daniel: That's not how entrepreneurs work. They usually worrying about the bleeding edge problem that's going to make a difference in this world. But having tried to start a revolutionary FinTech, what I understand is your resource quickly dries up on the stuff that customers don't care about, we're trying to solve that problem fundamentally.
[00:17:36] Lucas: Fantastic. Yes. You summarized that in a much more concise manner than I did, so thank you! And just in terms of solving that problem, do you want to just highlight, how it is that the FinTechs are connecting? Is it through one single API?
[00:17:53] Lucas: You mentioned as well, that they're able to check their balances as well. Is there a separate API for ledgers and transactions? How does it work?
[00:18:05] Daniel: Sure. So, the youngest, hungriest and wanting to start fastest FinTechs will sit on top of our core and they'll often take our user interface.
[00:18:18] Daniel: We always recommend to our customers, don't rely on that because the more of our customers that use our user interface by definition, the less differentiated you are. But for entrepreneurs new to the space, it can be a really helpful and effective way for them to get the market super quick and learn
[00:18:38] Daniel: what is it that their customers do and don't like about this type of an interface and go and build your own out to make sure you're solving your own niche. Slightly more seasoned entrepreneurs, will often just take our core, and our APIs and they'll go and build their own interface themselves.
[00:18:56] Daniel: And there's times where our interface makes absolutely no sense. If you are launching an investment portal and you want to show your customers returns, but you want to be able to generate accounts so that they can wire funds into that account, maybe participate in some investments, my system won't see how your investments are performing; so why the hell would you want to use my user interface? Whereas, if you are maybe just generating a more standard type of bank account, maybe with a bit of cross border or user interface it will work just fine for that type of user. But largely we say, if you're going to use our user interface use as a launchpad to build your own, because we are not going to be able to differentiate your product if you're depending on our front end. The most seasoned, so the most technically astute will usually just use our APIs. Our core has the majority of functionality exposed either for posting or pulling information from that core as well as being able to initiate workflows on our APIs. So, some customers will just do API integrations,
[00:20:07] Daniel: the vast majority will do API and use our or core or back office, and some of the younger FinTechs will take the interface too with the user interface for their own customers.
[00:20:19] Lucas: Got you! And you touched upon an investment management use case, just then could we almost step away from FinTechs and almost financial service, institutions as clients, are there other use cases across say property management or other industries where Integrated Finance would be applicable?
[00:20:46] Daniel: Absolutely, the market in general is trending towards placing existing financial services into places where they don't exist. There was, a smarter guy than me, who I'm kind of stealing that statement from, but his definition of “Embedded Finance” (like can't for the life of me, remember his name, but I'll find it after. So, you can credit him into comments). He basically said Embedded Finance is the positioning of existing payment technology
[00:21:19] Daniel: into circumstances where it doesn't exist. And whilst we don't regard ourselves as Embedded Finance, we regard ourselves as an “Aggregator of Tools to Launch Financial Services”. We have been approached by a much wider array of use cases than I first anticipated.
[00:21:44] Daniel: So, there's a wealth manager who wants to digitize an investor portal, he's been handling investments from US investors into African SMEs in FinTech. for 4 years. Now, he wants to systemize or systematize that by offering each of these investors their own account that they can pay into.
[00:22:11] Daniel: It solves for the business because they can reduce the headache of thousands of people paying into one account. But also, they can add incentives to use that portal now because, as soon as you issue someone an account, stickiness tends to trend up.
[00:22:31] Daniel: Long term, they might use that account for other things, if that's within the allowed function of the service. But if you have an account with a balance on, people tend to log in to check what that balance is doing.
[00:22:47] Lucas: Yeah. So, and I mean, just thinking out loud, for another use case, these employers on record and umbrella companies like Deel for example, you still need to enter repayment reference when you send your money away.
[00:23:02] Daniel: Absolutely! Ultimately, sometimes when I talk about this, people think, oh, wow, I never thought of that! You did think of that, just the framework or the lens through which you're listening to, what I'm saying is probably not tuned to what we're doing, it's bank account issuance.
[00:23:24] Daniel: Think of the millions, billions of people out there who have bank accounts. What are they doing with those bank accounts? Yes, there's going to be a high degree of trend and similarity, but you can do whatever the hell you want really. Or use cases so the investment portal property managers are definitely interested in this because they can effectively issue an account per property that they rent, and that reduces the complexity of managing tenant refunds or anything else. One of the most interesting use cases, we were approached by a divorce law attorney based in Texas and again, this is part of the embedded finance march, they realized that post settlement, parent A, parent B were often coming back to them because, there was a constant challenge to managing the maintenance of child support payments and a number of other things.
