“When the buy-side starts to adopt certain technologies, the rest of the financial system pays attention,” says Sergey Nazarov, co-founder of Chainlink, a decentralised Oracle network that connects off-chain data and systems to blockchains.

By that logic, if Larry Fink, the CEO of BlackRock, the largest investment manager in the world, says (as he did last month) that the next generation of the financial market will be the tokenisation of everything on the blockchain, you can expect a reaction. And it came immediately for Chainlink with a sharp spike in its share price. Fink’s comments in October came as BUIDL, BlackRock’s seven-month-old institutional liquidity fund, hit a market capitalisation of $547.7 million, making it one of the biggest uses of asset tokenisation on the blockchain.

Only available to qualified institutional investors with a minimum stake of $5million, BUIDL could help fundamentally change the way investment works as regulators in the US consider allowing digital assets to be used as collateral for commodities and derivatives trading. BUIDL, built on the Ethereum network, is already accepted as collateral by FalconX and Hidden Road, two of the largest crypto brokers. Nazarov hopes this ‘tokenisation movement’, as he describes it, will ultimately result in riskless payment methods like central bank digital currencies or bank-issued stablecoins backed by central bank deposits, being used to acquire the underlying assets.

But until, and even when, that time comes, there still needs to be a bridge where the hard edges of a temporal payment system connect with the infinite fungibility of the blockchain. Chainlink has made big strides towards achieving that in its partnership with Swift, the world’s biggest legacy money mover and a highly centralised one at that. Nazarov recently highlighted a breakthrough in their joint effort with Swift to use its payment messaging system – which is baked into the back-office technology of 11,000 financial institutions and corporations – to create blockchain events, allowing participants to lock assets on chain and execute a transaction.

The concept is ready to move to the next phase, pending additional discussions and demonstrations with Swift and its community, from which the feedback has been positive. It’s a groundbreaking effort, but there is more work to do.

“There are a number of key problems that need to be solved in order for institutional grade, smart contracts and institutional levels of value to flow on chain,” says Nazarov. “The amount of data that’s necessary for institutional transactions to happen is larger than the amount of data you find in decentralised finance – there’s reference rate, net asset value, assets under management, various metrics, accounting, principle satisfying pieces of data, all kinds of information. So, there are a large
number of data problems to solve.

“You also need to solve for privacy, to meet certain legal conditions. And then you need to solve for interoperability, which has two dimensions,” Nazarov continues. “Number one is how do you interoperate between chains? How does the chain where I issued my digital asset or my tokenised fund as an asset manager, access the purchasing powerof all the other chains?

“The second question, which is where our work with Swift starts to become very relevant, is how do I interface my existing systems with all of these different blockchains so that my existing systems can manage, understand and interact with all of the blockchain events going on?

“We’ve demonstrated how Swift messages can be converted to blockchain events, which then trigger key movements of assets, movements of value, and we’ve shown the movement of that value being represented back into people’s systems through Swift messages. This is something we’ve been working on for many years in close collaboration with Swift and the Swift community and various bank members.

“From what I have seen, this approach is the most efficient way for many banks, asset managers and financial market infrastructures to interface with blockchains. They can continue to use the Swift messages, and Swift secure signing keys, to trigger blockchain events and to receive updates about blockchain events in the format that they are used to.

“Risk appears when all of the participants in a market don’t have the same information. If you look at the financial crisis, there was a lot of siloing of information”

“The goal of this is to get those 11,000 Swift members on chain with the minimal amount of friction and cost for them, but with the maximum amount of value going on chain as a result. It allows existing payment systems and existing payment flows to be utilised to flow value into digital asset transactions, solving partly the problem of merging the paymentsworld and the digital asset world into a more active market.”

Interoperability is just one critical piece of the puzzle. Chainlink is busy solving others, too. And one sits at the foundation of financial processes: clean, transparent data.

“We’ve chosen to work first on a set of unstructured data called corporate actions that are generally written in different formats and hard for machines to understand,” says Nazarov. “We’ve applied multiple large language models (LLMs) to verify a single result through consensus on the Chainlink Network. That consensus creates an authoritative result, which is considered more reliable than the response of any one AI model.”

Working with market infrastructures Euroclear, Swift and major financial institutions, UBS, Franklin Templeton, Wellington Management, CACEIS, Vontobel, and Sygnum Bank, through the use of Chainlink’s Cross-Chain Interoperability Protocol (CCIP), it’s shown that the integrity of the unified golden record can be preserved and updated across multiple chains simultaneously. That’s big news, says Nazarov, which potentially impacts everyone by solving one of the biggest weaknesses in the global financial system: transparency.

“Risk appears when all of the participants in a market don’t have the same information. If you look at the 2007/8 financial crisis, there was a lot of siloing of information about the quality of mortgage-backed baskets of assets.

“There was a small group of people who understood what was actually going on, but for the vast majority of the market, that information was unknown because it was packaged behind layer upon layer of systems and permissions and repackaged in many different data standards. It was just extremely complex. That’s what the reports that reviewed the crisis showed.

“But if you had a single smart contract to represent every mortgage holder, and a million of those smart contracts rolled under another larger smart contract that managed them, you wouldn’t need to be a chief data officer to understand what’s going on.
Every time a mortgage holder’s profile changed, that update would be made so we can all analyse it. This is what we mean by a unified golden record in the financial markets.
And it has extreme benefits to the compliance system because now everyone doesn’t have to keep 15 copies of everything. It has benefits for the back office and middle office world where errors and the managing of errors is a very costly process because nobody really knows what the truth is.

“And for risk management, it’s extremely valuable because if you don’t have access to information, you can’t manage the risk. The whole financial system becomes more efficient, more transparent and safer, with less of these weird opaque boom and bust cycles where the fundamental problem was that the information had an error, was inaccurate, and there wasn’t wide access to the market participants. All of these problems pretty much go away if you can transition to this single source of truth, unified golden record world.

“In the Chainlink community, we have multiple systems integrators, different groups that can help people implement the blockchain privacy manager, the CCIP private cross-chain transactions, the identity solutions, the data solutions, and the Swift solutions. All of these are things that I think need to exist.

“And once they get integrated into a bank and an asset manager, it really accelerates their ability to participate in the digital asset economy.”

This article was published in The Fintech Magazine Issue 33, Page 18-19

The post EXCLUSIVE: “Weaving the Golden Thread” – Sergey Nazarov, Chainlink in ‘The Fintech Magazine’ appeared first on FF News | Fintech Finance.

It wasn’t as dramatic as some feared, but a hike in capital gains tax announced by the new UK government in its first Budget in October was nevertheless a bitter blow for those who’ve worked so hard to build an investment community in the north of England.

They’d already fought off one ill-thought through plan this year – hatched by the previous administration – to increase the earnings qualification threshold at which individual investors, or Angels, could be invited to back the region’s entrepreneurs. That would have reduced the number of eligible female investors to precisely zero in the North East, and by 70 per cent to just 3,000 in Yorkshire & Humber, achieving a magnificent double blow to both diversity and access to capital in an area of the UK where there’s been a pronounced ‘capital gap’ for decades (especially in that crucial early stage investment period where patient Angels are key).

