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Xccelerating Fintech Innovation in Australia with x15ventures.

August 14, 2023 · Hosted by Dexter Cousins

Welcome to another Fintech Shot brought to you by Fintech Chatter, the show for all things Fintech Down under. In this episode, we are joined by Toby Norton-Smith of x15ventures to discuss the Xccelerate program and its focus on advancing Australia’s transition to net zero. x15ventures is the venture arm of Commonwealth Bank, and their mission is to build, buy, and invest in ventures that can scale through access to the assets of CommBank. With a portfolio of eleven companies, x15ventures is making significant progress in the fintech space.

The Xccelerate program, which has been running since the launch of x15ventures, is designed for earlier stage ventures that are not yet ready for the heavy handling involved in plugging into ComBank’s distribution network. The program helps these startups explore the potential for enterprise partnerships and provides guidance on becoming enterprise-ready.

The Opportunities and Challenges of Partnership with Banks

Partnerships with major banks are often seen as the holy grail for fintech startups, offering access to a large customer base and potential scale. However, Toby Norton-Smith cautions that there are trade-offs involved in such partnerships. He emphasises the need to set realistic expectations and highlights the regulatory scrutiny that banks face, which startups must also adhere to when working with them. Norton Smith explains, “You effectively sign up to the same standards of risk management and compliance that banks face.”

He also acknowledges that not all startups are ready for or interested in corporate partnerships, as some founders prefer to build their ventures independently. However, for those who see the value in such partnerships, Norton-Smith believes there are significant benefits to be gained. He notes that corporates, including banks, have an appetite to do more in the climate tech space but often need help with measurement, traceability, and finding the right solutions for their specific industries. This presents an opportunity for startups to provide the expertise and tools that corporates require.

Accelerating Australia’s Transition to Net Zero

This year, the Xccelerate program has a specific focus on climate tech and aims to help advance Australia’s transition to net zero. Norton-Smith highlights the nascent nature of the climate tech market in Australia, with over 200 startups established since 2020, the majority of which are still at the seed or Series A funding level. He sees a significant need for investment and customers in this space, which corporates, including banks, can help address.

Norton-Smith explains, “There’s a huge requirement for capital to be deployed into the economy to help in a shift towards net zero. Banks obviously have an interest in doing that well, but they can’t do it if they don’t have partnerships with players who can help with measurement, generation of credits, traceability, and all the things that are needed to ensure that capital is deployed effectively.”

Profiles of Startups and Founders for the Xccelerate Program

The Xccelerate program is open to pre-Series A startups that are looking for more than just investment and are open to the possibility of working closely with corporates. Norton Smith suggests that startups in the climate tech space, particularly those with a focus on measurement, traceability, and industry-specific solutions, would be a good fit for the program. He encourages founders to apply and emphasises the value of the application process in sharpening their own propositions.

Success Stories and the Commitment to Fintech Innovation

Last year’s Accelerate program saw the success of Paytron, a fintech startup that was later acquired by OFX. While Norton Smith acknowledges that x15ventures cannot take credit for Paytron’s success, he believes that the program played a role in preparing the startup for corporate partnerships. He shares that success does not always mean plugging into ComBank’s customer base but can come in various forms.

Norton-Smith reiterates x15ventures’ commitment to the fintech community in Australia. He highlights their role in providing over 200 jobs for talent and partnering with fintech companies, both consumer-focused and B2B2C. He also mentions the increasing investment from Commonwealth Bank, which demonstrates the alignment of interests and the long-term vision for x15ventures.

Apply to the Xccelerate Program

The Xccelerate program by x15ventures continues to support early-stage startups in exploring enterprise partnerships and becoming enterprise-ready. This year’s focus on climate tech aligns with the growing need for capital and solutions to advance Australia’s transition to net zero. It also aligns with our own research indicating ESG is a huge opportunity for Fintech startups.

With increasing investment and strategic alignment with Commonwealth Bank, the future looks promising for x15ventures and the startups they work with. With their commitment to the fintech community and increasing investment, x15ventures is well-positioned to continue to drive and support fintech innovation in Australia.

You can find out more about the program https://www.x15ventures.com.au/xccelerate

Links from this episode.

Toby Norton-Smith on Fintech Chatter.

More on x15ventures on Fintech Chatter.

Full transcript.

Lightly edited for readability — filler words removed, wording otherwise unchanged.

