Daniel Foggo is CEO of Plenti and a true Fintech pioneer. He introduced Australia to the marketplace lending (or peer to peer) model back in 2014, paving the way for Fintech to go mainstream. RateSetter turns 4 in October so it seemed like the perfect time for Daniel to reflect on his journey. Read on in this enlightening interview with Dexter Cousins.
Daniel: Plenti provides a marketplace, much like a lot of other disruptive businesses (Uber as an example.) We provide investors with access to strong, stable investment returns via investments into consumer loans. By connecting borrowers and investors together, we can cut out costs, improve efficiency and ultimately deliver better value to both sides of the market. In operating our platform, our primary objective is to ensure our investors get a good return and that there's stability in the returns earned.
Our model is quite different to some other marketplace lenders, in that we provision for losses, to help support the stability of returns. For every loan funded, an amount is paid into our Provision Fund. Which helps protect investors from any borrower defaults. Our Provision Fund currently has about 6% of the value of our loan book in it, held in cash.
Our Provision Fund has meant that to date, our investors have received every cent of principle and interest they expected to receive. This fund is carefully managed to help ensure protection for our investors. Not just in the strong economic times we are experiencing now, but also in a sustained, stressed economic environment.
On the other side of our marketplace, we provide borrowers with very attractive loans, whether they come directly to us or via an intermediary. We attract customers because we provide very good value. Our rates are up to around 8% lower than those typically offered by the large incumbents. We also provide a very convenient, easy service.
We are a true Fintech business. An equal mix of finance and technology people. Most Fintech's tend very much to be one or the other. We must get credit and finance right. We must deliver the right financial outcomes for our retail investors, We must deliver for important commercial partners such as the Government’s Clean Energy Finance Corporation. Equally we need the right technology in place to perform our duties efficiently and to ensure our customers have an unrivalled experience when borrowing or investing with us.
Daniel: I spent well over a decade in investment banking, latterly at Barclays Capital here in Australia. Lending money to businesses post the financial crisis was an arduous process. It didn’t seem to work very well for the bank or for the bank’s customer. Even if a loan was approved by our global credit committee, as a bank we were often lending money at a loss. For the bank to break even on lending deals, we would have to cross sell other products.
Customers were also paying high rates and fees for credit. Whilst it was hard for us to make money, it was equally hard for them to reconcile the spread between what they were earning on their deposits versus what they were paying on their loans.
It had also become clear to me the banking model had major systemic flaws. The original concept of a bank was to keep your money safe. But banks today are involved in high risk activities which put customer deposits at risk. As a society we manage those risks by ensuring a bank can withstand a one in a 50 or one in a 100-year event. So logically, we see many years where the bank model is unable to provide good value to customers. Then events repeatedly occur where taxpayers are required to bail out tough situations.
The Financial Crisis of 2008 really highlighted the issues I am talking about. Shortly after the Financial Crisis, I read in the Economist that if you were to redesign finance, you wouldn't start with a bank. The implication was that you would have banks, but that there are other models that can serve both the borrower and the investor better, whilst supporting a more robust, more resilient financial system.
This thinking led me to look for an alternative to the bank model I was working in. I wanted to see a new model prosper, a model that could leverage technology and pass on better value to customers, and not have to lean, unfairly, on the tax payer for support.
So, in 2012 I resigned from my job at Barclays, flew my family to the UK and spent 3 months visiting lots of different businesses trying to find a model I thought would resonate with Australians. On my trip I met amongst other businesses, Funding Circle, (expected to IPO in the next fortnight with an approximate valuation of £1.5bn) and RateSetter. They were both very early stage and had both funded less than £20 million in loans.
Once I explained the bank spreads in the Australia market, it was clear to them that there was a significant opportunity for a marketplace lending model in Australia. The spreads were just so much wider in Australia than in the UK. I very quickly made the decision that the RateSetter model, in particular, could prosper in Australia. I flew back here to assess the market opportunity – really to see if I could uncover any reasons why the model might not work here. A month later I returned to the UK and signed a partnership agreement with RateSetter.
It's been a very successful partnership, they've been extremely supportive in building our Australian business, especially as we went through the process of gaining our regulatory licences from ASIC.
Daniel: The initial years were not the most enjoyable years of my life! I spent just under two years going through the licensing process. We started in late 2012 and the term “Fintech” in the submissions probably caused confusion, as it wasn’t a term in Australia at that stage.
ASIC took the time to understand our offering. With the RateSetter model working very well in the UK, we were fortunate in that we could point to it as an example of success.
Political support for our model in the UK and in Australia also helped. There was an increasing awareness politically, and maybe with regulators, that something needed to be done to increase the diversity of our financial system. We couldn’t just have a reliance on one model, being a bank model, but rather needed various models that work together. I think we had some success in explaining that marketplace lending could be part of the solution.
Finally, in October 2014 we had the relevant licenses in place and launched the business.