It’s all very well pulling your business up by your own bootstraps, but they’re a lot shorter here. The North has the lowest median earnings across the whole of the country, which means there are a lot of early-stage companies with good, but cash-poor founders seeking investment, and a comparatively small pool of individuals from whom to ask it. Coupled with the change in tax rules – which, as Sarah Coles, head of personal finance at Hargreaves Lansdown says, could make investment ‘less attractive for newcomers who don’t want to have to get to grips with a new tax risk’ – that means any founder seeking funds locally has to have a standout pitch and a platform as tall as the Blackpool Tower to pitch from.

Held a couple of weeks before the Chancellor’s potential round-raising dampener, the FinTech North summit in York’s magnificent Merchant Hall, was (perhaps deliberately, given rumours around the government’s plans) focussed on helping the sector’s regional entrepreneurs achieve their capital-raising goals.

Acknowledging that there had been ‘dramatically obvious’ deal drop-off since 2022, Peter Cunnane, director of national and International Initiatives at Investment UK, rallied founders with ‘reasons to be cheerful’. He said £2.02billion had been invested into UK fintech business in the six months of the year, half of which had been landed by female entrepreneurs. Along with the rest of global fintech, inward investment was significantly down on 2023, but the good news was that the UK remained the second largest fintech hub and there were now signs of improved capital flow – the principal beneficiaries of which had been asset management and payments.

That’s reflected in a recent report, Scaling UK Regional Fintech, which also noted that wealthtech and payments account for the largest number of scaleups among fintechs outside of London, although it’s proptech firms that are most likely to raise funding. The report, produced by Innovate UK, Streets Consulting and the founders of FinTech North, Whitecap Consulting, was based on research among 250 regional fintechs.

Among several insights, they observed: “Raising investment wasn’t seen as a badge of honour. It was acknowledged that external funding can drive accelerated growth, but the entrepreneurs urged caution about chasing large valuations, taking too much funding, and losing control of the business.”

While investors may be thin on the ground in the North of England, inward investment manager at West Yorkshire Combined Authority Tom Purvis still urged founders to exercise discretion when choosing one.

“Getting bad money out of your cap table is a pain, so choose the cap table wisely”

“All VCs will tell you they will help you grow,” he told the summit. “Term sheets are full of allthe wonderful things that they can do for you. But be a bit cynical of that. Unless they can point to a programme to show ‘that’s how we helped them’, they probably haven’t helped them that much.

“In an investor relationship, stuff is going to go down. Could you WhatsApp them at nine o’clock at night and know they will roll up their sleeves and help you out? Go and ask some of their portfolio companies that have folded and ask them. Getting bad money out of your cap table is a pain, so choose the cap table wisely.”

Ben Davies, group marketing director at Praetura Ventures, a VC firm, based in Manchester, focussed on early stage; companies, observed that, in the initial stages of chasing capital ‘founders can be a bit of a sponge. You need to hone your ability to distinguish good advice’.

So, his was to ‘cast your net as wide as possible’ and use failed pitches as a stepping stone to build much more valuable relationships.

“The founder of Softbank-backed Peak [one of Praetura’s portfolio companies] made a list of 200 investors and started with the ones he didn’t really want and chipped away, getting all the feedback along the way, so when he got to the ones he really wanted he was bulletproof and had nailed that process. That’s what I would encourage founders to do,” said Davies.

Ant Barker, director of venture capital from Aviva, agreed it was essential for a founder to understand what they want from an investor.

“When you’re talking to them, be really clear what unfair advantage they can bring – maybe it’s in their network or access to expertise that can build out your product or solution?

“Also show you know who your consumer is, what success looks like and really showcase your team because a big part of early investment discussion is around ‘is this a team we can back?’.

“Investors’ minds and metrics have changed,” he added. “Historically, in fintech it was ‘how do you get to as much revenue and as many consumers as possible?’, irrespective of what the economics looked like. Having a path to profitability, or a realistic, credible route over a reasonable timeframe is what’s important now. That’s quite a shift.”

Rangeteller

Daniel Goldstone and his co-founder at RangeTeller set out to build an algo trading framework and ended up solving a consumer credit problem. Its machine learning helps lenders move beyond the ‘take it or leave it’ credit score to create a decision-making tool that can look at historic lending data and assist them in creating a bespoke risk parameter. The framework’s components – ML, witha transparent and explainable protocol and human in the loop – were originally designed to be used in the regulated investment community.

But when the developers saw how many loans banks were rejecting because they didn’t have sufficient insight into their own data, they pivoted. In a pilot, out of 11,000 people that a lender had previously rejected for a loan, the AI identified that 55 per cent could have qualified.

“That’s 6109 people they can go back to and issue $4million in loans to,” Goldstone told the Summit. “We are starting the with personal loan market but we see massive opportunities with mortgages, car loans, tenant evaluation and insurance. We don’t need another credit score, we need a more flexible system.”

Earthchain

Dan Graf founded Earthchain, a fintech/climatetech hybrid, following a 20-year career in payments, including senior roles at ACI and Credit Suisse.

In 2020, he exited Infraxis AG, the Swiss paytech he’d co-founded, following its acquisition by TAS International SA for €18million, and is currently studying for an MSc in sustainable development at Leeds University. Graf is doing things slightly differently as a second-time entrepreneur.

“We bootstrapped [Infraxis] all the way through,” he says. “And one of the mistakes we made was that we didn’t discuss the exit strategy – that was a question we addressed at Earthchain on day one!”

Earthchain positions itself as a platform to manage and report on carbon emissions across a business’s value chain.

“There are 270 carbon accounting tools out there and it’s very difficult for SMEs to choose one that’s the right fit,” says Graf. “Almost all of them are glorified spreadsheets – what we do is take raw, unstructured data – from a flight confirmation email for example – and turn it into detailed carbon reports in line with international disclosure standards.”

For companies who by choice – or, increasingly by regulatory or stakeholder pressure – want to understand and reduce their own emissions and emissions in the supply chain, that saves a whole lot of work. In one trial, it reduced a small company’s data input time from four days a month to just one minute. The program can identify gaps in data, where companies might look to find it, help manage their carbon offsetting, and come up with carbon-saving suggestions.

Already integrated into the small business accounting platform Xero, Earthchain knows its quickest route to market is embedded into payment processing, banking and fintech services for business users, and it’s open to partnerships.

“SMEs are responsible for 50 per cent of the UK’s business-related carbon emissions and SMEs make up 90 per cent of businesses in the UK,” says Graf.

“If we’re serious about tackling it, we have to get this automated.”

This article was published in The Fintech Magazine Issue 33, Page 37-38

The post EXCLUSIVE: “Angels (and VCs) of the North” – Fintech North in ‘The Fintech Magazine’ appeared first on FF News | Fintech Finance.

Launched in 2019 by Nicholas and his partner Gina Shekerdemian, US/UK-focussed fund The Venture Collective seeks early-stage investment opportunities in sectors that can contribute to its mission to leave a positive impact on the world – and democratising wealth creation puts fintech firmly in the human empowerment box.