[00:24:24] Daniel: So, they wanted to create an app, that would kind of diary share the child, so the parents would always know, okay, this is your week, this is my week. And then they realized, oh, we, we can maybe add some kind of loyalty for kids stationary, healthy food, play areas, we can get discounts from leisure centres. And so, when they were thinking about how can we make this a more compelling and engaging tool for recently divorced couples who have children, they thought wouldn't it be great if we can create bank accounts for parent A and parent B. They can manage the childcare costs through that and they would have a personal financial management tool to track it all. And of course, there's the negative aspect of it, where for one reason or another parent A isn’t paying or even worse are paying, and parent B is disputing the fact that they've received those funds. Often it would revisit the courts.
[00:25:30] Daniel: And the courts would have no way of validating who was telling the truth there, because they couldn't get access to those accounts without going through a lot of more litigation. So, by being able to generate the accounts and give read-only access to an authority, the court all of those disputes in theory could disappear overnight.
[00:25:49] Daniel: Now, this is exactly where I go back to what I was saying a minute ago, if that Texas divorce law company spent time building ledgers, managing balances, working out how to assign parent A and parent B's name to a balance. The product would never go live! But there's so many fantastic tools out there that you can connect to, that you can really give a super compelling interface for any kind of niche right now.
[00:26:17] Daniel: The problem isn't a lack of choice anymore. The problem is potentially, it's too much choice and difficult to validate, which is the best tool and Integrated Finance was not a big part of this opportunity where we came into try and assist was, they were great, they were fine in the States, but in the European market, it was difficult to understand; who could do what under what regulatory framework.
[00:26:43] Daniel: And we acted as a consolidator of connectivity options to all of these different ways of generating accounts, managing payments. And they went and focused on building a super compelling app. Now, a lot of these ideas, maybe don't come to fruition. But the fact that these ideas are now being allowed to flourish, is just a testament to the amount of growth in technological access to financial services that there's been in the last 10 years. And certainly, I don't think Integrated Finance could have existed 6 or 7 years ago! Because, the APIs were not mature enough to establish any kind of connectivity standards across them.
[00:27:30] Lucas: Those are some fascinating use cases. And what I really hope people get out of this, is the fact that when you say FinTech, people think about a “cool App” for example, whereas this is some real powerful and meaningful value that could be delivered across any sort of society. These APIs allowing Lawyers to audit Child Support payments without it going to the court, that will save a lot of people, both in the public and private service, a lot of time. People feeling more comfortable when they're investing money or paying their rent, that they're able to audit those payments themselves. FinTech Apps are all well and good, but I think this is the unspoken part of FinTech that's not discussed enough.
[00:28:37] Daniel: Yeah. I definitely think like, what is the end game for most kind of supportive industries. When I say supportive industries, a product or service that sits around an industry to enable that industry to happen. The end game should be to get it done as efficiently as possible. So, cost goes down, time goes down and the third thing at least I think, is the behaviour friction goes down. And so, everyone in financial services understands that people don't want to log into a bank to manage their financial services. They want to be able to access the data where it's most needed.
[00:29:31] Daniel: They want to be able to perform activities where it's most needed. And I think there'll be a big trend over the next 10 to 15 years, where maybe not in the upper echelons of the corporate world, where you can hire teams and teams of people to take care of this in the most efficient manner.
[00:29:52] Daniel: But for everybody else, there should be an assumption that your financial service will be where you need it most! I can't for the life of me, figure out why your bank account isn't connected to your inbox, for example. It would make total sense if your business at least, that your financial app.
[00:30:15] Daniel: So, if you were working with Barclays or JP Morgan or a Stripe or whoever, it would be auto connected to your inbox because when somebody sends you an invoice, how are they sending you that invoice? They're emailing it to you. Wouldn't it be fantastic if your inbox had connectivity with your bank, so that you could hover over the payment click.
[00:30:37] Daniel: And you would autoload the details for that payment. Rather than you having to download the PDF, maybe open it up, open up your bank App, definitely type one or two missing digits or put a decimal place in the wrong place, and have either the payment fail, the wrong person receive it and claim that they didn't receive it in some cases. That happens because you're performing a task outside of the zone where it's most effective and I certainly think there's a huge march from financial service providers to get their service to where the consumer isn't having to change any behaviour in their daily operation.
[00:31:22] Lucas: Yeah, absolutely! And I think we're seeing that, little by little, in some areas.
[00:31:27] Lucas: So, Receipt Bank, which I think is now called Dext took out a lot of that friction for expenses. Just take a photo of their receipt and OCR technology pulls that into zero and that can flow through the bank for reconciliation. But there's still a lot of innovation yet to come in that space.
