The Portugal Fintech Report 2020
KEY
INSIGHTS
Manuela Veloso
Head of AI Research, JPMorgan Chase & Co
Professor Manuela Veloso is currently Head of AI Research at JPMorgan Chase, which pursues fundamental research in areas of core relevance to financial services, including data mining and cryptography, machine learning, explainability, and human-AI interaction. Professor Veloso is on leave from her role at Carnegie Mellon University as Herbert A. Simon University Professor in the School of Computer Science, where she was previously Head of the Machine Learning Department.
Professor, as an engineer, and after a career in research in which you became a specialist in robotics and artificial intelligence, can you tell us a bit about your professional path and what makes you take a leadership position in one of the major global financial institutions?
I spent over 30 years of my life in Academia focused on doing research on AI – as the area of computer science dedicated to the intelligence of machines. AI, in some sense, is a science of components of the multiple facets of intelligence, such as natural language processing, machine vision, and all sorts of search, planning, learning, and optimization. Going back to my experience, I have spent my academic research life trying to build completely autonomous agents, robots in particular, that would exhibit all these components – integrate the vision, the planning, the search and the execution - and I developed a career around that. But in 2018, when I was approached by JPMorgan Chase, I was puzzled by the following question “Google, Amazon, Facebook, Twitter and Microsoft were all born digital, but there are all these companies that existed before the digital world, before AI, before Machine Learning. What can technology bring to these companies?” And I was amazed with the fantastic opportunity of understanding what AI could bring to all areas such as healthcare, agriculture, construction, but especially the financial domain. On another hand, if this were a team of just applied product development, I think it would have been very hard to leave Academia, but the challenge of starting a group of AI research struck me as different and a great opportunity which I took, and I hope to remain addressing this problem of AI in the financial domain for many years to follow.
It seems that you have a lot of room to explore different areas just like you were doing in Academia, but solving applications in the financial sector.
Exactly. What we do at JPMorgan Chase is to try to understand how to transform parts of the business, and find solutions that are transformative. We talk with the business which states a problem, and it is then our mission to think about it in different terms so it can be suitable for AI.
And after this initial period of contact with the financial sector, what guidance can you give to the industry on how to position itself towards all these technological advancements that you were speaking about?
Before the guidance, let me first point out that after two years with JPMorgan Chase, I have realized that the operations of JPMorgan Chase are from a service company . And so, as a service company we serve individuals in their financial lives. As such, we have defined seven areas in which we decided to focus our internal research in AI.
Three of the areas are core to the financial world, one of them being financial crime and understanding how AI can help in this function of the bank. Another area focuses on how AI can be used in the prediction of complex multi-agent economic systems, be it trading or global research on macroeconomics. And the third one relates to data and how to deal with it safely. One of the aspects of the financial domain, which is common to others, is the amount of data – payments, transactions, all sorts of accounts, clients, and customers – it is absolutely enormous how much data is generated. And data has a very wide range of privacy. We investigate how AI can help make this data safely available to the many different lines of business.
So these three areas, eradicate financial crime, predict and affect economic systems, and data – the three are essential to the financial industry, therefore we have these three ambitious research goals on how AI can help.
There are three other goals which relate to the stakeholders of this service company: the clients, the employees, and then the regulators and policymakers, as this is a highly regulated industry and there is a body of policy that we need to comply with.
The seventh area, which is overarching on all of these, has to do with the actual building of AI systems that are safe, trusted, explainable, ethical, and care about social good - trying to have machines that do the right thing while embracing the other goals.
My recommendations to other financial companies is to think about these seven pillars of the company, from financial crime, predicting all the financial economic systems, to the actual data problem underlying the financial domain and then your stakeholders, employees, clients and regulators, the policy makers, and eventually making sure that the AI you build is safe, trustful, explainable, and cares about the social good. Focus on addressing the multiple components of the financial domain, as it embraces all the aspects of a service company.
It’s very interesting that you speak in so many areas that seem to have the most diverse applications that AI can help with. My question here is, for many years, of course; it was a nascent technology, and many people were saying that AI was a buzzword, but now we are actually seeing a lot of applications out there in a lot of areas like you have mentioned - for all of them, where do you see these technological developments coming from and how do you see them being put in practice?
For the startups, I think that the way to think about this is that, somehow, what we are looking for is real innovation. I think that the real innovation can actually be very appealing if it comes with flexibility, because sometimes the problem is that you reach out for a startup but then they never solve the problem as we would like it to be solved and then it is very hard to adjust. But I think it is time to invent, that’s what it is, and the more creative and the more effective you are in understanding the needs of the financial industry, the more the financial industry will use these external sources.
THE MORE CREATIVE AND THE MORE EFFECTIVE YOU ARE IN UNDERSTANDING THE NEEDS OF THE FINANCIAL INDUSTRY, THE MORE THE FINANCIAL INDUSTRY WILL USE THESE EXTERNAL SOURCES.