Shekerdemian studied Chinese at Oxford while simultaneously trying to launch a graduate recruitment app, but then ditched his degree and won a place on tech investor Peter Thiel’s Thiel Fellowship for college dropouts. The Venture Collective currently funds 46 firms that are reimagining business to meet environmental, health and wealth goals.

We asked Shekerdemian to share his insights on the fintech industry, market downturns, the current state of VC and the entrepreneurial mindset.

Shekerdemian on… fintech: “I’m very bullish about the market, although I think the multiples are still exceptionally high. Ultimately, margins will compress as the market becomes more competitive. But, as investment targets, I like that many fintech business models involve high transaction volumes and diversified risk. And, while customer acquisition costs were a challenge for neo banks, some, such as Monzo and Revolut, have turned things around and got themselves in a good place.

“There’s a lot of noise in payments and it’s challenging to see innovation there. That said, within our portfolio we have Lopay, which is doing really well in the SME space. It’s focussed on empowering small business owners – people such as taxi drivers – with a cheaper mechanism for receiving payments.”

“You see a founder’s true colours when things go sideways, which happens in 99 per cent of entrepreneurial journeys”

Shekerdemian on… economic downturns: “You see a founder’s true colours when things go sideways, which happens in 99 per cent of entrepreneurial journeys. It’s a painful moment when someone who has been able to raise cash easily and has become reliant on venture capital, suddenly has to make the economics of their business really work. But ultimately, that’s healthy. Businesses that can do that will be better for it.

“It’s exciting for the market to see resets because it brings a new wave of people into the field – 2008 to 2010, for example, was a great time for venture capital because many people were becoming entrepreneurs and you could invest at reasonable prices.”

Shekerdemian on… the current investment slump: “The extension of IPO timelines and the weak merger and acquisition environment is obviously making it more challenging for people to exit. It creates a vicious cycle where limited partners have a lack of realisation, so commitments to new funds are reduced. I think there’s a lot of C-series capital and investors are willing to take modest investment bets on smart people, but there’s a funding gap where bigger firms would have come in earlier. I don’t see a lack of funding at the pre-seed and seed level.

“The macro cycle is challenging, but, ultimately, it means people have to make better investments into companies that are going to work. The companies that are being funded are generally of better quality relative to the pricing, which I think is great.”

Shekerdemian on… the entrepreneurial mindset: “Entrepreneurial intuition doesn’t go away. When I was building my companies, I used to joke that if all else fails I’d get a real job. But if you’ve got the bug, you just move onto the next company and try to learn from previous mistakes. Some of the best learnings are from company founders who got off the ground, did get scale, but ultimately things didn’t work out. It’s a painful fall but it builds a lot of resilience.

“However, I do worry about the sheer number of people who were encouraged to build companies when it was easy in 2020-21 – it brought in a lot of people who may be great operators in a small business but that doesn’t mean they have the resilience to take the punches that come with being CEO.”

Shekerdemian on… what makes a great founder: “I look for differentiated perspectives. That may sound crazy since that should be the aim of a startup, but so many pitches lack any major insight. I like stories where if the founder’s right, they’re expanding or creating a new market – Airbnb was a great example of that.

“I’m also looking for a deeper passion, because frankly, it’s not that glamorous building a startup. It’s a long struggle, so resilience comes from being passionate. It’s important to stay backing people who have a deep interest in the category they’re focussed on, rather than just opportunistically building there.”

This article was published in The Fintech Magazine Issue 33, Page 29

The post EXCLUSIVE: “The VC’s View” – Nicholas Shekerdemian, The Venture Collective in ‘The Fintech Magazine’ appeared first on FF News | Fintech Finance.

A highly-strung founder of a would-be billion-dollar fintech startup is sitting cross-legged in the evening glow of the Moroccan sun, breathing to the rhythm of tantra meditation. Around them, leaders of other ambitious, early-stage companies are also trying to achieve enlightenment. It’s not a scene from a Netflix mini-series. This is a real-life strategy for moulding tech tycoons and driving value in the ecosystem.

“Think Davos for the next generation,” says Andre de Haes, co-founder and managing partner of BACKED VC,a European fund that focusses on the brave, the brilliant and – most importantly – the seed stage. Among its disciples are Cloud banking technology company Thought Machine and open banking platform Banked. It’s a fund, yes, but not as most VCs would know it.

“We invest in four sectors: fintech infrastructure, blockchain infrastructure and applications, manufacturing software, and AI-driven biology – all of them multi-trillion dollar industries,” says de Haes.

But BACKED’s approach is in many ways antithetic. Where UK-based VCs are forever looking to the US to understand emerging sectors and high-growth potential technologies in which to invest, BACKED has its head turned the other way. Not only does it seek out the biggest industries in Europe that are ripe for tech disruption, but also where Europe has a unique advantage over the US. Rather than follow investment trends, it doubles down on investment sectors where there is limited VC competition. And when it scans the investment horizon for a paradigm shift in value creation,it’s through a very long lens – because BACKED isn’t looking for an exit within the usual six- to eight-year VC cycle.

It believes in rolling out an extended runway for founders who might otherwise be distracted from building a successful company by the gnawing pain of cash starvation. The fund publicly positions itself as a maverick among traditional venture capitalists, and it’s guided by four key values: ‘Put People First, Be An Apprentice, Push The Limits, And Bring Good Energy’. It might sound like guru-speak, but BACKED’s investment strategy is astute.

The unicorn effect

De Haes founded the London-based fund in 2015 with Alex Brunicki, closing an initial €30million fund, ‘Backed 1’, from Groupe Bruxelles Lambert (GBL) Capital in April 2016. GBL is a leading investor in Europe with a net asset value of €16billion and a market capitalisation of €9billion as of June 2024. BACKED’s first pan-European community fund clearly hit the mark because GBL Capital has committed a total of €90million across that and the VC’s two other funds – early-stage ‘Backed 2’, and later-stage ‘Backed Encore 1’ – to date. That gives de Haes and his co-founders room to flex.

They’re comfortable taking bold bets in relatively unknown sectors where business models, pricing strategies, product and technical risks aren’t yet proven. So far, so strategic. So where do the founder camps fit in?

De Haes’ theory is that if you want to maximise alpha in these high-risk investment environments, you need to focus on the individual who’ll deliver it. Hence, the ‘intimate, multi-day, immersive experiences’ where founders ‘get to know each other and build relationships’.

“If you’re an earlier stage founder and you get to be in the room with unicorn founders who become your mates, that’s worth a lot,” he says.

When they’re not on retreat, their investees can also access masterclasses, tools and service providers through BACKED’s proprietary Seed to Series A Founder Development Platform.

“It’s really about doing things from first principles and not being afraid to be judged or edgy. That applies to both what we invest in, then how we do it,” says de Haes. “We have taken a huge amount of technical risk in sectors that people thought were bonkers, like blockchain gaming where the jury’s still out because there haven’t been huge companies built there yet. Fortunately, we’re in, arguably, the two biggest, with multi-billion dollar valuations.

“Similarly, we’ve bet on certain bits of banking and payments infrastructure very early. But I think where we’re really maverick is in the events we run for founders.”