[00:31:51] Lucas: So, Daniel, do you mind talking to us about your fundraising experience? Particularly given that you launched during the pandemic and we're moving towards another or we're already in another difficult economic period. So, it'd be great to hear your thoughts about fundraising and building during difficult times.
[00:32:14] Daniel: Sure. We closed our seed round roughly about a year ago now. We were fortunate enough to get backed by fantastic investors - Octopus Ventures were our lead. The guys at 500 Global, have been immense for us as well, and probably unfair to call them plucky, but I'll give him a shout a VC called Superseed that invested in early-stage technologies that have customers. All of those guys were super fantastic to work with. But they were one of a small pool of people that we'd obviously approached to raise funds. And our experience was,
[00:33:04] Daniel: it's tough! You're ultimately trying to approach people that you've never met before and convince them that you and your idea are going to succeed. Not have a chance of success, but are going to succeed! And you'll you come up against a lot of outright negativity.
[00:33:33] Daniel: In some cases, your idea is stupid, this is never going to fly. You come up with a lot of objective criticism which is very helpful too! And my favourite was some VCs will project, what they want your product to do, onto your answers. And so half the time, what you end up finding is
[00:33:54] Daniel: you either run with it and say: yeah, that's what we do! But the reality is, this is not the investor for you. If they're already projecting a vision of your product that is tangential or in the opposite direction to your own. But the main experience I'd say is it’s sails!
[00:34:13] Daniel: When you're a seed stayed company, you've got very little data to give independent validation to your idea. You don't have years of upper trajectory or downward trajectory to show what your business is performing like? You don't have a large customer base for them to be able to go and validate what is this product like?
[00:34:40] Daniel: You don't have a huge number of employees that they can go on Glassdoor and find out what are the employees saying? So, it's a numbers game! Getting out there, putting energy into making sure that you've got access to the people who might be interested in your space.
[00:34:57] Daniel: And then convincing them that it is the right solution. Probably the biggest bit of advice I could give to a founder is if you're going to do this, understand momentum! If you close five deals in the first month that you're talking to the VC, irrespective of what you're doing they're going to be interested in learning more.
[00:35:23] Daniel: However, if it's a three-month due diligence process and nothing happens in the second and the third month, all of a sudden, you're a lot less exciting now! If you imagine that exact same story, you had one customer in the first one that you spoke to them, and five customers by the end of that exact same window,
[00:35:44] Daniel: you still have the same number of customers, but now you're demonstrating trajectory, growth, excitement. And so having that, having that growth is fundamental to the success of your business anyway, VC or no. But if you're engaging with outside capital, you better than well make sure that your business is exciting, whilst you're talking to them and beyond.
[00:36:11] Daniel: If you hit a rough patch when you're talking to VCs, it's you're almost dead in the water.
[00:36:19] Lucas: Yeah. So that's very interesting in terms of using momentum, almost timing some of that traction to when your fund raising in order to communicate that back to the VCs and maybe ask for more money or get better terms on the sheet.
[00:36:39] Daniel: Absolutely! And I want to be super clear, I'm not saying sandbag deals if you're a start-up. You're only hurting yourself, if you're doing that. You need to be growing as fast as humanly possible. What I am suggesting though is, if you're going through a period of, I don’t know, technical consolidation,
[00:36:58] Daniel: rewriting code that you know, you need to rewrite for the business to be able to scale, if you are planning on hiring and that is temporarily distracting from growth objectives, those are not the right times to approach a funding. That is the right time for execution.
[00:37:20] Daniel: And we get approached by a lot of VCs who I would be interested in talking to, but not right now. Because I've to focus on delivering on my quarterlies, delivering on this year's objectives to ensure that the business is ready to take any kind of capital injection in future. Taking money when you're not ready for it, taking money when the business isn't ready for it, is pretty stupid in all honesty!
[00:37:47] Daniel: So, focus on your business. Do what you need to do to get the business ready for scale, then execute on the scaling. Those are the times to approach for funding. That's if you've got the good fortune to be able to time it. If you're a struggling founder you can potentially just ignore everything that they said.
[00:38:12] Daniel: And if you need that cash, you've to go and hunt for it.
[00:38:16] Lucas: Okay. So those are really good tips for the fundraising part. But what about once they've raised the capital, do you have any sort of tips on the deployment of the capital, maybe diving into say metrics. We've seen a lot of companies
[00:38:33] Lucas: go on a sort of growth at all cost trajectory previously. Now, I suppose they’ve fallen almost out of favour. People aren't judging companies by how many employees are going to hire over the next 5 - 12 months, or the number of customers, that they're onboarding each day. There's a lot more of a focus on say customer acquisition costs.