Professor, getting back to data, we were speaking that there are many sources of it. As it is becoming such a central key, what use-cases excite you the most at this moment?
The amount of data is huge and keeping its consistency is needed and challenging. We have thousands of transactions a second, millions of customers, and then when it comes to consistency of the data it is very difficult to manage. Just think about two different lines of business entering your address, maybe one writes Avenue as ‘AVE’, the other one may write ‘AVENUE’, some might write New York as ‘NY’ and others might write ‘New York’. It is complicated to have consistent data that is useful for use. For me, it is still a mystery how we are going to solve this because if you think about the internet has enabled such a wide distribution – JPMorgan Chase has offices in many countries – it’s a true distributed system which naturally challenges the data consistency. We are developing solutions to address consistenty, privacy, and efficient sharing of data.
Real data is complex and a lot of the AI that we do has to do with trying to infer and automate data analysis. Because data is private, transactions and financial life is very sensitive, actual real data cannot be shared in particular with the research community. We are now developing an open source of synthetic data to be shared that is very close to real data, but isn’t real.
For example, if you have access to the data of the inventory of a supermarket, you can see how it changes throughout the week and can create synthetic data of what people buy during the day according to the reality. It does not mean that someone bought that particular yogurt with that particular fruit, but the change of product data is the same, even though it does not represent an individual. With synthetization, we aim at sharing financial data that is not real but may enable the development of novel solutions to data processing.
To finalize, real data is great, however, synthetic data and simulations will also enable you to check the limits of your policies and to stretch the implementation to be resilient and robust. I believe real data, in the financial domain, is sometimes a little bit overrated. It is very good, but it is just real and doesn’t enable you to reason about hypotheses or counterfactuals - ‘what-if’. In the financial domain, you don’t want to share transactions but you want to be able to learn from them. We, in our AI group, care about real data and its cleansing, we care about inferring relationships from the real data, we care about providing all the real methods for the data to be shared safely, but we also care about synthetic data, and we also care about simulations and generating hypothetical data, counterfactual data. In some sense, we live in both the reality of making it robust, and trustful and shareable, but we care about this increasing robustness through simulations and synthetic data. I recommend that people, of course, care about the data to provide the infrastructure, but if you want to get robustness, eventually you are going to need to diverge from the real data. This divergence from the real data is very powerful, it is how you go learn how to play - you play all these hypothetical games first.
It’s definitely something at the forefront. And so, now focusing on the Portuguese ecosystem, what advice would you give to a Portuguese startup that wants to work with international banks and on a global scale?
In my understanding of the Portuguese ecosystem, it is marked by an education that is very strong. Thus, I believe the way to really move forward, as we see in the example of Feedzai or others very well established, it’s to invest at the innovation level. It is very noble to be able to start something new.
MY ONLY ADVICE IS TO INVEST ON NOVELTY, INVEST ON DOING IT WELL.
My only advice is to invest on novelty, invest on doing it well, and then, one way or another, have a huge PR group. I mean, you have to market, you have to make yourself known otherwise how are people going to discover you? You have to participate everywhere, be at events and reports so that you eventually are discovered by the big companies. There are so many hundreds of thousands of startups and companies, but the hard part is to find them and make the connections.
Portugal has extremely novel solutions, I always got marveled by great examples such as Via Verde and MBWay, which are phenomenal accomplishments.
As my final question: with your international perspective and career, how do you see precisely the Portuguese market and if you could teach one thing to it, what would these be?
I think the most important is: never compromise dreaming and innovation. One thing I leave as a final thought is that it is impossible to develop a product or to do something that everybody agrees with. There are going to be fights, it is going to require persistence, patience and commitment. There will always be people that, for one reason or another - either they are competitors, either they really don’t believe in the technology, - are going to make one’s life hard.
If we have this great discovery, do you think the whole world is going to agree with you? No! This is all about the life of dead ends with very few breakthroughs, which demands that people gain their own confidence and try to convince at least a little bit more than the majority. This is what I find sometimes difficult, because when you are convinced of something, it’s hard to accept that other people are not convinced of it, and so you tend to either abandon your idea, or try to compromise. And then that’s it, your good idea is gone.
You have to learn well, you have to be very smart, you have to be innovative, but then you also need to have this overall maturity of understanding that the world is what the world is, and that you just can’t control it, but you still can make advances. With persistence, confidence, and talent you can make through the path to success, which is never easy.
You know, even at JPMorgan Chase the other day, there was a bit of skepticism towards one of our research projects. But we persisted explaining the potential of our proposal. After some time, they called again saying “I think we now get it”, and it was such a good surprise to see that they actually came back to us with understanding. So, it just takes some courage. Courage, innovation...you know, and most of all, people need to have fun too. Life is short so people should have fun, and enjoy what they do. And so,
ENJOY!
Ben Marrel
Founding Partner, Breega
You are the founding partner of Breega. Could you tell us a bit about how it all started?