Whether that’s kayaking down rapids or immersive breathwork, he believes that forcing them into a place of learning and/or discomfort forges a bond between BACKED and founders that most funds just don’t have.

“Being different for the sake of being different, that kind of Dyson approach to difference, is something we care about,” says de Haes. “We’re willing to take much longer bets; to invest in founder archetypes that a lot of other funds will dismiss; to invest in geographies that are often overlooked. We think you have to be a contrarian as well as right.”

BACKED has a ‘checklist of traits’ before investment decisions on founders are made. Among these, priority is given to a ‘high pain tolerance, incredible resilience, and grit’. This is based on the rationale that during the earliest stages of a startup, the experience and tenacity of the founding team, its human capital, could be considered a company’s most important – and sometimes only – asset.

Particular attention is also given to a founder’s ‘right to win’, or founder/market fit. In other words, whether they have ‘an insight – a secret – that allows them to build something that no one else could’, says de Haes. In case you were wondering, it is definitely not exclusively focussed on Gen-Zs. It wants innovative thinkers, yes – but they must be able to implement ideas while navigating an ever-shifting set of skills and priorities.

“The problem with fintech in Europe is there are not many specialist VC funds… A lot of seed funding came from generalist funds that have partially retreated”

And that often comes with experience and maturity.

“It is just so hard being a founder,” says de Haes. “Everyone glamorises it and talks of Bezos, Zuckerberg and Musk as idols, but people forget just how hard they struggled along the way. Dyson made over 5,000 prototypes.

“We look for that kind of grit, then for execution speed. You can be intellectually brilliant and know a space intimately but unless you get stuff done unbelievably quickly and you’re willing to make mistakes and rapid decisions, you’re not going to go anywhere. You have to move so fast to win. Finally, you have to be both a storyteller and commercial to be able to sell a vision; persuade people to work for you for way less money than elsewhere; persuade investors to part with cash; persuade customers to trial your product. At the same time, do you have a strong set of values and the humanity to be a kind and thoughtful manager?

“To go all the way and build a multi-billion dollar company, you have to have a very special type of brilliance, a special type of resilience.”

Paul Taylor, the founder and CEO of Thought Machine might be that kind of guy. The London-based fintech’s £160million Series D saw its post-money valuation rise to $2.7billion in May 2022. It joined 17 fellow fintechs, including Monzo, Revolut, Wise, and Starling Bank, in the exclusive club of 43 UK private companies to have achieved unicorn status.

BACKED VC welcomed Thought Machine to its founder community in 2016 after joining the CAP table in one of the company’s earliest funding rounds. Thought Machine’s $160million Series D saw the post-money valuation rise to $2.7billion in May 2022. The company is currently eyeing an IPO within the next two years.

The go-big-or-home approach BACKED encourages among its founders appears to pay off. Thought Machine is the latest of three companies in its portfolio to have reached unicorn status. Immutable, based in Australia, whose product Immutable X is the first scaling system for carbon-neutral NFTs, reached a $2.5billion valuation after a $200million Series C round in 2022. Meanwhile, Singapore based online crypto game developer, Sky Mavis, was valued at $3billion after a $150million Series B, led by Andreessen Horowitz in 2021.

BACKED has certainly made some shrewd investments, but like every VC, it can’t escape the Power Law: the principle that a small number of investments will yield the majority of a portfolio’s returns, while the remainder will break even or fail. BACKED’s portfolio company, UK-based ticketing platform Pollen, made headlines in 2022 after reaching a valuation of more than £450million and fell into administration four months later.

The fund has nevertheless enjoyed a total of seven reported successful exits since 2015. Most recently, Foundries.io was acquired by Qualcomm in March 2024. When it comes to investing in seed stage fintech infrastructure, BACKED is a decent-sized fish swimming in a small pond.

“The problem with fintech in Europe is that there aren’t that many specialist fintech VC funds,” says de Haes. “And a lot of the seed funding came from generalist funds that have partially retreated following the revaluations we’ve seen of later-stage companies like Klarna. Revolut’s recent $45billion valuation secondary deal re-injected some enthusiasm and other later-stage rounds have also buoyed the mood, but we’ve seen a big distinction between companies operating in spaces that most investors deem attractive and others in spaces like credit where it’s gone cold. Investor appetite at seed is now very market-specific.

“There are a few areas commanding interest like securitization of assets that weren’t previously securitized and certain products in the transaction flow.”

The maverick investor’s hottest tip in fintech right now is blockchain.

“Widespread adoption will largely be invisible,” he says. “With a lot of the best applications, people won’t even know they’re leveraging blockchain infrastructure – in things like gaming where some of the applications are hyper-interesting”

This article was published in The Fintech Magazine Issue 33, Page 22-21

The post EXCLUSIVE: “Alpha Nirvana” – Andre de Haes, BACKED VC in ‘The Fintech Magazine’ appeared first on FF News | Fintech Finance.

From its office in Vienna, co-founder Nina Wöss talks fundraising, financial inclusion, and period tracking apps with The Fintech Magazine’s editor-in-chief, Ali Paterson.

The Fintech Magazine: Fund F closed its first €20million fund in 2022. How did you become involved in early-stage investing and what led you to this point?”

Nina Wöss: While at university, I was already engaged in the topic of early-stage investing and entrepreneurship. That led to my first job, which was at Speedinvest, now one of the most prominent funds investing in early-stage companies.

I was there for eight years and it gave me the opportunity to learn everything, from how to work with startups, to building a portfolio. I was exposed to the European venture system, and as a young woman, I experienced firsthand how much the gender gap was prevalent for both investors and founders. The experience inspired me to read more about gender equality and feminism. I also met my co-founder, Lisa-Marie Fassl, around the same time.

We started to work on addressing the challenges of female entrepreneurship and built a community called Female Founders. This led to us launching our own fund, Fund F.

The Fintech Magazine: Investors often talk about the importance of investing in diverse teams. Yet the stats tell a different story with only 1.8 per cent of all VC funds invested in women-led startups in Europe in 2023, according to PitchBook. What would you say to investors to encourage them to do more of what they say?

Nina Wöss: The majority of people are not thinking about who is designing the products they use, but these products shape our lives for better or worse. It’s very important that investors support leaders of tech businesses who build diverse teams to create products that reflect the diversity of their customer base.

It also makes fiscal sense to invest in diverse teams. Data has repeatedly shown that diverse teams run higher-performing businesses and generate higher returns in the long term. That’s not only with regards to gender, but other characteristics like cultural background, ethnicity, and age, etc. At Fund F, we consider how diverse a company is at every layer of the business, beyond the founding team. This includes their board, employees, and investors on their CAP table. That’s how Fund F will achieve our long-term impact over the next 10 to 20 years. Like any investor, we hope to see exits from successful companies, but we want to create a legacy of future unicorns where not only the founders, but their employees, create personal wealth on exit that can be reinvested into teams that reflect them, and companies that can have a positive impact in turn.

The Fintech Magazine: The world has experienced drastic change and a string of economic, humanitarian and health crises over the past 10 years. How has this impacted the fundraising landscape and what challenges do founders face today?