[00:38:58] Lucas: What are your views on metrics and the deployment of capital?
[00:39:03] Daniel: Sure. So, I know we had a chit chat about this a little while back, and I gave you a silly analogy but I’ll probably use it again. The main thing I want to make the founder aware of, is understand the market that you find yourself in.
[00:39:17] Daniel: In expanding economies, here is a kind of a winner takes all strategy. A grow at all costs and whoever the last person standing will either just gobble up the market from a consumer or perspective or they'll gobble up their competitors. Obviously, we've got anti-monopolistic laws in place to stop that from being too damaging, but its
[00:39:47] Daniel: just a fact of the matter, the larger you get sometimes to acquire large share you'll take some of your customers. But understand the market that you're in. Is it a market flooding with capital, or is it a market dry like the desert? And so the example I gave you last time, I think was look at it in the natural world.
[00:40:13] Daniel: What do you see happen in a jungle where resources for growth are abundant? Sunlight. nutrients and rainfall, all of those things are abundant. And so, what happens everything grows sky high but why is it growing sky high? To squeeze more of those resources out of their competitors and into themselves.
[00:40:38] Daniel: Trees grow bigger roots so; it commands more of the nutrients from the soil and more of the water. Trees grow higher, so that they're the ones that capture the sunlight. That is the fight for survival in a high resource market. But in contracting markets where your resource and I'll use the natural example again, where maybe water is not easily available,
[00:41:09] Daniel: maybe there's a lack of top soil, maybe the nutrients in the ground aren't that good. So, for example, in a desert, what type of planter animal does you see proliferate out there? Well, one of the obvious kinds of token ones is a Cactus. Cactus are extremely efficient resource.
[00:41:31] Daniel: They can go a long time without a “capital injection” – water. They can survive in relatively dry earth where the there's not an abundance of say, “customers”. My analogy does fall down on the sunlight aspect, but we're just going to have to give me some artistic license for that!
[00:41:50] Daniel: And so, in the non-natural world in a deeply unnatural world, a Limited Company or a PLC or an INC or whatever you are in, effectively imagined organization, a corporation, you have exactly the same things. Expanding markets grow at all costs, hire as many as employees as you can to ensure that your product is in better shape and constantly improving compared to your competitors in a contracting
[00:42:23] Daniel: economy where resources are becoming more and more scarce. Ensure that what you are doing with your resource is for the health of the long-term of the company. Crucially, the first thing you need to ensure is survival. If you don't survive, you will never be able to get through the survive till the good times.
[00:42:46] Daniel: And just being a little bit more careful about your capital and understanding you're raising from people who want to hear that you are thinking about the worst-case scenario. Because nobody wants to invest X into a company that splurges it all at the wrong time and goes bust, a year before the good times we're rolling in again!
[00:43:12] Lucas: Absolutely! And just thinking about sunlight. I think sunlight could be interest because there's always interest in products, whether it's in a good time or a bad time. But interest doesn't necessarily correspond to then, let's say water. So yeah, the sunlight doesn't correspond to water or capital being around or the top soil being correct.
[00:43:38] Lucas: So hopefully that rounds it out analogy. So, look Daniel we've covered a lot today about what Integrated Finance does, particularly around the APIs that help FinTech and businesses from other verticals to create accounts, complete KYC checks.
[00:44:04] Lucas: We touched upon the ledgers, the transactional ledgers, and you've also provided us with some insight into fundraising and the importance of momentum when fundraising and how to survive a contracting market. Really focusing on being a cactus in order to conserve resource!
[00:44:31] Lucas: I just want to check if there's anything else that you want to add about Integrated Finance at this stage?
[00:44:38] Daniel: Sure. I think my description of it was rather meandering at times, mainly because of the focus on why we started in the first place, but just a hammer home. We're a core that connects to banking as a service-platform and the auxiliary tools that entrepreneur needs, in order to go to market and being specific
[00:45:02] Daniel: we get you to market with all of the table stake stuff that is necessary for you to go live. But it's not going to give your customer a reason to use you, that's where we want you to pour your energy. So, what do you need to go live? Most FinTechs want to present bank-like experiences, so we connect to account issuers like Currencycloud Railsbank, ClearBank,
[00:45:30] Daniel: LHV Pank and another of other partners who enable the generation of a bank account for an end user, whether it's a business or an individual. We speak to processes if you want to create cards and debit those accounts through processes. One of our preferred partners that we're working on building an integration with right now is GPS.
