With a revolution to extend and a book to promote, Anne Boden was on sparkling form at this month’s Money 20/20 conference. So, by pairing the Starling CEO with senior editor Matthew Dove, had the Fintech Times managed to kill two birds with one stone?
Anne Boden doesn’t mince her words so it was no surprise to hear that she’d already ruffled a few feathers before our meeting on day two of M2020 Amsterdam. By her own modest assessment the Starling CEO had “made quite a point about the relationship between the incumbents and the fintechs” on a morning panel entitled Wake up with the CEOs.
There’s a huge amount of conversation at events where people from big banks talk about getting down with the fintechs. They’re doing all this innoventure stuff and innovation labs and accelerators. That’s all very good for the incumbents, they get a lot of new ideas and a lot of new people challenging the status quo. I question whether that’s good for some of these fintechs.
Some of these poor fintechs are being exploited by the big banks. They’re being used as experiments that they can suck all the knowledge out of and move on when they’re done
Of course, Starling is in a very different position. We’re a bank. We’re no longer a start-up. We’ve got a substantial business. Starling has a B2C business and a B2B business.”
All this and I hadn’t even hit record yet! Time straighten up and fly right, Dove.
TFT: What portion of Starling consists of the B2B offering?
AB: Well, each of those businesses is at a different stage. Our retail business can grow very, very fast as we’re acquiring one customer at a time. We’ve now got about 650,000 customers but we’ve also got an SME business. Nobody’s really brought fintech to SMEs yet. You can see all the rapid changes and all the things customers are getting out of the fintech world but SMEs aren’t really benefiting yet. We’ve got about 55,000 SME customers now.
You may have heard that we were awarded £100 million Capability and Innovation Fund. The intention of the fund is to break the stronghold of the big banks in the SME market. It’s been awarded to the banks that can actually shake up the competition. With that in mind, we’ll be able to build fantastic capability to help UK SME businesses.
TFT: Our latest edition is on AI and we’re seeing a lot of potential in the application of artificial intelligence in SME lending.
AB: AI needs to be considered from all angles. First of all, it’s AI to help the bank make decisions and protect itself from fraud and then it’s AI to actually help the customer. I think that’s where the most potential is. One of the complexities of running an SME business is managing your cash flow. You don’t actually know when a customer’s going to pay you but with data, your own data, you can make those decisions and get those forecasts.
At the moment, work in capital management is very important for all SMEs. Small companies need to borrow because they need to pay for goods before they sell them. They could probably borrow less and therefore lower costs if they could predict when they’re going to be paid and when they have to pay. Predicting when people are going to pay you is one of the simplest things you can do with artificial intelligence.
We have two sets of projects; machine learning (both supervised and unsupervised) to help us make better credit decisions and fraud detection decisions but also, what we’re starting to do now using the Capability and Innovation Fund, is create those wonderful tools for our customers.
TFT: I’ve not heard that mentioned once by anyone working in this area.
AB: Yeah! Imagine the situation; you’re a new business and you download a business plan from a website and you get no data in there to help you make those real pricing decisions. The data’s out there in the Wild West! You can actually use that data to help those individuals. We shouldn’t have this situation where every entrepreneur, every small business owner, has to do that learning themselves. They should be learning from other businesses. What we’re doing is connecting those individuals to, not only a human with sector knowledge, but … with the data and experience they need to be successful.
What do successful businesses look like? What can they leverage?
This is in its infancy but we have a number of data scientists working in this space. We were awarded the funds in February/March and that’s one of the things we’re doing with that. I think this is the exciting thing; can we use artificial intelligence and machine learning to help businesses thrive?
It shouldn’t just be something that banks use to decide which businesses to lend to, it should be something that makes businesses more successful.
TFT: Your book is called The Money Revolution, what place do you think Starling occupies within the fintech revolution?
AB: What I’m most proud of is that as well as creating Starling – a bank that’s all about new technology and new ways of thinking about our relationship with customers – we triggered off a revolution within an industry.
When we started Starling a few years ago, you didn’t have big banks really taking technology and fintech seriously. What we’ve created is a response from the big banks. They’re improving their act, even though a lot of what they do is just copying us!
Just the fact that you have people like us doing what we’re doing – as well as the other companies in the book – means that the whole industry is getting its act together.
I spend a lot of my life talking to people in this industry … but fintech’s not just about Shoreditch. People up and down the country can benefit from these tools. This book is designed to make fintech accessible.
This should be something that people see on the shelves at ‘Smiths. Fintech isn’t a case study at a business school. Fintech is what people with real jobs running their day-to-day finances do. Those people are all around the country.
TFT: One of the main issues for fintechs is adoption. How do you convince the average consumer to adopt a solution to a problem that they may not realise exists?
AB: I don’t think we should try to sell people the proposition. I don’t think what we do, and what the fintech movement is all about, is selling product. That’s how the old banks did it. I think people will embrace it.
First of all, you have to have knowledge and I think more and more people are getting to know the new banks. You work in the industry and you may have Starling, and before long, some of your family will have Starling and eventually some of the people you meet down the pub will start using it too. And that’s how you build trust. This is all part of the story of people realising that life can be simpler, easier, with fintech.