Dexter Cousins
Welcome to Fintech Chatter, presented by Tier One People, leaders in fintech executive search. Follow us on your favourite podcast player or Fintech Chatter TV on YouTube.

Hello and welcome to Fintech Chatter, the show for all things fintech down under. I’m bringing you another Fintech Shot, and this week I’m joined by Toby Norton-Smith of x15ventures. Toby, welcome back.

Toby Norton-Smith
G’day Dexter, nice to be back.

Dexter Cousins
It’s great to have you with us. Seems like an annual kind of get-together, this, now. We’re here to talk about Xccelerate, but for those, I guess, listeners who are new to the show, or perhaps didn’t listen to last year’s episode where we talked about the Xccelerate program, do you want to share with us a little bit about, first of all, x15ventures, who you are, and then the Xccelerate program?

Toby Norton-Smith
Sure. Very briefly, x15 is a venture scaler. We build, we buy and we invest in ventures and help them to scale through access to the assets of CommBank. We’re the venture arm of Commonwealth Bank, so that’s our mission. We’ve been around for about three years. We’ve got a relatively small portfolio of companies, 11 at the moment, compared to traditional CVC. That’s partly because some of those ventures are owned and operated by us, which is a little bit unusual, that aspect of our model. But three years in, we’re really happy with the progress we’re making.

Dexter Cousins
Cool. And what are some of the portfolio companies that you’ve got?

Toby Norton-Smith
Oh yeah. I mean, broadly, two buckets that we play in. The first is fintech, unsurprisingly, given we’re owned by a bank. Even if you double-click on fintech, it’s both things that complement the portfolio financial services that CBA offers, an example of that would be Kit, which is a kids money app, and then also fintechs that actually compete directly with CommBank. Unloan, a digital mortgage business, would be an example of that, where, if you like, it’s a little bit of a Jetstar to CBA’s Qantas offering. So that’s bucket one, fintech.

Bucket two is a very broad one. In ex-consultant language I’d call it adjacencies: everything in and around the banking experience for which a customer’s relationship with a bank may be a relevant introduction to an additional or complementary service. So that’s a very broad definition. What we’ve learned over the years, it’s actually a narrow range of products than you might imagine for which customers, when they log into a bank app or are talking to someone in a branch, another service is relevant and they think a bank’s a relevant point of introduction. But we’ve got, for example, Home-in, a digital conveyancing business. Obviously quite relevant when someone’s buying a home and getting a mortgage to also work out how you’re going to settle on the home. So we offer that service. We’ve got a bunch of businesses in that space that you could see on our website.

Dexter Cousins
So the Xccelerate program, can you kind of provide a little bit more colour about, first of all, what it is, and then, I guess, who typically would go through that program?

Toby Norton-Smith
Yeah. If you like, Xccelerate has been around since we launched x15. It’s our program for slightly earlier stage ventures who we don’t think are yet at the stage where they’re ready for the heavy handling involved in plugging in and getting the distribution access of CommBank. They’re not at that stage of maturity. But it’s about earlier stage companies and helping them explore what that pathway to partnership might look like. So we think of it as a expedited investment process for earlier stage founders.

And really, if you go through the program, we will answer two questions with you. The first is: is enterprise partnership right for your venture? And absolutely, categorically, for a bunch of ventures the answer should be no, or maybe, certainly not yet. But for those that enterprise partnership looks like a good pathway, be it distribution, be it investment, any number of things, the second question we then answer is: are there any no-regret steps you can take right now to get yourself enterprise ready? And we typically discover that there’s enormous amount of conscious and also unconscious choices that early stage startups take that can make them more or less attractive to corporate partners.

Dexter Cousins
Okay, interesting that you kind of mentioned that first point, because it’s actually something that I’m having not only more and more discussions around, but the briefs that I’m receiving from clients, there’s a strong emphasis on partnerships. And I think, certainly from a fintech startup perspective, the kind of holy grail is a partnership with a major bank that’s going to solve all your problems, and oftentimes it can actually create more problems than it does opportunities. What are some of the things that you would, not warn people of, but just to set their expectations right around what a partnership with a bank like CBA can offer and what it can’t offer?