Nina Wöss: It’s a difficult market at the moment. We focus on pre-seed investing and even at that very early stage we notice rounds that are structured in a way that suits all parties are taking longer to raise and close than in the past. First-time founders are having an especially hard time in the market to raise their first rounds, and many female founders are also first-time founders. To encourage rounds tocome together quickly, we’re becoming increasingly involved in playing the role of the lead investor and bringing co-investors on board, as well as proactively supporting founders to structure their rounds, which is very important to get deals closed.

We’ve also seen founders and investors begin to prioritise revenue-generative businesses that can achieve profitability. Post-COVID, we saw over-hyped business models that, with hindsight, were clearly never going to be profitable. E-scooters come to mind. From an investor perspective, businesses must be inherently scalable, able to reach profitability, and either achieve an exit that makes sense for everyone involved, or establish themselves as a company that can run on its own.

Investors have wised up to misplaced hype and now conduct more thorough due diligence, prolonging the deal process. This all puts a lot of pressure on founders fundraising at the moment. That said, I’m still convinced that good founders will always be able to raise, regardless of their gender, background, or the economic environment.

The Fintech Magazine: Flo Health, a UK-based period tracking app, recently made headlines for becoming Europe’s first femtech unicorn after raising $200million in a Series C round in July 2024, despite being led by two male founders. So, does it matter who’s running the show if the business is investible?

“Men are more likely to be funded, even in the femtech space, because the vast majority of decision-makers on the investor side are men”

Nina Wöss: There is nothing inherently wrong about an all-male founding team, funded mostly by men, running a femtech business. But I think it does highlight bias in the tech ecosystem, especially when men in femtech raise more funds than their female counterparts, despite the fact that 70 per cent of femtech companies are founded by women. While they may be excellent founders, it reinforces what research suggests: that men are more likely to be funded, even in the femtech space, because the vast majority of decision-makers on the investor side are men.

There is an obvious connection between those who get funds and those who distribute them.

The Fintech Magazine: Diverse founding teams are obviously a prerequisite for Fund F. What else do you look for in founders, and what is your process for evaluating a business?

Nina Wöss: Beyond necessary subject knowledge, founder resilience is a priority and can often be gauged from the first interaction. At least one person on the founding team also needs to be an excellent communicator and harness charisma. Not only to pitch the business to an investor, but also gain the trust of future employees and empathise with their customers to sell effectively.

After a positive first interaction with the founder, we assess the market quickly, including the respective market size, and assess if the company is also fundable on a venture scale and whether VC funding would be appropriate for the founding team. Once we’re satisfied with our market research, we then seek to understand the problem the company is solving and the viability of its solution. Ultimately what’s important to us is backing teams that are building solutions with potential to scale and solve the global problems of our lifetime.

For example, financial inclusion was the main reason we included fintech in our investment thesis. How women participate in stock markets, how – and if – they save to build their personal wealth are all examples of global problems that haven’t been solved yet.

The Fintech Magazine: How can finance and financial services industry move beyond diversity tokenism? What practical steps can we take?

Nina Wöss: As a woman, I’m often invited to diversity panels rather than investor panels, even though I’ve been an investor for the majority of my career. We need to give people the opportunity to represent what they’re doing and how they’re doing it, without being the token woman, the token black person, the token person with a different religion, etc. We can effect change by creating content, events, and rooms where, by definition, diversity is already ingrained. Unfortunately, addressing systemic issues takes time.

The Fintech Magazine: What advice would you give someone if they have an idea for a business?

Nina Wöss: Just get started and tell people what you’re building to get feedback. People are often hesitant to talk about their idea, but they should keep in mind that no idea is so special that nobody else in the whole world has thought of it. This can actually be a good thing, because it means your solution is relevant and addresses a problem that resonates with a lot of people.

A founder’s unique advantage is their team and their ability to execute their ideas and bring them to life. Following that, leverage your wider network, from your investors and partners, to employees and customers. At every stage of building a business, it’s the people that make the biggest difference.

This article was published in The Fintech Magazine Issue 33, Page 12-13

The post EXCLUSIVE: “F is For Diversity…” – Nina Wöss, Fund F in ‘The Fintech Magazine’ appeared first on FF News | Fintech Finance.

Market-leading benefits are a sure-fire way to woo customers to your new current account – but generosity comes at a cost.

So, for Kroo Bank, harnessing AI to ensure ruthless efficiency is absolutely crucial.

“The flip side of the coin of being good for our customers and passing on as many benefits as possible to them is we have to be very lean operationally,” says the business’s chief technology officer Alexey Gabsatarov. “Whatever efficiencies we can find, we need to consider them. One way is automating all the manual processes we can, and that means using AI extensively.”

Established in 2016, it took Kroo Bank until June 2022 to gain its UK banking licence. It launched its free current account six months later, swiftly followed by personal lending, and the 100,000 customer milestone was passed by June 23 2023. At the end of last year, it had 152,055 accounts and a combined credit balance of £788.2million.

Ambition and focus

Kroo targets Gen Z and millennials with customer referrals and social media advertising driving recognition – brand building being in co-founder Nazim Valimahomed’s DNA after a lifetime promoting big-name FMCG businesses, such as Coca-Cola and Heineken. There’s a similar vision behind Kroo – to create a highly consumable bank that can nail the rankings.

Valimahomed has already said it’s out to beat Starling’s banking-licence-to profitability roadmap, which took six years. Gabsatarov says the “difficult bit” of creating a current account is now done and additional products will be added as the firm progresses. But while he is confident that profitability can be achieved in the “not-too-distant future”, a £26.8million loss in 2023 means the hunt for operational efficiency must be laser-focussed.

Kroo’s current account pays 4.1 per cent AER on balances by tracking 0.9 of a percentage point below the Bank of England base rate (the margin will rise to –1.1 from late November). That, together with an account app that allows customers to easily split bills with friends, save into pots and enjoy low costs when spending abroad has won the bank praise among pundits.

“We are quite open about the way we use AI and we want to ensure our customers trust us to do it responsibly”

Gabsatarov says: “You may think that a new bank won’t have many manual processes but there’s so much heritage complexity in the way banking operates that automation is a continuous effort for us. It’s important to ensure our AI models run on good quality data – if bias or data quality issues are introduced we see issues downstream.

“From the outset, we’ve adopted ethical AI principles by always having a human in the loop. We’re not replacing humans with AI, the way we see it is we complement specialists with generative AI input that makes them more efficient.”

The bank uses both general and specialist AI systems, says Gabsatarov, as both have strengths and weaknesses.

“Using a large language model can be like interviewing someone who is very smart but who’s not a specialist, so they’ll talk around the topic,” he explains. “It’ll make the answer sound plausible, but ultimately incorrect. Training a specialist large language model counters this problem – you don’t expose it to irrelevant data. We are open about the way we use AI and we want to ensure our customers trust us to do it responsibly.”

Another efficiency win has been reducing customer queries about transactions via a partnership with Snowdrop Solutions. Snowdrop’s software means account holders at partner banks can see merchant names and logos on transaction data, plus the payment location and merchant contact details. It means the bank fields fewer queries from people who don’t recognise a transaction they’ve made and fear they’ve fallen victim to fraud.