The Breega story began in 2013 when with two other serial entrepreneur friends, François Paulus and Maximilien Bacot, we decided to build a different kind of VC experience. We wanted to “BRidge the Equity and Experience GAp” we saw missing in venture, which is why we called our fund BReega. We wanted to find founders we felt had passion and potential, and then provide them with tangible support to accelerate their success. Which is what we have done. Today we have 45 startups in our portfolio to whom we provide real operational support and guidance to help them grow their businesses. We like to get involved :)
What is your investment thesis?
Breega provides Seed and Series A (sometimes even Pre-Seed!) funding for early-stage startups that offer innovative high tech solutions and services with significant market potential. We have what we like to call the “VIP approach”.
At Breega, all of our ventures and founders are VIP ;)
VISION
a founder must have a clear vision of what they want their company to achieve. Their vision provides the driving force and the roadmap to reach their goals.
INDIVIDUAL
strong leadership and management skills are vital to any company’s success. A founder must also be able to think critically and strategically and be able to make tough decisions that will ultimately drive the company’s success.
PRODUCT
we look for founders with products or services that address real pain points or present a strong market opportunity.
Which verticals or business models excite you the most?
Breega is a multi-sector investor. We’re excited by technological innovation and differentiation. In our portfolio : marketplace, fintech and transport but also robotics, quantum computing and blockchain solutions and autonomous vehicles! Right now, we’re particularly interested by deep tech and future health tech solutions.
“Built for founders by founders” is your slogan. We would love to learn about your experience, as well as how it has contributed to the investor you are now.
As a serial entrepreneur, I understand how difficult it can be to grow a business, the real challenges you have to face and also the isolation that founders often feel, particularly when the company is starting out. As an entrepreneur, with few resources, you often have to adopt the “test and learn” approach. You try and sometimes you get it right, sometimes you fail. Failure is hard. But failing teaches you valuable lessons and helps you grow. You can also learn from the experience, advice and support of others who have been there before you.
FAILURE IS HARD. BUT FAILING TEACHES YOU VALLUABLE LESSONS AND HELPS YOU GROW
And this is what we do at Breega and why we have an entrepreneur-only investment team. We’re very much “hands-on” investors. I personally learnt many hard lessons when growing my different companies. It’s great to be able to use this practical experience and knowledge today to guide our founders and help them navigate the challenges and pitfalls of the entrepreneurial journey.
You have invested in Portuguese entrepreneurs. Could you tell us about your perception of the Portuguese entrepreneurial ecosystem? Has it changed since before you invested?
Although not as large as other European tech ecosystems, Portugal has a growing community of vibrant and talented startups. An increasing number of entrepreneurs and organisations are expanding to Portugal. The Portuguese community is also increasingly attracting interest from other foreign investors. Also, as Portugal is a smaller country everything seems to be happening faster which is great for startups!
Is there anything abot Portugal’s particularities and evolution path that strikes you as differentiating?
Portugal has many advantages to offer budding startups. Its government is highly supportive of the startup scene, actively encouraging people to launch their own businesses and offering special visas to foreign entrepreneurs. It’s strong education policies encouraging students to go into higher education meaning that Portugal has a highly qualified talent pool, with a good level of English as it is taught as a second language in schools from a very young age.
The cost of living also remains cheaper than in other European companies, meaning your money can go further too. With strong government incentives and over 90 incubators, its a good place to build a company! Portuguese founders also tend to think international from day one, meaning that, as things stand, Portugal could be set to become the next Sweden or Israel startup wise!
It’s also the home of Web Summit, described by some as the most important tech event in the world.
Which advice could you give to entrepreneurs, and specifically to the Portuguese founders.
Think global, act local and always believe you can change the world even if you come from a “small” country like Portugal. If you are resilient, agile and visionnary, you may have what it takes to become Portugal’s next unicorn!
THINK GLOBAL, ACT LOCAL AND ALWAYS BELIEVE YOU CAN CHANGE THE WORLD
Chris Skinner
Non-executive director, 11:FS
Independent commentator in his blog The Finanser
Best-selling author
Our team had the pleasure of meeting with Chris Skinner for the first time earlier this year, at an event headlined by him at The Fintech House, in Lisbon.
At the time, the Covid-19 virus had thoroughly spread through Asia and it invading the West was a question of “when” rather than “if”. We have a distinct remembrance of the way everyone in the audience shifted when confronted, by Chris, with the inevitable: it would come, it would bring change, financial institutions would need to “adapt or die”. In spite of the rush of questions that bubbled from the audience about how to deal with the arrival of a pandemic, there was no possible way to predict the outcomes.
During the six months that followed the world underwent such massive transformations, that it feels like years have passed, with experts claiming that the pandemic has pushed financial innovation 5 to 10 years into the future. As one of the most influential independent commentators and bestselling author on the digital transformation of financial institutions, Skinner’s view on the industry shifts during the pandemic was something we couldn’t avoid asking for in the first place.