Toby Norton-Smith
Yeah, it’s a good question. And I think, by saying setting expectations, if you think about the trade-offs involved here, obviously what you’re seeking to gain from that partnership, I mean, not in every scenario, but it’s typically enormous scale, be it scale of distribution and reach to customers, or potentially at scale of access to capital, or brand. And so obviously that comes with an enormous trade-off, which is the burden, the appropriately high regulatory scrutiny that banks face from the regulators. If you are then party to working with a bank and you want your product distributed via the bank or introduced to its customers, you effectively then sign up to that standard. So a lot of the expectation setting is around the shift in mindset around risk management and compliance.

Now, it would be a cliche, and wrong in the extreme, in the absolute, but still worth using that old cliche and startup L of “move fast and break things” clearly is not a standard of ranra that works well for mature, not just banks, but any corporate enterprise and looking for who they want to partner with. So it is a big trade-off.

I mean, obviously startups have lots of trade-offs to make. One of them is the time of the founders. And corporate engagements, if you don’t go about them the right way, if you don’t understand all sorts of things, the right pattern of decision makers, whether you’ve got the right strategic alignment, whether, even on a basic first pass, you’re going to meet some of the threshold questions around privacy, around data security, around cyber, can be a tremendous waste of time as well. So that’s partly why we set up Xccelerate: to help people get a little bit more street-smart around what it takes, what the benefits are, and what the trade-offs are that you’ve got to be ready for.

Dexter Cousins
And look, I think what you’ve just talked about is, I think, one of the kind of real hooks in you and I connecting as people, and you kind of developing a friendship, right, was because of that, I guess, care and forethought for founders and the challenges that they have. And I think, to keep setting expectations, even with all of that intent and kind of care and attention, there’s still massive complexity in partnering with a bank. So it’s not just a case of rocking up and, hey, let’s plug in, and within 20, 30 days you’re rocking and you got access to 10 million customers. There’s a lot to navigate, right? And it’s not always successful.

Toby Norton-Smith
And really, candidly, Dexter, I came from a place, I’ve had my very spectacularly unsuccessful startup experience myself, but after that I worked in CommBank in the digital arm of the business. And I won’t name any names, but I didn’t always feel great about the answers that I was giving founders and external third parties. I could see just the tremendous opportunity, I mean, again, it’s almost a cliche, the opportunity of bringing corporate and startup closer together, and that was my job.

And partly the genesis for why we set up x15 was to find a better way, where you’ve got a bit more of a fit-for-purpose vehicle, which has a tech and operating stack which sits outside of the big corporate, but has the relationships, the policy alignment and technology integrations into the bank. And that’s sort of the model that I’ve been trying to push. And three years in, it’s still early days, but we do have emerging proof points of ventures that are getting real traction with that model. So certainly full steam ahead.

Dexter Cousins
Great, great. Now, I want to talk about this year’s program, because each year you have a theme. Last year was payments, is that right? Was it payments?

Toby Norton-Smith
Last year was Australian payments.

Dexter Cousins
This year, what’s the theme?

Toby Norton-Smith
Helping advance Australia’s transition to net zero. So it’s all about climate tech.

Dexter Cousins
Wow, awesome. So first question is: that’s not fintech, is it? Or where do you see the kind of parallels?

Toby Norton-Smith
No, good question. So it would fall into that second bucket that I mentioned there, very amorphous: adjacencies. Look, there’s a huge opportunity here. We’ve been talking about the gap, or the opportunity to close the gap, between corporate and startup. I think that’s probably more true in climate tech than almost anywhere else.

I mean, a few stats I heard recently: since 2020 there have been over 200 climate tech startups established in Australia; 78% of them are still at seed or Series A funding level. So I think it’s quite an immature market relative to some of our global peers, but it’s obviously a hugely nascent market. Now, our friends at Climate Salad, Mick and co, shared some stats with us. The number one thing climate tech startups are calling out for is investment, unsurprisingly. The number two challenge they’ve got is finding customers. And so, very, very generically, those are both problems that corporates, forget about banks, corporates generically I think have an opportunity to help with.

But if I then double-click on that gap, I mean, I think corporates, generally speaking, and I’m not a climate expert, far from it, I’ve got to be clear, they all have appetite, I think we can see that, to do more. But particularly with the fear of greenwashing, and the very real risk of that, I think all corporates know that they need help. They need help with measurement, with traceability, with the actual solutions specific for their industry to reduce emissions or to offset them. So there’s a tremendous amount of help corporates need if they’re going to lean into this space with any authenticity.