Simply adding a logo and location reduces ambiguity and stops misunderstandings from becoming a drain on staff time.

Gabsatarov says: “We launched that a year ago and we’ve seen a 15 per cent increase in customer engagement with that data and a reduction in customer support queries – it’s improved user experience.”

Another user experience Kroo is developing is automated financial advice, or as Gabsatarov explains, “automated nudges and recommendations that would make customers demonstrably better off.”

Neos the world over have adopted similar PFM tools to a greater or lesser extent, but Gabsatarov says Kroo goes further: “People engage with current accounts as individuals but increasingly spend in a social context. So they travel together, live together and spend together. Capturing and serving this element was an important foundational principle for us, and it was a differentiation of ours.

“We’re working on savings products, lending products and so on – adding products that our customers ask for and see value in. Being a small bank we can react to changes and build the business by listening to customers.”

This article was published in The Fintech Magazine Issue 33, Page 11

The post EXCLUSIVE: “The Automated Bank” – Alexey Gabsatarov, Kroo in ‘The Fintech Magazine’ appeared first on FF News | Fintech Finance.

It’s fair to say that, for years, merchants have felt badly done by when it comes to transaction fees for the goods and services they sell. The rise in cashless transactions – further fuelled by the COVID pandemic when consumers became used to paying for everything from their daily coffee to parking, tube fairs and chewing gum by card or phone – only sharpened their pain, although this explosion in contactless-over-cash did also benefit them in saved admin.

It also helped bust open the monopoly the larger issuers had enjoyed over merchant payments infrastructure, and the charges they pay for using it, by increasing competition – although the majority still protest they are paying way too much while there’s way too little transparency of those charges.

Here, software-as-a-service provider Torus believes it can help. Its simple belief is that by better explaining, understanding and forecasting transactional costs at a day-to-day level, acquirers, payment facilitators and merchants can optimise profits, improve competitiveness and benefit from greater trust throughout the value chain.

Kirill Lisitsyn is co-founder and CEO of the three-year-old platform based in Vilnius, which currently serves multiple customers, ‘mostly in Europe and the UK’ but with ‘footsteps in Central Asia and the Far East, like Japan’.

“Merchants tell us they face two main problems,” Lisitsyn explains. “Firstly, the costs themselves. Then, there is lack of transparency, in terms of the drivers of those costs. Cards still dominate cashless payments. Even wallets like Apple Pay are fuelled by cards and this means the majority of cashless transactions trigger interchange and scheme fees. Merchants are paying their acquirers, plus a margin based on what those acquirers pay towards their own transactional fees. Opaqueness around this means merchants don’t fully understand what they’re paying for, and the explanations acquirers offer them don’t really help.”

This breakdown in communication can damage merchant/acquirer trust. Meanwhile, acquirers are facing their own pressures.

“The card payment industry is still booming, growing by double-digits year-on-year, which is good news for the payment players and also means competition is increasing. The barriers to get into the space are low, especially for e-commerce transactions,” Lisitsyn says. “However, this also means acquirers are locked in a situation where their margins are diminishing. They need to compete but they still have to be profitable.”

Like merchants, they often lack adequate insight into their own cost cycles, says Lisitsyn. “They need absolute control over the tiniest elements of their profit and loss, revenues and costs and, right now, that’s not always the case.”

He believes the solution is relatively simple.

“Providers are sitting on large data streams from payments schemes that they are not analysing to their full value,” Lisitsyn adds. “Our research, and feedback from customers, suggest if acquirers and others start analysing this data better and deeper, they can extract a lot of value by understanding their true transactional costs and pricing their merchant services more accurately.

“In some cases, this might reveal certain transactions are super-expensive and they need to charge more to avoid transactional losses; in others, they might be cheaper and more competitive, but they can offer more tailored pricing overall for their merchants. With some of the larger grey areas, the acquirers don’t have a handle on the scheme fees, so they are not accurately passed over to merchants. That is creating issues and influencing trust because merchants sometimes think acquirers are overcharging them, and acquirers are not able to prove that, actually, these are the same costs they’re paying to the schemes.”

There has been an attempt by the industry to remove some of the opacity by using the Interchange ++ pricing system, which provides a detailed breakdown of the costs incurred by the merchant from the acquirer, the card scheme and interchange fees. But it’s really only suitable for larger enterprises and even then it often results in more confusion, not less, says Lisitsyn.

“Merchants receive a figure but not all acquirers are able to explain what that number consists of or how they arrived at it. So, it’s no clearer. And for them, it creates additional risks because if they’re paying a blended fixed rate at least they can predict the costs, whereas if it’s Interchange++ they can’t.”

Lisitsyn believes that by unlocking the wealth of transactional data that merchants and acquirers are already sitting on, Torus can keep both better informed and more efficient.

“Acquirers already have all the data they need, they just need to spend a bit more time and resources on extracting the value from it to create their competitive value proposition and adapt their back-office operations in a way that enables them to be super-clear on the transactional costs and revenues, down to individual transaction level,” he says. “They need to understand the margin for each transaction, and, if it’s loss-making, what they need to do about that, then respond to it dynamically. That way, they can manage their P&L accurately, on a weekly basis. At the moment, changes are only happening annually – it’s much more efficient to fix things in the moment.

“Cards will remain a material part of the payment space and that’s why it’s vital merchants manage those costs at their end”

“Imagine that you, as an acquirer, are suddenly able to allocate the scheme fees costs down to a single transaction level so now you (a) see the real transactional costs and profitability of your individual merchants, (b) are able to provide maximum transparency to your merchants, and (c) know exactly which merchants should be repriced, and how they should be repriced, to maintain target profitability levels.”

The opportunity is greatest for medium sized industry players.

“While not all of them are working perfectly, the largest providers invest time and resource into building their own, in-house solutions,” says Lisitsyn. “But the mid-marketplayers we’re targeting typically don’t have enough resources to do that. Where they’d have to spend millions and a couple of years’ development to fix just one issue themselves, they can have the same results or even better within a few weeks by partnering with us. We want to enable them to get to the same level of insights and analysis as the largest players in the market.”

So, how are payments developing and what does that mean for Torus?

In Europe, local card schemes are on a steady decline with a European card scheme a distant dream, while the dominance of Visa and Mastercard increases in the region.

“Post-COVID, there is more and more international travel and merchants need to be connected with international schemes and cannot just be localised,” says Lisitsyn. “And while there is a lot of trendy stuff happening with alternative payment methods (APMs), we don’t believe the rumours that cards will die within the next few years.

“APMs are growing faster than cards in some markets, but they’re doing that by eating their share of the cash pie faster than the card schemes are, not by taking the cards’ share of it. We think, for the next five-to seven years, cards will remain a material part of the payment space, especially in e-comm, and that’s why it’s vital that merchants manage those costs at their end.”

Torus’s SaaS solution, though largely plug-and-play, can be tailored to specific client needs in different jurisdictions, and its data storage solutions are Cloud-agnostic, processing only anonymised information for optimised security.