Do you agree with this vision of the financial industry being pushed five to ten years into the future by the effects of the pandemic?
I wrote a blog post recently ‘2030 was delivered in 2020’ which touches exactly that point. The number of cloud-computing partnerships with banks that have been announced in the last month has been quite incredible. Of course, those discussions have been underway for years but actually getting the executive team to sign the contract was difficult. It wasn’t urgent to them, but now it is. There is also a personal side to this urgency, as even the CEOs of banks have been locked down hard and seen how effective the digital platform relationship is between themselves and retailers, such as Amazon, or institutions that deliver digitally, like Zoom and Netflix.
For Chris’ latest book, Doing Digital, he had access to the top executives from some of the biggest incumbent banking institutions from around the world. We wanted to tap into that knowledge and understand how it may apply to us – Portugal and its financial industry.
How would you adapt them to the Portuguese industry to turn Portugal into a country that does digital?
The Portuguese banks have quite a bit of capability. There is a subsidiary of a Portuguese bank that’s doing pretty well in Poland, but particularly in Poland.
2030 WAS DELIVERED IN 2020
Chris had been living in Poland until the pandemic hit the EU, which he then describes as a “a real hotbed of innovation, with at least 10 top retail banks all vying for digital innovation and differentiation”.
You can tell me if Portugal’s anywhere near that level of competitiveness or even looking to raise to that level of competitiveness. Truth is, when I look into your adjacent country, Spain, I end up referring to a lot of Spanish banks. I don’t talk about the Portuguese banks. There’s reason for that. That’s a reflection of the regulatory bodies and the government’s actions. It’s down to how far do you encourage competition and innovation. I know that in Portugal and Brazil there’s a governmental view that innovation in finance is not as desirable as stability, which keeps seeing incumbents doing less competitive differentiation in innovation.
The topic of regulation was touched at the perfect time, as one of our questions relied exactly on the role of regulatory bodies and the governmental institutions in fostering of innovation. As part of the European Union, we wanted to understand exactly how the European Union can compete with the technological giants coming in, for instance, from Asia.
What do you believe is the position that regulatory bodies need to adopt, specifically in the European Union, to create and foster these giants and truly compete on a global level?
When you look at fintech, the best examples you can gather are Hong Kong, Singapore, Dubai, London and finally… Surprise, surprise, New York.
There are other up-and-coming use cases Chris names, such as São Paulo, Mexico City and Tel Aviv. Smaller European use cases are left for last, such as Dublin, Paris and Amsterdam while he asks a question that requires pause.
So, where does Lisbon fit in that list?
The importance of that list of innovation hubs I’ve just given you is that those start at the top level moving downwards. They’re the reflection of the governmental view of innovation in financial services and the support they have for the fintech community.
Chris mentions London, as an example easily comparable to the European Union, referring that:
There was an active, proactive governmental program of support for fintech innovation and delocalization to the city that raised them to the top of the tree.
On the contrary, the European Union is, deer in headlights, with different countries doing interesting things but none arriving at a truly global competitiveness level. Germany’s got its thing. France has got its thing. Lithuania has its thing. Estonia has its thing. Sweden, Denmark and Norway have their thing. Spain and Portugal have their thing. Everyone’s got a thing. There’s no European thing that is perfect.
The conclusion that the European Union’s countries aren’t partnering to develop a competitive landscape that allows for significant growth brought us back to one of Doing Digital’s conclusions: innovation often comes from collaboration. Moving onto this topic, we question Chris about commonalities between startups that actively collaborate with banks that are doing digital.
There’s a whole chapter in the book about partnering and its many challenges. Banks often feel that they are the dominant partner because of their millions of customers, billions of capital and centuries of history.
The startup doesn’t have anything. They’re looking to grow and aspire to work with the bank, believing naively that the bank will treat them nicely. But you know what? Nobody’s nice in business.
The problem is that in a partnership, you don’t treat the other as lesser than you nor think of them as subservient. You have to be equitable and treat each other with respect. I often then talk about fintech being the partnership between the child and the parent because a child wants to break the house and a parent wants to keep it stable and secure. Parents need to be humbler and accept that there are gains in nurturing the child.
Following up, we asked if Chris felt there was no quid pro quo in that relationship between incumbents and startups in the financial industry.
Absolutely not. Philippe Gelis, CEO and Co-founder of Kantox, wrote in a segment of the chapter on the partnering culture in the book that Kantox tried hard to partner with financial institutions and ended up finding that these institutions were just stealing their ideas after negotiating with them for 18 months. The quid pro quo comes from having an organization that is hungry for partnering. BBVA, for instance, has thrived from the legacy left by Francisco González. Before he retired, he left BBVA with a structure for partnerships, starting from discovery and exploration, to investigation and then investment and acquisitions to internalize the mentorship. This is how you nurture a child to grow.
Picking up on his analogy, we thought it was time to test his opinions on startup overconfidence.