And that’s certainly true in the banking sector, where I’ve heard the CommBank CEO, Matt Comyn, he’s shared that for Australia to reach net zero 2050 goals, they estimate will require an incremental $3 trillion in lending to help the economy transition to net zero. You put that in context: CBA is the largest bank in Australia. Its balance sheet currently, of all the loans, residential and commercial, is a little over $1 trillion.

So to answer your question in very long format: that’s not fintech? No, not directly, but there is a huge requirement for capital to be deployed into the economy to help in a shift towards net zero. Banks obviously have an interest in doing that well, but they can’t do it if they don’t have partnerships with players who, again, can help with measurement, generation of credits, traceability, all the things that are needed to ensure that that capital is deployed effectively and into the right…

Dexter Cousins
That’s a scary number, right? Because I think $3 trillion is there or thereabouts the total sum of the whole Australian superannuation system, right? So that’s a significant amount.

Toby Norton-Smith
Yeah, but it’s right. But it also excites me too, because it’s always great when you get alignment between things. I don’t need to tell anyone on this podcast about, my personal view at least, the moral imperative and environmental imperative for getting active on climate change. But it always excites you when there’s alignment of those interests with, candidly, commercial interest.

And I was speaking to a lender, a senior lender, the other day, I won’t name any names, and his summary was, in many of the main industries that banks lend to, as a general rule of thumb, customers who have a plan for how to reduce or be lower emissions, for whatever their relevant industry contexts are, are probably going to be better prospects to lend to. Which I thought was really interesting. Be it in property, for example, you may have higher quality buildings or better quality tenants; in agriculture, for example, you may have more resilient farms and new revenue streams if you’re thinking about net zero. So it’s really interesting to see that there’s a lot of opportunity there, but it is a huge number.

Dexter Cousins
And in terms of the types of, I guess, businesses that you, and founders that you’re looking to connect with on the program, have you got some ideas in mind, or kind of profiles in mind?

Toby Norton-Smith
Yeah, I mean, maybe types of founders or companies, generically. We normally say pre-Series A. One or two of the winners of the program will look to deploy a SAFE note into them, relatively small quantum. So we typically say pre-Series A. Clearly they’ve got to be a founder who is looking for more than that investment and thinks, or has a hypothesis, there may be a real opportunity for working closely with corporate. Now, it doesn’t necessarily need to be with a bank or with CBA, but who is open to that.

Some founders will absolutely, and I get it, be, emotionally and logically in some cases, saying, “No, I’ve got to build this thing my own way, and the less time I spent getting distracted by corporates, the better.” So certainly someone who’s got an open mind to that, and whose venture is at probably still a fairly early stage. Our preference is for them to be in market; we’d rather they were post revenue. So that sort of sweet spot.

And then in terms of, for this program, specific areas of climate tech, look, we’ve put up on our Xccelerate website some of the thematics we’re interested in. Again, they are pretty broad, because if you think about partnering with a bank, there’s both the direct tools that a bank may need to deploy, for example, I’ve talked a few times about measurement and traceability, obviously very important. But then actually I think the bank will be interested in tools that they can take to their large customer bases, be it consumers, we’ve already got a partnership, for example, with Kogo and the CBA app, whether they could take it to those customers, or their institutional client base. So it’s a pretty broad list, but for anyone who’s interested, just hit the Xccelerate website and you’ll see.

Dexter Cousins
We’ll put a link in the show notes to that, folks, so you can access that.

Now, last year, I think we did a follow-up show where we had yourself and the winners, Jaco from Paytron. Only a few months ago, I think they announced some major news, that they were acquired by OFX. So a huge kind of success story. I’m sure you’re not going to take all the credit for that kind of outcome, but I think it goes to show, first of all, I think, the kind of calibre and quality of startups that are coming onto the program, but also, look, I guess, that success doesn’t necessarily have to be that you plugged in CBA’s 10 million customers and off you go. There’s a lot of great benefits that can come from going through the program.

Toby Norton-Smith
Yeah, we certainly can’t take much credit, Dexter, to be honest. Paytron was a brilliant business and remains one. Congratulations to the founders. I think it was a great exit for them. It was particularly impressive given the timing and what a difficult capital markets it is for fintech and startups more broadly. So yeah, hopefully in some way we contributed to getting them match fit for corporate partnership. There’s no more extreme corporate partnership than being acquired. And so yeah, we were really pleased with that outcome. And yes, absolutely, it doesn’t have to be an outcome with CBA.