“So far we’ve been focussed mostly on users directly connected to Visa and Mastercard and getting their regional data formats from the schemes,” explains Lisitsyn. “But we are being driven down the value chain by the market. In the past six months, we’ve had a lot of requests from payment facilitators and merchants, asking us to provide similar analysis, and have recently launched a solution which could be specifically used by the acquirer sales force, by payment facilitators, and merchants themselves, to benchmark their transactional costs, including scheme and interchange fees, against where they should be, without data sharing.

“We’re expanding into the merchant space, with more to come on that within the next six-to-nine months.

“We remain focussed on the scheme fees and interchange space and we are naturally scalable geographically, because the data formats our customers get from the various schemes are the same globally.”

This article was published in The Fintech Magazine Issue 33, Page 14-15

The post EXCLUSIVE: “DataIsPower” – Kirill Lisitsyn, Torus in ‘The Fintech Magazine’ appeared first on FF News | Fintech Finance.

Since ChatGPT’s arrival two years ago it seems the world has been on tenterhooks, awaiting a generative AI (genAI) revolution. After false dawns with other technologies, the consensus is that this time it’s different. But what does genAI mean for banks today, and where is it taking them?

We asked three industry leaders for their insight – Ranil Boteju, chief data and analytics officer at Lloyds, ING’s head of advanced analytics strategy, Marco Li Mandri, and chief executive of software solutions company BBD, Kevin Staples.

The Fintech Magazine: We had tech consultancy Gartner tell us genAI was at the top of its hype cycle – it certainly seems to be entering a point of maturity. Will AI revolutionise banking? Is this time different?

Ranil Boteju: Yes, it’s not hype. We’ve seen technology hype cycles before with distributed ledger, blockchain, Web3, metaverse, quantum. But let’s be honest, none has made a huge impact yet, they’re very much top-down driven. Generative AI was different, within three months of ChatGPT coming out we had engineers all over Lloyds using large language models to solve real problems off their own bat. I’ve never seen that – that organic growth of use cases popping up.

I’m convinced this is a general-purpose technology that will transform organisations, like electricity did when it was discovered.

Marco Li Mandri: I agree it will be transformative. But a common misconception is that this is easy. Building this system takes quite some craft because the more you go into a core system, the more monitoring you have to do. Plus, you have to make the system safe, which is demanding.

“I’m convinced this is a general-purpose technology that will transform organisations”

Ranil Boteju, Lloyds Bank

Kevin Staples: If you consider the sheer rate these generative AI models are advancing, it can seem terrifying. And that leaves an organisation not knowing how to move forward. There is an inertia and it’s often related to the risk elements. My preferred approach with a technology that’s inherently not definitive, like this, where the outcome isn’t guaranteed, is a proof-of-concept approach where we adopt a mindset of let’s fail fast.

You’ve got to understand that because this technology is changing so fast, anything you adopt today will not be as appropriate as the better tech that arrives tomorrow. So, my advice is: keep it simple, look at use cases that will have value, then dive in, solve the problem, and realise quickly if you’re failing.

The Fintech Magazine: So what is genAI being used for right now, and what is coming soon?

Kevin Staples: There are three categories where it’s being adopted by banks and other corporates. First is staff – we’re using these tools already in our day-to-day jobs as efficiency tools. Second is back-office processing – for our banking clients we do a lot of process re-engineering work and that’s a use case that’s within reach, it’s relatively straightforward to get there. And third is the holy grail – customer-facing applications. I believe that, in the future, most banking customers will have their own ‘digital twin’ of a personal banker and this is an area I’ve been working on with our clients to achieve. It’s hard and we’re not quite there yet, but we’re overcoming a myriad of technical and business-risk complexities to head in that direction.

Marco Li Mandri: At ING we’re focussing on several things. First is scale – we identify use cases that can scale across all the markets and countries where we’re operating. The second one is about domain. In our case, there’s a lot of potential in the contact centre space, and also marketing personalisation. GenAI can also help support analysts with their work in software engineering, and lastly, we’re using it in wholesale banking where we have a commitment to sustainability.

“Keep it simple, look at use cases that will have value, then dive in, solve the problem, and realise quickly if you’re failing”

Kevin Staples, BBD

Ranil Boteju: We’re funnelling our use cases into four categories at Lloyds. For engineering, as Marco and Kevin touched upon – there are lots of opportunities for engineers to use coding copilots, automate test cases and documentation, and create synthetic data. The second category is using genAI to create tools for frontline colleagues – things like call summarisers, post-call quality assessments – very important when you’re selling financial services products – and training tools. They’re working well.

Third is tools focussed on the back office. Then fourth, and the one we’ve paused on until we’ve got the right guardrails in place, is exposing generative capabilities directly to customers.

The Fintech Magazine: What are the obstacles to scaling this technology?What is your own strategy?

Marco Li Mandri: A few years ago, the challenge to scaling AI was around data. Now it’s about building a platform that’s embedded in processes that are core for the bank. It takes time, but at least it’s clear what we need to do. On the technical side, you need a good roadmap so you’re clear about which use cases to focus on. You need scalable monitoring for when there’s a lot of interaction, and you need data-driven quality assurance.

On the people side, we know we need to educate all employees about the risks and opportunities that genAI can bring, and not just the people using it. And we see an increased need for what we call AI product leaders who will shape this technology. They know a particular banking domain, they understand IT, analytics, they care about the craft and so on. But it’s a tough role.

Ranil Boteju: AI, data science – these things have been around for more than 20 years at banks. GenAI posed additional risks, such as hallucination, misinformation, misalignment, toxicity and so on. We’ve worked through manual and automated controls you can use. For hallucination, you can train the model on a more precise data set. You do something called ‘red teaming’ where people pose questions and if the answers are wrong, correct them. Then there’s ‘ground truthing’ where you compare answers against a known database of answers.

But the one we use mainly is having a human in the loop until we’re confident the answers are correct. So, it’s all about understanding the risks and putting mitigants in place. Secondly, you need a platform that allows you to scale consistently. When we started, we had lots of people doing use cases that weren’t scalable, there was duplication, they were building on non-target platforms. So we’ve started to build out a clear target architecture with the capabilities we need to scale. We’re building on our Cloud platform. Unfortunately, these things take a while!

“A few years ago, the challenge to scaling AI was around data. Now it’s about building a platform that’s embedded in processes that are core for the bank “

Marco Li Mandri, ING

Kevin Staples: I’ll repeat what Marco said earlier – it’s not easy. Such a broad range of skills are needed to use these large language models (LLMs). Yes, you do need data science but you also need data engineering, Cloud platform engineering, you need machine learning ops and software engineering. It’s a hard, especially in an existing bank, to implement LLMs into production, and where business leaders need to be accountable for the money they’re spending but there’s no guaranteed outcome. Which is why my go-to approach is find the right skills and partners, understand the need to fail fast, to realise value fast, chop and change as time goes on.

It’s going to be a bumpy ride adopting AI, but quite an exhilarating one.

The Fintech Magazine: How will genAI shape the next big shift in consumer banking?

Marco Li Mandri: I always remind our teams about the 1970s and 80s when we put a computer on everyone’s desk and assumed productivity would increase. It didn’t, because for a long time we just put a computer in every process, and the processes didn’t change. We must try to do the opposite with AI.