Do you think that, on the other hand, some of the “fintech children” are trying to grow too fast into adulthood? Should they rely on or learn more from their parents?
The first couple of years, children just don’t have a clue. They are mostly looking for funding to help them bring their idea to the marketplace. After that, they are a toddler running around trying to change and break everything. Then onwards, they become this sort of grumpy teenager that tells everyone to get lost and that all banks are terrible. What’s going to sort out the adults from the babies, toddlers and teenagers is figuring out that similarity to banks isn’t always bad – especially when you’re undergoing a credit crisis, a financial crisis, and a recession.
The vision behind partnering and child-parent analogies for Chris Skinner is not reduced to the West. There are valuable lessons from all over the world on how to partner right, as can be seen through the rush of digitalization throughout the East. Chris had openly admitted being a fanboy of Chinese technology giants, so what better to ask than: what are they doing right that we are missing?
The main thing that makes me a fanboy of Asia, China in particular, is because they started their infrastructure modernization projects from nothing and became, not only providers, but enablers Firstly Jack Ma began Alibaba as a fanboy of Jeff Bezos but they haven’t copied Amazon – they’ve copied the best practices and applied them to a market with no competition. Secondly, Alipay was exported overseas to other Asian economies, such as India, Pakistan and Indonesia, with a simple strategy – going global by being local. They find a local partner and offer them global cloud platform services. With 1.3B customers and a financial platform processing over a billion transactions a day, averaging the 550k transactions per second, Alipay has a flavor that is unbelievably ambitious right now. Thirdly, Tencent, which we can run a bank account for less than 50 cents per year. No one in the West is doing that. It took Ant Financial to come to Europe for it to be able to create interoperability between the European mobile payments.
That’s a small picture of the chasm between the technology, internationalization and ambition of China and the lack of technology and ambition in the West. The West has legacy infrastructure and operations to deal with – we simply do not have the ability, nor technology, to do the same.
IF A BANK DOESN’T HAVE A PURPOSE — IF IT ISN’T FOCUSED ON BEING GOOD FOR SOCIETY AND GOOD FOR THE PLANET — THEY WILL FAIL OVER THE NEXT DECADE.
After touching a multitude of subjects that we could have spent hours discussing, we decided to wrap up the interview with a glimpse into Chris Skinner’s view of the future. Giving him space to address his interests, we asked an open-ended question: what are the areas in digital banking you’re most interested in and what are those you believe we pursue in the future?
The pandemic has made us deliver digital transformation much more rapidly than we ever would have otherwise. In addition, the last 12 years have been marked by a post economic crisis financial technology explosion. A lot of change in a short span of time, no doubt. Once the dust settles, what comes next is the climate emergency. Going back to Greta Thunberg and the topic of sustainable finance, my next project is all about purpose-driven banking. If a bank doesn’t have a purpose – if it isn’t focused on being good for society and good for the planet – then they will fail over the next decade.
The future brings new questions to be asked by clients, such as “what are your values, and do I relate to them as a customer and an employee?”, and the answers need to be satisfactory, because if they feel that the value of the bank is purely greed and shareholder return, then I think they’re going to walk.
Where purpose is concerned, we noted that fintech startups, banks and even telecommunication companies have been creating solutions (e.g. microloans, mobile network-based bank accounts) for financial inclusion in Asia and Africa. Is that a start of purpose-driven banking?
It’s a start of a movement of financial inclusion and that’s how it’s done throughout Asia and Africa. The mobile network operators are starting from the ground up, looking at simple text messaging, payments, transfers and, eventually, moving to microcredit and microloans. After that ground is covered, they start going up the ladder towards full-service banking. On the other hand, incumbent institutions such as banks are working down the ladder, looking at financial inclusion as a sort of charitable venture.
The idea that financial inclusion is not charity is a statement Chris easily backs up by bringing up WeBank, from Tencent.
They got 200M customers in three and a half years and they were fully profitable after just a year of operation. It’s incredible and clearly not simply charity.
It’s using technology to recognize a one-dollar transaction can be processed for pretty much the same cost as a million-dollar transaction.
Mariano Kostelec
Miguel Santo Amaro
FROM MARKETPLACES TO FINTECH
Mariano and Miguel are part of the successful story of the venture Uniplaces. Curious about their jump into Fintech projects, we went to find out what motivated them and what can they share from their experience.
You are known as entrepreneurs. Could you resume what you have done so far and talk a bit about your background?
Mariano: I started my professional career in banking, working with Goldman Sachs in 2009 as an analyst. However, my interest in the startup world grew and this led to a position with Groupon in Asia leading expansion throughout the Japanese and Chinese markets. In 2012, I started to build UniPlaces together with Miguel, a marketplace for housing catering to students and professions. This was taking advantage of the wave of marketplaces that I had seen over the past 10 years and I want to capitalise on it. That then took me onto my next venture, Student Finance, in 2018, which is a fintech business helping people transition through education to good careers.