Dexter Cousins
Now, wanted to have a chat before we wrap up, Toby. Big announcement this week with Commonwealth Bank’s Ann record profit announcement. Press will tear it up whichever way they want. My view is any of Australia’s banks, particularly this year, when we’ve seen bank runs and banks fail, I think is just a really strong sign of the banking system here in Australia. And I just wanted to give you the opportunity really just to talk about how everybody’s feeling at the bank, how you feeling at x15, what your commitment is to the fintech community here in Oz, and, look, the kind of vision and the commitment that you had when you first launched x15 is still there.

Toby Norton-Smith
Yeah, thanks. I won’t comment on how CBA is feeling or their results, that’s for them. But I think, happy to comment on how x15 is feeling, and so relative to that. Yeah, you’re right, we’re feeling incredibly positive, to be very candid, and you might expect that I would say that anyway. Maybe talk to that with some examples or numbers.

I think I’ve never been shy about acknowledging that our model is, I like to think of it as being strategically very closely aligned to our parent entity, CBA, but operationally decoupled, so that we can get the best of both worlds, which I think makes sense to most people. So yes, one thing that has evolved is, I would say, the ambition, and I can categorically say the investment from CBA has grown every year of x15’s operations, and it’s ahead of my expectations when we launched x15.

And that’s, however, we’ve probably deployed our capital a little bit more narrowly, making sure, particularly in this climate, that some of the ventures that are getting traction, we properly fund them and invest in them for them to really scale and win in their category. And so, yeah, you’re right, there’s a little bit of commentary on, I think initially we said, “Hey, we’ll commit to 25 ventures in our first four years.” We won’t hit that exact number. I’m not in any way embarrassed about that, because the actual investment and a return on that investment is exceeding our internal measures.

So yeah, CBA’s results, they actually spoke quite a bit about some of our ventures and their role in the results overall. I think Unloan, our digital mortgage business, they called out. We’ve just ticked over $4 billion of fundings in our first year of operation, which we’re pretty pleased with that. Home-in, a digital conveyancing business that I mentioned earlier, that’s just ticked over 4 billion of homes settled, so customers using Home-in to settle on a property. A bunch of other ventures actually were called out in the results. So that’s really, really pleasing to me. It’s pleasing because it speaks to the strategic alignment, that is not a one-off task. You can’t just announce yourself as a venture arm and assume that your alignment remains; you got to keep reinvesting in that. So pretty confident about that.

In terms of our role in fintech community in Australia, look at we are, I hope seeing as big supporters and contributors to that community. We, obviously unusually, own and operate a bunch of ventures, but that means we are hiring a material number of engineers and designers and all the usual skill sets you’d expect in this space, and so a big contributor, hopefully, to Australian grown talent and businesses. We obviously partner with a lot of fintechs. A lot of our businesses are consumer focused because of the natural leverage we get from CBA. So that means great companies like, who can I think of, Frankie, for example, we work closely with; WeMoney; a bunch of different, I guess, bet betc fch supplies we work with. So we’re certainly invested for the long term. We’ve definitely got the backing of CommBank, so feeling pretty, pretty positive.

Dexter Cousins
Fantastic. Well, Toby, it’s been really good to catch up with you. I’m sure I’ll see you at Intersekt. Before we wrap up, when do applications open, when do they close?

Toby Norton-Smith
Applications are open, and they’ve been coming in really nicely, actually. Normally you expect the rush in the very last days; that’s not the case this time. They close on August the 22nd, and that will definitely be a hard close for anyone who thinks they may send one in the day after. I would really encourage people, though, to put an application in. In my experience, and from what I’ve heard of people more qualified than me, the process of putting in an application is good for sharpening up your own proposition and thinking. And obviously I’m a big fan of the program if you do qualify for it. So please get your applications in, August the 22nd. If you’ve got any questions on whether you’re a good fit for the program, please hit me up on LinkedIn, or hit our website and drop us an email. Very happy to have a chat so that you understand whether you’re…

Dexter Cousins
Perfect. We’ll put links in the show notes, folks, so you’ve got easy access to those details.

As always, you can connect with me on LinkedIn and Twitter. If you’re new to the show, it would really help us if you could give us a follow and a like, and maybe share on your social platforms. If you’re coming back, thanks for your support, it really does mean a lot. Until the next show, keep well.

Fintech Chatter is produced by Tier One People, leaders in fintech executive search. We’ll find world-class leadership talent to build world-class fintech ventures, and you can find us at tieronepeople.com.

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