A European payments and lending company, Mash has been present in Luxembourg since 2015. Already a leader in pay later and consumer lending in Finland, Sweden, Poland and Spain, it has relocated all of its management to the grand duchy and now stands ready to conquer the rest of Europe.
In a recent interview with Delano, Mash CEO James Hickson shared his vision of how his and similar companies can partner with banks in the provision of financial services. In his view, “Banks need to rethink the way they work. They want to digitalise, but at present 85%-90% of their efforts still go into keeping the lights on, also known as running the banking activities. It can be hard to carve out sufficient resources to truly invest for the future.”
For Hickson, the future of banks will depend on their ability to make fundamental structural changes. “They should focus on what they are good at and, let’s face it, the majority of banks are not known for their innovation capabilities. Progress is being made by leading banks who are building their own innovation labs and internal accelerators, but significant opportunity remains.”
He referred to a recent meeting between Mash and the CEO of a major European bank where he was literally told, “We don’t need fintech players” when discussing the European eco-system and potential opportunities to collaborate. “[I]t was a good reminder that many banks still have a ‘not built here’ mentality.”
“Banks are having a hard time with digitalisation,” Hickson continued. “They are under massive pressure to adapt to the reality of the world today, but their risk appetite and internal capabilities don’t always fit.” This, according to Hickson, is where fintech comes in:
“A lot of banks believe it’s a good idea to think like a startup. This can be difficult and introduces significant risk given a bank’s internal capabilities. To be successful, banks need to focus on what they are good at and then invest in and grow with an innovative company for the rest. Banks have a huge advantage over fintech players–they have capital, people and funding and a good understanding of risk and regulation. These are considerable strengths. Fintech players are fantastic at growth hacking and delivering solutions faster and with greater agility. They key is finding the right partnership model to benefit from respective comparative advantages.”
The partnership model that Hickson proposes contains 5 key stages, the first three of which do not require any significant financial investment from banks.
Scout & share:
A scout and share programme ensures the bank is using the best technologies and avoids the ‘not built’ here thinking. This enables key technology leadership to make informed architectural decisions and can distil hype from reality (e.g., blockchain). Typically, it includes identifying important technology trends and sharing those internally; meeting with innovative companies; sharing and discussing future roadmaps; organising knowledge sharing sessions with venture capitalists and investors.
Pollinate & co-create:
Pollination and co-creation enables a bank to benefit from external innovation, potentially influencing a company’s roadmap, to address a specific problem. Typically, it can include the establishment of an incubator (no set schedule, shared working environment, may include some investment and the ability for bank employees to rapidly prototype new solutions); an accelerator (set timeframe, typically a small seed investment, a highly selective programme); sitting on industry wide working groups, e.g., R3 blockchain working group.
True partnerships are a faster way to create competitive advantage or a go to market solution. It may include co-developing with an external partner; commercialisation of existing technology assets (spin-out); cost mutualisation/creation of industry utilities; providing open APIs, e.g., the open banking initiative.
Investments can be a critical element of a bank’s partnership strategy. They can help develop a deeper understanding of disruptive technologies, establish a deeper relationship with potential IPO/M&A targets, help rapidly change the internal technology capabilities of the bank as well as provide a financial return. Typically, banks invest in early to mid-stage companies or provide other mechanisms of investment, e.g,. channel services like lines of credit. Good examples here are Santander with their investments in Ripple, R3 and iZettle.
Acquiring companies clearly requires significant effort, however can enable banks to acquire capabilities in highly competitive markets that drive accelerated differentiation and revenue (e.g., State Street’s recent acquisition of Charles River). It can prove to be a faster route to market and organisational change, can help acquire key leadership talent and drive immediate business accretion (i.e., bottom-line impact, EPS upside, etc.).
According to Hickson, partnering with and investing in innovative fintech companies using the model he suggests will allow banks to strategise risk and ensure their long-term success and sustainability. Banks that do not accept this reality risk their very existence, he claimed.
Mash’s recurring revenue in 2017 increased by 26% compared to 2016, up to €13.2 million, while they reported a 78% increase in Q1 2018 revenues compared to Q1 2017. They have emphasised continuous investment in people alongside the company’s technology platform in order to enhance their product and business model, while also cementing close and mutually beneficial relationships with partners, most recently announcing a significant collaboration with market leading PoS provider, Verifone, to deploy their pay later solution to hundreds of thousands of merchants across Europe. In June 2018, Mash was chosen from over 1800 European companies to be included in the prestigious FinTech50, substantiating it positioning as one of Europe’s hottest fintech companies, according to finextra.com. They are currently closing a large equity round.