Miguel: I was lucky to move around; studying abroad in both the UK and the US. I actually met Mariano out in China. From there, I joined him in creating UniPlaces. B2B SaaS was not really my thing until I joined Shilling as a venture partner through whom we have made investments in Unbabel and Switch. I have stayed close to the entrepreneurial ecosystem in Portugal, offering support to StudentFinance.com and also Coverflex, which is another company I invested in.
How do you see your experience from the previous venture contributing to your work at the Fintech and Insurtech ventures you are now involved in such as Coverflex and StudentFinance?
Mariano: I believe that some of the challenges of building a startup are consistent whether it is a Fintech or a Marketplace or something else. You learn and improve on the fundamental elements like the strategy, team and fundraising. Keeping these things in mind helps you to become better and build on experience. Having said that, there are other elements to consider which weren’t so prominent at UniPlaces, such as regulation. For StudentFinance, there were many different factors such as access to capital, debt and equity which I had to learn. To do this, it is hugely important to surround yourself with knowledgeable and encouraging people, be it with your team, advisors, mentors or investors. There is nothing more exciting than innovating in a new space and learning on the fly, but you need to start creating before you learn in order to build the future.
Miguel: One area that I wanted to bring up that I think most incumbents are ignoring and what I have seen in the marketplace model is Net Promoter Score (NPS) , it’s probably one of the 3 top KPIs every marketplace looks at. Because it is traditionally ignored, you saw a rise in new companies, such as Revolut who put that as one of their main goals. Insurance is actually the second worst industry in terms of NPS, only behind Telecoms. I am now especially interested in seeing the innovation and growth in B2B SaaS marketplaces which are starting to gain traction in Europe.
SURROUND YOURSELF WITH KNOWLEDGEABLE AND ENCOURAGING PEOPLE
How does your background in finance position you differently?
Mariano: People with a background in the finance sector are naturally more prone to look just at the financial aspects. However, building the business from a SaaS perspective with a user-centric approach gives a more tailored experience to the customer and, for me, it is a more sustainable and scalable approach. I feel it is key to have both the financial mindset and also an innovative, customerfocused perspective to build a successful company.
What drove the shift from B2C to engaging in the B2B model for you?
Mariano: The most important distinguishing factor between B2C and B2B is the cost of acquisition per customer. In UniPlaces, we spent 30% of our budget on marketing, which goes to the likes of Facebook and Google. Whereas with a B2B model, that acquisition cost gets reduced down to almost 0 and you require less capital to grow, but it’s true that the sale cycles can be a lot longer.
Miguel: I would completely agree with Mariano. What I would add, which is an interesting point, is how in B2C it is all about the Customer Acquisition Costs (CAC), whereas in B2B the big metric is churn rate.
Still possible to build big businesses out of Portugal?
Mariano: I still believe that Portugal has some of the very best conditions to build large businesses. One of the advantages that it has is that everyone speaks a very high level of English, which is only going to be more important going forward. With the need and trend of remote working, it is clear that teams can build great things virtually. There is less of a focus on location and more of a priority on talent and I believe Portugal is in a great position to ride this trend. Additionally, we are now seeing more interactions between key stakeholders and regulators meaning we can be braced for further innovation.
Miguel: I feel that a lot has changed in Portugal in the last 5 years. It is now a lot easier for fintechs to launch and to grow. This is in part due to the greater number of VCs with more tickets and increased funding especially in the B2B SaaS space. FinLab is also another huge step to help take businesses forward, I have friends in the UK who have been talking about it, which is interesting given the fact they are looking to Portugal with the uncertainty over there. It’s also great to see several Portuguese people in senior roles at international businesses such as in Santander and wefox, showing Portuguese talent is seeing more influence.
I FEEL THAT A LOT HAS CHANGED IN PORTUGAL IN THE LAST 5 YEARS
Between startups and incumbents, what do startups do that gives them an advantage compared with incumbents?
Mariano: There are a number of areas where startups have the upper-hand. This can be seen quite prevalently in the financial sector, where incumbents have structural and legacy systems that startups do not need to worry about. Banks can spend billions just updating systems, whereas emerging agile players can change these areas and manage huge volumes of customers at a fraction of the cost. Another area is that startups have the ability to explore niches that the bigger players do not and it is a way of taking market share off the incumbents when it would be hard to compete at their own game.
Miguel: I think there is a big idea of startups and incumbents being like David vs Goliath, but I personally don’t see that. It may be different in the B2C model, but with the Fintech and Insurtech sectors there are multiple partnerships springing up each week. The more customer-centric outlook of these startups and that is part of the reason why there have been more and more partnerships. It can act as a win-win as the startups gain experience and support on regulatory factors and the banks can start competing in unexplored niches. It will be interesting to see in the future, when they start competing in certain areas as the startup grows. There are very few startups that can grow without a partnership at the beginning. My guess is that in the next 5 years, one of the big NeoBanks will be acquired by a bank and from that will spring many M&A opportunities from the current partnerships.