Throughout the last 3-4 years I’ve been hearing that “people don’t switch bank accounts, they’re more likely to get a divorce than switch banks.” That’s not the case now. People are adopting these tools and embracing them. And once you start using them, you never go back.
I don’t think we should try to sell people the proposition. I don’t think what we do, and what the fintech movement is all about, is selling product. That’s how the old banks did it. I think people will embrace it.
The range of new banks offer more than just a product at a price. It comes with a whole set of values. Consumers are far more discerning about who they want to do business with. It’s about what they stand for, it’s about making money equal, it’s about fairness, it’s about transparency. It’s about bringing the best possible technology to solve the problem. Then we let the product stand on its own feet. People use it and they develop a relationship with us and they’ll tell their friends about it.
TFT: Recently we’ve seen challengers like Metro and Revolut run into trouble. Is the speed with which fintech moves a double-edged sword regards issues like compliance?
AB: I think the big banks get into trouble a lot as well. I think if you did an analysis of the week’s stories, there’d probably be more bad stories about the incumbents than about the new fintechs.
TFT: Do you think that the model itself is sustainable, or are we building towards our first challenger bank disaster?
AB: The industry at the moment is quite varied with different people in different spaces. We’re a bank and we’re regulated by the PRA and the FCA. Other products you’ve mentioned aren’t regulated in the same way. We’re all very different and we do things in a slightly different way. The fact that the industry’s growing and people are talking about it means that more people will find out about these things and will choose the products that suit them.
At this point, Starling’s head of corporate affairs, Alexandra Frean, offered her own insights on the subject…
AF: If I can butt in, if you look at Metro Bank and Revolut, the problems that they’ve had have nothing to do with being agile and doing things quickly. There’s other things behind what’s going wrong there. Speed, if you do it right is a massive advantage.
TFT: Fintechs are often predominantly tech crews with a compliance team recruited from finance. There seems to be more potential for internal discord…
AB: If you think about the big compliance scandals of the last year, it’s been the HSBCs etc. The big compliance issues and the big fines aren’t for the fintechs.
As an industry, we’ve sold the line that this is fresh new minds, technologists, coming up with new banks … I’m a computer scientist who’s worked for big banks, running big departments, for 30-odd years. There’s no naivety in Starling about how things work.
We have a lot of knowledge about what’s good and bad about the incumbent banks. I came to the conclusion that it was easier to start a new bank with new technology, with new values, new ethics and new beliefs about how you should treat customers. It was easier to do it in a new entity than change the old.
I’m a computer scientist who’s worked for big banks, running big departments, for 30-odd years. There’s no naivety in Starling about how things work.
TFT: Starling has cultivated some of fintech’s heaviest hitters, including Megan Caywood and Tom Blomfield. What it is about Starling’s culture which fosters such meteoric talent?
AB: We’re good at picking talent! I think it’s fair to say that when I started this in 2014, nobody thought this was possible. A new bank, with a new banking license and a new approach. Nobody thought that was possible.
I proud of, not just creating Starling, but a new way of engaging.
TFT: What does the next six months look like for Starling?
AB: At the moment, we’re really building out our capability of our SME banking proposition. We’re opening an office in Southampton which will be a fantastic place for all sorts of Starling people to get together to create things. It’s a fantastic office looking over the sea and it’s part of our proposition to bring Starling out of Shoreditch. It isn’t just about people who look cool and hang around in the right bars, drinking the right beer.
TFT: I don’t do any of those things…
AB: Exactly! It’s about people all over the country. Southampton’s where we chose because of the connection to the local universities and the local talent. It’s all very exciting.
TFT: To what extent can legacy finance adopt a fintech mentality?
AB: The first thing a bank will do is appoint a head of digital, then they say, “okay, it’s digital and innovation.” They’ll hire someone from a different industry perhaps and they’ll wander into the boardroom in a pair of jeans. That doesn’t change the culture. Those people can run the innovation labs, they can do the innoventures, they can do the Shoreditch events. What they can’t do is take the organisation as a whole and convince everyone that it has to change.
Convincing leaders to change takes a lot of guts, because changing is very, very dangerous.
You can see what happened with TSB! Taking a system and migrating it to another set of systems is just too complex and to do that, you take a lot of personal risks. As a chief information officer, you’ve got to press the button and pressing the button is dangerous, especially in the senior management regime where there are consequences.
What the big banks are doing is little speed boats and little innovations around the side because they can’t tackle the big problem. I was in those larger organisations…and I couldn’t fix that problem.
TFT: So, they’re doomed to irrelevance?
AB: I don’t think they’re doomed, I think some will survive. They’ll pick a certain element of the proposition. Not everybody will do everything. Some will focus on the back end, some will focus on the front end. I don’t think they have the organisational resilience to do it all.
TFT: Their dominance will shrink then?
AB: We have a very bad situation at the moment where you have huge market shares concentrated amongst a few players, especially in the case of the SME market. When you have that concentration, those players don’t give the customers a good deal. That’s one of the reasons we’ve been awarded the Capability and Innovation Fund. We have the capability to actually take real market share from the big players.