[00:45:53] Daniel: But taking a step earlier that we also do the validation of the individual that you might want to provide this financial service too. So, we have ongoing relationships with a number of KYC providers in the space. Once you've KYC them, generate an account in our system and potentially use one of our partners to issue a debit card.
[00:46:17] Daniel: You're probably going to, want to monitor the behaviours of that individual. Because even they're not a bad actor, on account creation doesn't mean they might not become a bad actor afterwards. So, we were currently building an integration with comply advantage for a lot of the features that they helped to mitigate the risk of use of those accounts.
[00:46:40] Daniel: And like boiling it all down, we generate accounts, we allow you to make payments in and out of those accounts through the banking as a service platform of your choice. We handle currency exchange; so, if you're generating accounting Euros and Sterling. Perhaps you want to offer a service where someone can convert or a system will process all of the logic that allows that one, to happen
[00:47:08] Daniel: and two, for you to generate a revenue on it. And then we orchestrate the flow where you are sending data across multiple institutions whether it's onboarding, then generate account, then release payment, and then screen the payment. We orchestrate the information that flows through your system so that all of those disparate systems can work in sync.
[00:47:31] Daniel: And the idea is, “we worry about that; so you can give a reason for your customer to need all that”.
[00:47:41] Lucas: Excellent. So, you're really helping them go full circle. You're helping the FinTechs go full circle and focus on why they want to serve customers.
[00:47:50] Daniel: Exactly! Aggregate the ingredients and assemble them!
[00:47:56] Daniel: You worry about what the ultimate recipe of those ingredients is going to be, we'll just make sure they work!
[00:48:04] Lucas: Excellent. Excellent. And Daniel any final takeaways for founders or CFOs or even people who aren't necessarily founders that are watching the podcast?
[00:48:17] Daniel: Sure. I suppose a couple of things we are one of odd businesses for founders. And the most natural thing you can
[00:48:31] Daniel: do when there's four founders have got 25%, 25%, 25%, 25% of the company. But that's a really stupid thing to do. If you're going to go into business with people, you need to be able to have hard discussions, with each of the most important people in making that company successful.
[00:48:47] Daniel: So, I have the hard discussions early, is one Founder going to be putting in money and the rest are going to be taking sweat equity? Is one going to be doing this full-time and the other is going to be doing it part-time? What do we think the independent value of everyone is? And what can they bring to the business?
[00:49:07] Daniel: You need to have those discussions so that you get some kind of alignment on ownership structure. Because I've seen so many Founders get into rapidly deteriorating relationships with their co-founders because one person feels he should be getting more, or one person feels somebody else should be getting less.
[00:49:29] Daniel: And those are probably fair assumptions, but you need to have those discussions before you go into business with somebody. If you allow those sorts of things to go unaddressed from day one, you're asking for a deterioration of trust in the most important components of your business for you to be successful!
[00:49:51] Daniel: So, one, sort out your cap table, and don't just go 50:50 if you really think it's not 50:50. And then the second thing is, if you are a sole Founder, again, you ignore everything I said there, because you get a 100%, but it’s extremely tough entrepreneurship is it's basically an uphill battle.
[00:50:15] Daniel: There's an assumption that founders have the “Life of Riley” and they can command armies of people to do stuff for them. The reality is, it's an inverted pyramid where all of the problems rolled down to the Founders. And so ensure you have somebody who understands your problem. That you can confide in and blow off some steam with. I've certainly benefited from the two companies that I've founded in moments of high stress, being able to offload on someone crucially who understands the problem.
[00:50:47] Daniel: My wife is fantastic. But often if I'm having a stress on a mundane detail that 99% of the people would have no clue on. And the remaining 1% would have no clue on without context. It's important to be able to offload on that 1% and try and get some of their advice and be able to explain your problem and have someone understand it.
[00:51:15] Daniel: That's why a lot of founders get mentors and coaches. Find someone that you can blow off that steam with. And make sure that you don't overburden yourself with your own problems.
[00:51:27] Lucas: Look, two very, very good takeaways; about the cap table structure and aligning all of the founders. And I think, mentorship and almost coaching for sole founders is something that doesn't get enough air time because you don't want to just surround yourself with people who say:
[00:51:54] Lucas: yes, or a great idea! I think mentoring and coaching is a very good opportunity for constructive criticism and different perspectives to be shared. Particularly when it comes to understanding smaller niche problems. Well, Daniel, thank you so much for joining us today!
[00:52:19] Lucas: It's been fantastic! And anybody interested in learning more from Daniel, I would certainly recommend reaching out to him. He is a very approachable fellow.
[00:52:32] Daniel: Absolute pleasure is always, Lucas. Thank you for having me.
[00:52:36] Lucas: Thank you, Daniel.