What could you point out as good practices for entrepreneurs who are starting their own ventures?
Mariano: The most important thing is communication. It is not the fact that Fintechs are replacing incumbents or that the incumbents are doing everything perfectly. So there is a direct need for these two parties to compliment each other and add value in their own individual ways. The challenge for startups is to find the right champion inside the incumbent to speak to about potential partnerships, so that they have a way in.
Miguel: For me, the incumbents are missing huge opportunities to invest in these companies at an early stage. If you look at companies like SAP and Mercedes elsewhere in Europe, they are seeing success by putting money into early stage innovation and this is something that is lacking here in Portugal. I also agree about the importance of finding the right person within a company. I spoke with various fintechs who spend a huge amount of time just sourcing the right person in a potential partner company. Thirdly I believe we need to see more collaboration, both between startups themselves and also with incumbents. I feel like Portugal and Israel are very similar countries for startups, however there is no clear strategy for Portuguese startups like there is for their Israeli counterparts. They go from Israel to the US, however Portuguese companies either go to Brazil, UK or US. I question whether we already have this real stimulant for startups to collaborate on various areas, especially when they are looking to grow abroad.
Do you see Corporate Venture Capital as a faster path for collaboration?
Miguel: I would say that most of these venture capital arms actually don’t work. You can look at the example of Amazon and DefineCrowd, where it came out that they were trying to copy DefineCrowd. I think the best thing corporate players can do is to invest in funds or directly in startups. The challenge for partnerships is that neither party has entire clarity over the roadmap or the strategy of the other.
What excites you the most about the Fintech/ Insurtech sector?
Mariano: The trend of embedded finance is one that really interests me. It is no longer software that is eating the world, but more specifically, fintech, that is eating the world. Financial services will power a lot of the companies out there, even marketplaces will have a fintech pulse. You think of Uber for example who are plugging-in financial services for both drivers and riders and this all happens behind the scenes. Our goal with StudentFinance is to make the whole lending process pretty much invisible and so our users can focus on getting a good career, all the payments are just blended into their experience.
Miguel: I completely agree with Mariano and wanted to add a few other things from my perspective. I am excited that the end-to-end experience of B2C marketplaces is now beginning to happen in the B2B and even B2B2C spaces. I feel that the rise of data marketplaces and the discussion of how banks monitor their data will be very interesting topics in the coming future.
If you could say one thing to Portuguese entrepreneurs, what would you say?
Mariano: They should have no excuse for not starting up something. There are an abundance of very cool initiatives such as the Fintech House and others which bring together startups with events and create a place where innovation happens. We can now hire any top marketers or sales people to Portugal, meaning we can compete and grow on a global stage.
FLASH INTERVIEW
WITH
MARIA JOÃO CARIOCA
Caixa Geral de Depósitos
Source and Author: Gustavo Bom/Global Imagens
THEY SHOULD HAVE NO EXCUSE FOR NOT STARTING UP SOMETHING
What were the main factors that motivated and determined the search for the ideal partnership with Fintechs, the start-ups within financial services?
At Caixa, clients are the main factor driving our partnerships with financial services start-ups. Whenever we see companies coming up with solutions that we believe to be relevant for our clients and have a good fit with our positioning, we reach out or simply welcome those that come to us. The other key factor driving our Fintech partnerships has been the desire to put our organization in contact with different ways of doing things, agile environments and different customer-centric approaches – a sort of good “contamination” of our culture and mindset at Caixa.
CLIENTS ARE THE MAIN FACTOR DRIVING OUR PARTNERSHIPS WITH FINANCIAL SERVICES START-UPS
Both factors clearl resonate with our vision of our market positioning of seeking to have the client come first in our day to day and evolving our organization to ensure competitiveness and relevance in the long run.
In a general overview how do you describe the experience in working with Fintechs?
We have fruitful relationships, allowing Caixa to speed up time to market of new solutions and innovate consistently. At the same time, it allows our partners to access a large customer-base and learn how to deploy solutions on a wide and complex environment.
This process of collaboration is mutually beneficial and a complete learning process for both sides: Caixa’s teams learning how to be more agile, deploy new process of partnership and engaging with different kind of external entities and the startups on how to work with a large customer base, with large organizations, moving them to more structured processes and implementations.
WE HAVE FRUITFUL RELATIONSHIPS, ALLOWING CAIXA TO SPEED UP TIME TO MARKET
How has the relationship between the bank evolved with the surging Fintech ecosystem? Do you believe that these partnerships help accelerate your digital strategy and improve the relationship with your customers?
Fintechs are perceived as banks challengers, and in fact, they are challenging some traditional business lines (payments, acquiring, loans, financial advisory) and pushing the industry for new ways of producing and distributing services; some of them could even evolve to provide an integrated large scope of financial services (as most legacy banks).