Start from the domain and ask how you can re-engineer the entire process. At ING, we link it to outputs, such as measuring straight-through-processing rates. For customers, decisions, such as for loans, will happen faster and hyper-personalisation will be a big shift. We also have an ambition to steer customers towards sustainability which we can do increasingly well, thanks to AI.

Ranil Boteju: Banking has been around for centuries but we’ve basically layered on new technologies. We haven’t reimagined what a bank should be. I expect people to ask what role a bank should play in people’s lives. And with AI as a core tool, what could that look like? People will learn from the mistakes of digital and mobile where everyone just digitised their paper-based processes.

We’re going to see organisations start from scratch, and it’ll be interesting to see who survives that, and who doesn’t.

This article was published in The Fintech Magazine Issue 33, Page 34-35

The post EXCLUSIVE: “Along for the Ride” – Kevin Staples, BBD; Ranil Boteju, Lloyds and Marco Li Mandri, ING in ‘The Fintech Magazine’ appeared first on FF News | Fintech Finance.

Embedded finance is one of the biggest topics in fintech and for good reason. Exact figures vary, but one thing is for sure – it’s predicted to grow significantly in the years to come. One McKinsey report suggested that revenues from embedded finance in Europe could exceed €100billion by the end of the decade, far surpassing traditional financial services. Whatever way you look at it, delivering financial products through non-financial entities is the future of finance.

There are numerous sectors this could penetrate, but one of the most interesting is sports, and, more specifically, the world’s largest sporting segment, football. The numbers here are staggering.

In Deloitte’s Annual Review of Football Finance 2024, an independent review of the business of European professional football, revenue grew by 16 per cent in the 2022/23 season to €35.3billion. The ‘big five’ leagues contributed 56 per cent of that. The largest, the English Premier League, had another record year in the 2022/23 season, with revenues from PL clubs surpassing £6 billion for the first time.

Many questions exist around how much of a positive impact this has on the wider footballing pyramid but it’s certainly the case that matchday revenues present a lucrative opportunity for financial services. Fintech writer Jas Shah, highlighted this opportunity himself, pointing out that half of football fans (54 per cent) spend more with brands if they have a loyalty card, while 47 per cent want to see more personalised offers in exchange for their support, according to research from SAP Emarsys.

In a world where brand loyalty is hard to win and easy to lose, Shah also noted how football stands out, with ‘a whopping 82 per cent of football fans remaining loyal to their club throughout their entire lives’. That’s regardless of  the team’s performance or changes in personal circumstances. It’s a currency that can’t be underestimated and could be leveraged.

One technology company doing just that with an embedded finance offering focussed on the sports fan is Andaria. It provides the technology required to improve the fan experience and release financial capabilities in non-financial organisations. Founded five years ago, it has been operating as a regulated institution for over three years, in both Malta and the UK, giving it a foothold across Europe, where 229 million people attended matches last season, and in the home of the Premier League.

Andaria’s CEO Nirav Patel is a self-proclaimed ‘Gooner’ who would love nothing more than to combine his experience of being an Arsenal fan with rewards and financial incentives. He also has a lot to say about where embedded finance is heading and how clubs can leverage the true value in this technology through customer data.

Fan data is king

In a nutshell, Andaria uses payments as ‘a conduit to data’, says Patel.

Although fans have long been recognised as a vital and valued part of the club, he believes a lot of sports organisations are poor at segmenting or understanding their own. By gaining more specific data from a transaction in the club store, they can build a more complex picture of the individual, which can unlock other opportunities for them.

“For a club, it gets even more interesting if you look at sponsorships and commercial agreements,” he says. “If a club can segment the client base and say to a potential sponsor, ‘five million of our fans are 25-to-35-year-old, young professionals that live in the centre of London’, you can see how the commercial negotiation for the club becomes a different proposition. And that really starts at payments.”

The question is what does this look like for the fan? As Patel admits, branded cards are nothing new and downloading a new app to gain loyalty points has become a modern, unwanted point of friction. This may not be a problem for a devoted fan but in any case, Andaria’s offering is not a third-party app that a club has to ship out separately.

“We try and minimise disruption to the fan journey by enhancing their existing app… and make using a branded card a more attractive proposition. We have to find a mechanism to keep fans using the card; rewarding loyalty with the club that you follow is a natural choice,” he says.

“A stadium food and beverage stand gets its funds instantly rather than in two or three days’ time, which for a sports club is key”

Personalising the card with completely unique sporting moments is one way to entice fans, although he does acknowledge the desire from most organisations to reduce plastic.

“There are a few things we’re doing in that space including looking at alternatives to plastic such as the rise of the bamboo card. It doesn’t completely negate the environmental element, but it goes some way towards ensuring that clubs meet their CSR value.”

Andaria, he believes, is delivering the real deal when it comes to embedded finance, providing ‘the ability for our client base to offer banking or other financial products to their client base without having to go for a license themselves’. Looked at this way, it is not just offering the technology but taking away the regulatory burdens that come with offering financial products.

“Sometimes embedded finance is used without having any real substance,” says Patel.

Embedding payments offerings in your checkout is one thing and is usually done with the help of a third party. But actually providing a payment card with your own branding, linked to your organisation, as Andaria does, is another thing entirely.

A sports club partner would operate a technical integration, but the day-to-day operation sits squarely with Andaria, says Patel. Then there’s the revenue generation opportunity – which is substantial..

“We give our clients the ability to turn transactions into a revenue generation mechanism by charging that downstream to their client and adding a markup. We’re also focussed on liquidity. What I mean by that is if we’ve onboarded Arsenal, for example, and every Arsenal fan has an account, any transactions that happen between the two sit within Andaria’s network. So it’s peer-to-peer, but also instant.

“A food and beverage stand at the stadium would get its funds instantly rather than in two or three days’ time, which for an organisation like a sports club is key.”

The winning formula

It’s hard to dispute that embedded finance will play a key role in the future but there are some major challenges in the short term, which Andaria is hoping to alleviate. For a non-tech organisation, says Patel, a major challenge is how an organisation absorbs new technology to make this work. One concern might be that they have to tear down what they’ve got and start again.

“Instead, Andaria aims to complement any existing infrastructure with our unique SDK (software development kits) methodology, which allows clubs to absorb our solutions in a streamlined manner,” says Patel. “This removes the need to overhaul their tech infrastructure.”

Assuming they’re won over by the earning potential and they can make it work technologically, Patel believes more sports clubs of all kinds, not just in football, will take up embedded finance.

“It’s a hugely exciting space to be in. The fact that it’s nascent puts Andaria in a very strong position to grow. You can see how you might embed lending into the buying of a season ticket, for example.”

Another reason why sport is so attractive as a financial segment, is its borderless nature. As Patel says: “It creates a language of its own that is spoken everywhere.

“Irrespective of where you’re from, when you‘re at a football match, you know what that feeling is like. And that’s something that we want to harness.”

This article was published in The Fintech Magazine Issue 33, Page 24-25

The post EXCLUSIVE: “The Future of Football” – Nirav Patel, Andaria in ‘The Fintech Magazine’ appeared first on FF News | Fintech Finance.