The arrival of challenger banks like Revolut, N26 and Monzo has shaken up the financial services industry, with established lenders now finding themselves increasingly forced to compete with digital-first newcomers unencumbered by legacy technologies and systems.
An exciting time for financial services innovation, it has also created opportunities for businesses looking to aid banks and insurers as they try to compete in the digital space. Romanian startup FintechOS is one of those riding this wave.
“I think the challenger banks have ignited that cultural shift within the minds of the incumbents. It’s a bit of a fear and at the same time the ignition of a shift that is taking the entire financial sector where it should be,” says Sergiu Negut, one of FintechOS’ two cofounders.
The financial system is not there to be swallowed by the challengers.
Ready-to-deploy technology
FintechOS, which was founded in Bucharest in 2017, is considered one of the rising stars of the fintech ecosystem in eastern Europe. The company is currently working with over 40 clients worldwide, including the likes of Erste Group, Vienna Insurance Group, Orange Money, Hyperion Group and TBI Bank, and expects to see its annual recurring revenue grow by 250% in 2020.
The company’s main selling point is its ability to assist legacy banks and insurers in accelerating their digital transformation, enabling them to build end-to-end digital products in weeks rather than months.
It does this through open source and ready-to-deploy apps that organisations can plug into their own systems with little effort, offering access to highly personalised financial journeys and products for customers.
“I think what actually differentiates us every time is the ability to start with a single customer journey and expand with more journeys that are very interconnected,” says Negut, who points to the example of Idea Bank, which started with onboarding of new-to-bank customers more than two years ago and has since added loan origination on multiple channels and settings, SME onboarding and now mortgages.
“Start small, build big, be simple and swift, and don't wait for a full end-to-end solution in order to give benefits to the client,” he adds.
The company also appeared at a perfect time, he says. “There was a first wave of belief in the fintech sector, and at some point it got exhausted by the fact that not all the technologies that were imagined five years ago are technologies that the consumers want to see in the market, or the regulators allowed to be in the market.”
Rip and replace
While most incumbent banks long ago realised the need to adapt to the digital age, one key issue holding many back is tackling legacy systems and infrastructure, which can often be difficult and costly to rip out and replace.
Challenger banks do not have this issue. “They are very good at the customer experience and this is because they have no technical debt — they do not have to think in silos related to their business units or current technical infrastructure,” says Negut. “They don't have to think product-centric, or department-centric.”
Even so, incumbent banks have their own in-built advantages.
While Generation X and millennials are more likely to sign up to challenger banks, older generations often have far more complex financial needs, which can range from current accounts, to savings, investments, mortgages, consumer loans, insurance and company accounts.
“Our needs are broad and can’t be covered for the time being by the challengers,” says Negut. “So it’s the best time and possibly a hugely significant window of opportunity for each of the banks to be the first to give that continuum of digital experience to their customers, in a way that is satisfactory and allows not only loyalty but grabs a piece of the market share.” (Monzo, Revolut and some of the others have begun expanding their product offerings to include loans and investments, but these are still nascent and arguably not yet suitable for an older audience with a higher net worth.)
At the same time, Negut is conscious of the need not to push banks to change too far, too fast. “We have to be conscious of the fact that nobody is going to change their core systems overnight. They have to change the wheels of the car while driving it.”
Low code, no code
The financial services revolution currently underway is largely being driven by technology, as well as by a new breed of tech startups that are creating ‘low code, no code’ solutions. These require little coding or engineering knowledge to implement, making them easier to adopt, use and maintain.
“It’s not just low code, no code, which is just a tool,” says Negut. “It’s being able to deploy broad digital engagement in record time. The ability to deploy in hybrid architectures, where we bridge between very traditional banking infrastructure and new fintech solutions.”
The cloud is also playing a major role in this transformation. FintechOS’ products are pre-integrated with Microsoft Azure, the cloud computing service, which makes it easier for clients to access broad, ready made automation and security capabilities already provided for by Microsoft.
Negut says that this is particularly useful as most core systems today weren't designed to handle massive levels of simultaneous access, as well as automation. "Hence the immediate need for automation enhancement,” he says.
Start small, build big, be simple and swift.
Looking ahead
In June, FintechOS was named the hottest fintech startup at the Europas Awards, and last December the startup raised $14m in Series A funding. It plans to raise a Series B round within the next six months.
The company has close to 200 employees and offices in Amsterdam and Vienna, as well as London, where it is now headquartered, with plans to expand operations globally.
The global pandemic has, if anything, sped up the need for banks to push ahead with their digital transformation.
There is also a simple truth, which Negut points out, that there is no such thing as final transformation when it comes to financial services. “We are already seeing the second or third generation of digital assets replacing the ones that were built three, four years ago, because they are no longer what the contemporary customer expects,” he says.
“The financial system is not there to be swallowed by the challengers,” he adds. “The financial sector is something broad and solid that is there to be reformed. And whoever is able to provide something that allows it to do that transformation as fast as possible, as broad as possible, as versatile as possible, has an edge.”
At Microsoft Central and Eastern Europe, our vision is to help the region advance as digital hotspot, by enabling local entrepreneurs and businesses to innovate and scale globally. The Microsoft for Startups programme is part of that vision, partnering with B2B startups in the region to provide technology and business support and help them realise their ambitions for growth.