Nevertheless, we see a rising number of partnerships between incumbent banks and neo-services, where the services provided by those are integrated in the services portfolio of traditional banks (e.g. TransferWise services have been integrated in the offer of some banks). We see the landscape as a “coopetition environment”, where we can sometimes compete in areas of business, and in other ones, were we can complement each other and generate value through partnerships.
The collaboration between incumbents and new commers can drive acceleration on the digital and “analogue” experience (the impact can be omnichannel, on both remote and branch) of bank’ customers and enhance significantly the value generated for them, either by transforming the way traditional banks engage their customers and deliver services to them, or by integrating the new experiences in current offerings and experiences
WE CAN SOMETIMES COMPETE IN AREAS OF BUSINESS, AND IN OTHERS WE CAN COMPLEMENT
How do you see the future regarding this type of collaboration and synergies?
At Caixa we believe the process of collaboration between banks and Fintechs will quickly become more “robust”, as banks learn from initial experiences and scale up lessons learned and positive experiences in this type of relationship, and, at same time, Fintechs become more prepared to have structured approaches and speedy scale up processes when engaging with large customerbases.
IT IS NO LONGER SOFTWARE THAT IS EATING THE WORLD, BUT MORE SPECIFICALLY, FINTECH, THAT IS EATING THE WORLD
What were the main factors that motivated and determined the search for the ideal partnership with Fintechs, the start-ups within financial services?
For Grupo Ageas Portugal to stay ahead of the curve, it’s is imperative for us to be open to new partnerships, specially from Fintechs. It is impossible for an incumbent like Grupo Ageas to continuously innovate in every front and still have possess the operationally excellency and delivery our customers have grown accustomed to. Fintechs by nature, size and agility are prone to disrupt and deliver solutions quickly. So of course, speed and disruption are two of the main factors when seeking out partnerships. But we have noticed is that today’s Fintech’s don’t just offer disruption, they also created better solution for day-to-day problems like client disintermediation, process improvement and other. As another main factor is fit. Does this Fintech’s product or value proposition solve a pain that we as company have, or can they greatly improve our performance.
FOR GRUPO AGEAS PORTUGAL TO STAY AHEAD OF THE CURVE, IT'S IMPERATIVE FOR US TO BE OPEN
In a general overview how do you describe the experience in working with Fintechs?
Very positive. But this did not come overnight, we had to create the conditions for Grupo Ageas Portugal to be able keep up with highly dynamic companies, and not just from an IT/Systems perspective. We must always involve the business areas in all aspects of these partnerships, from start to finish, without compromising our day to day activities. This of course took it is time and was trial and error. But as of now these partnerships have gone so well, we even created our own acceleration program (Ageas Insure) so that we have access and hopefully can work with the best in class startups.
BUT THIS DID NOT COME OVERNIGHT, WE HAD TO CREATE THE CONDITIONS
How has the relationship between the bank evolved with the surging Fintech ecosystem? Do you believe that these partnerships help accelerate your digital strategy and improve the relationship with your customers?
The emergence of a new type of Customers, combined with the context forced to find new solutions, which had to go through digitization and these partnerships,
not only in the sale, but in the services provided. We know that customers are looking for a differentiating service and that it has, in some way, added value. For example, in times of uncertainty such as those we have lived, we need to find solutions and think strategically about what the future will be. This is a “brave new world” that is getting used to dealing with new phenomena. The paradigm of the world has changed and so has insurance.
The entire insurance value chain is already being impacted by this reality and in a very positive way. Consumers are increasingly demanding, and companies have been faster in adapting in the early stages of the relationship (pre-sales and sales). But I believe that it will be in the remaining phases of service where there will be a bigger disruption. And then technology and all of this new ecosystem can, and is already helping, making the customer experience much more convenient and impactful.
From geolocation that allows you to know where the client is when he needs us, artificial intelligence algorithms that allow, for example, to perform clinical screening, or even manage a claim in a completely virtual way. There is already technology today that allows, for example, to anticipate an accident with a very high degree of probability. The problem is not in the existence of technology, but in the ability and speed of adoption of this technology. The example of this confinement was paradigmatic, as it turned out to be a true accelerator of adoption of these technologies of videoconferencing and collaborative work that already existed.
How do you see the future regarding this type of collaboration and synergies?
We see relation with start-ups and insurtechs in a very inclusive and collaborative way. Only then can they contribute in a relevant way to our value chain. We have several examples of the collaborations that the Grupo Ageas Portugal has made in health, for example, in the means of payments or even in claims of non-life branches. We believe that this is the only way to create reference partners for entrepreneurs to create innovative projects in an agile way.
I would point out that in partnership with an international innovation consultant, Grupo Ageas Portugal is identifying and testing new business solutions with start-ups in three concrete areas: i) technological solutions to strengthen and streamline our business processes, ii) health support with a focus on prevention and; (iii) new technologies and business models that support people in achieving a work-life balance, as well as better managing savings and investments.
The goal is always to create an even more complete and relevant Customer experience.
FLASH INTERVIEW
WITH
