Earlier this Spring we announced the backing of Dock Financial, as it prepares for the launch of a new Banking-as-a-Service platform. The company has emerged from Crosscard, a spin-off of the payment service provider and existing Claret Capital Partners portfolio company, PPRO.
We spoke with Dock Financial CEO, Marko Wenthin, on his vast experience in Fintech and how the industry has evolved.
As you have explained in the past – Banking-as-a-Service can (simply be) defined as the piping in your house. How so?
Traditional banking in B2C and B2B had on one side the bank, and on the other side, the customer. The bank provided the full product offering, and in most cases, without any external partners. Plus, banks traditionally were relying mostly on their own capacities and little on partnerships and outsourcings.
When did this change?
In the past 20 years, there was a visible change and banks slowly started to open up and realise that offering third party products and partial outsourcing of processes – could actually be a positive value contributor.
And at the same time, they could start to offer a broader portfolio to their customers, often with better technology.
And what happened next?
Banks, however, did not keep up with the speed of how technology changed customers´ behaviours and expectations – in both B2C and B2B. That led to the rise of FinTech over the past 10-15 years, who with little or no history, had no baggage from the past.
Some FinTech companies ignored the regulatory implications though and have had to find out what “a level playing field” means, the hard way. But for the first time, these companies were finally addressing real customers’ needs and providing superior customer centric products and services.
Do you think there is room for both – Banks & FinTechs – in the future?
When you look at both developments it becomes clear that there is a best of both worlds.
We need banks and will see them in the future, but FinTechs have paved the way where financial services will develop. Financial services are a means to an end not the end itself, but that is what many banks had forgotten for so many years.
And so, we will see embedded financial services, which will need a proper technical and regulatory service layer to constitute the final banking products of the past. (Think, the raw products, or product ingredients.)
Without them the embedded products would not work, hence they are of utmost importance yet less visible. Very much like the piping in the house. You don´t see the pipes, but without them there is no water running from the faucets.
As an industry vet – can you share with us how the FinTech industry developed?
In past 10 years, we have seen an almost unprecedented change in the financial services industry. It basically started with Paypal in the early 2000s – during the first big internet wave. New players were also born, albeit most of them no longer exist.
There was a need for different solutions in this new age of internet businesses, now known as E-commerce. And PayPal was the pioneer here.
What did the banks do?
In Europe banks were extremely protective and instead of embracing the opportunity, they were trying it in traditional ways. Sofortüberweisung is an excellent example, as it tried to cooperate with banks to facilitate customer centric payment solutions, but instead got all the heat from them.
However, Sofort didn’t give in and pushed forward and soon became one of the leading payment solutions in continental Europe. This was recognised by the already then BNPL giant – Klarna – which took over Sofort in 2012, I believe.
Did the FinTech space quickly evolve?
We saw the first FinTech wave mainly in the payment area and soon after there were lending providers, card-based spending solutions, neobanks and many more – basically, all business areas popped up.
At first, these companies were smiled upon by traditional banks for their hands on approach. But they soon attracted significant amounts of funding by first class international investors, and today we see N26, Monzo, Starling, Nubank, revolut, Qonto, Penta, Pleo and many more with millions and millions of active customers. I don’t think anyone is smiling at them anymore, and they’re being taken very seriously by the traditional competition and the regulators alike.
However, many of the stellar growth companies induced starting issues as they became partially serious, which led to major regulatory scrutiny for those players. Yet, with their financial power and their coming of age, these things, albeit often painful, will be dealt with, and we see FinTechs attracting more and more traditional banking talent for them.
Tell us about the next wave in the FinTech space.
Since 2012-15, we’ve seen the next wave in this FinTech boom. Many players were concentrating on solving real live customer problems yet shying away from the regulatory implications. That created a new need for a cooperation between banking providers and FinTechs. Wirecard was certainly one of the first to recognize that. Others were following, yet on a project base and not yet fully leaving their comfort zone.
In 2015 we saw the first real Banking-as-a-Service platforms. These were built on the newest technology and processes, and not to be thought of as banks in the first place, but as technology and regulatory service providers.
Solarisbank, Clearbank, Starling Bank and Railsbank were the pioneers here and have grown to become significant players in the Fintech market ever since.
And lastly, where does Dock Financial fit in this market?
With Dock Financial we enter this still nascent market in a phase where everyone knows what BaaS is, where 100s of millions have been invested already into the several players, the teething problems have become obvious, the technology and processes have significantly improved, and the era of embedded finance has fully begun.
We believe that with a couple of BaaS providers in Europe, compared to thousands of banks, there is still so much business to be done in the BaaS space over the next years. In short, there will be a lot of business opportunities in the future and enough space to grow for all of them.