Daniel: The Royal Commission, Open Banking and Comprehensive Credit Reporting are creating significant structural changes in consumer finance. These changes, in turn, are creating opportunities for Fintech business like we have never seen before.
Maybe the most significant structural change is the shift in trust. We are moving into a world where large financial institutions, who may have prided themselves on having consumer's trust, are quickly finding it's being eroded. Conversely technology-led businesses are typically doing a very good job of building customer trust.
Clearly in finance it is especially important to earn a customer’s trust, although it can take much longer to earn than in some other industries. Fintech business do have a few tools in their tool box to help of course, such as by providing high levels of transparency and control to their customers.
Daniel: We are building an enduring business. There is a perception a tech start-up will become successful overnight. Seek and Carsales.com (a shareholder of RateSetter) are both examples of businesses which listed to great fanfare and are subsequently very successful businesses. What a lot of people don't know is it took each over 10 years to get to IPO.
From day one at RateSetter we've always had a very long view in mind.
This is a multi-decade opportunity to build a model that becomes a significant part of our financial system. To achieve our potential, we want to achieve it in a relatively low risk way, which means very considered growth, which is broadly consistent every month.
Although our approach to growth is conservative, that doesn’t mean we are not growing rapidly, and that there’s not a huge runway for future growth. Our leading volumes are consistently about 100% ahead of where they were a year ago. And we expect to sustain this level of growth for many years to come. We currently fund around $25 million of loans each month. At our current growth rate, within 2 years we will be close to matching a big four bank in terms of the value of amortizing non-mortgage consumer loans funded each month.
Daniel: Long term success comes down to putting the building blocks in place. The first building block – of course – has been to recruit the right people. We have attracted great people, generally because they have quickly understood that by offering better value to our customers and diversifying our financial system, we are in fact providing a ‘social good’. There is certainly also something very democratic about our business model, in that we are providing everyday Australians with access to an asset class which was previously more or less the exclusive domain of sophisticated investors.
Of the first six people in the business, five are still here and the one person who departed is still involved. I am proud of our team, and the fact that our core senior team have a very consistent view about the purpose of our business and where we want to go.
We now have a team of about 90 people, and our team continues to expand rapidly. Everyone in the business is very focused on making sure we deliver on our vision. The challenge of course is ensuring this focus remains as our team grows, not just in number, but geographically.
We work daily to ensure our technology is best in class. We've built a fantastic platform from which we can keep growing. The stability of the platform enables the business to grow at scale without problems. We also perform exceptionally well in terms of credit performance because of the quality of our credit data.
Getting the right equity investors on board has been critical to our success. It has been a very conscious decision to look for investors who can contribute not just money but who can contribute more broadly to the success of the business. Pleasingly all investors on our register have contributed to the success of the business in one way or another.
Our management team and related entities, which have delivered our plans, own nearly half of the company. RateSetter UK obviously gave us a foot up and remain very supportive. Carsales and its subsidiary Stratton Finance have helped us break into the loan broker and automotive lending markets. Five V Capital, our financial investor, has a lot of experience with high growth businesses and has shared their expertise in scaling businesses. Then there are private investors who have helped us in various ways
Daniel:As we continue to add more people the challenges keep evolving. We've been quite lucky, in that our culture has remained consistent. This mostly comes down to the way we recruit people. One of the most important questions for us in recruiting is how a new hire will fit from a cultural perspective, especially whether a candidate understands and buys into our purpose.
In keeping with this philosophy, we have sought to avoid having layers of middle management and to give people flexibility. However, we are a regulated business with significant responsibilities, so you do need to have the right controls and compliance measures in place.
If we are to compete with the large incumbents and other financial services businesses, and we want to continue to grow at the rate we're growing, we need to be doing things better than what they've been done previously, all the time. It is a constant challenge to each member of our team.
Daniel: The person at the helm is perhaps the worst person to articulate company culture and values, as you can often take your own values and behaviours for granted.
I’ve always sought to foster a culture where people are given a lot of autonomy, can take responsibility for their part of the business and are accountable for their – and where relevant – their team’s performance. Everyone in the business has a responsibility to constantly keep evolving and improving.
I believe we have created a respectful culture across the business. We all do the best we can for the customer and for each other. The customer is always front of mind.
Daniel: Every milestone is rewarding. When we were granted our licenses, it was extremely satisfying after so much time and effort. When we funded our first million dollars, it was exciting as we felt we’d proven the model and the platform works. When we funded $100m, we were delighted to be proving to ourselves that we were successfully building a sustainable business, in the way we promised our customers we would.
Maybe that’s it. Delivering on the promise. That is the most rewarding part of the journey.
But really I still feel like the journey is just beginning. I guess that’s the privilege of starting a business that challenges the status quo in such a large part of the economy.
Evan Wong is CEO and Co-founder of Checkbox. At only 25 he already has two successful startups under his belt. Checkbox is a Regtech solution that enables business people to build software without any sort of coding.
Checkbox is to business applications what WordPress is to Web Design. Used by lawyers, accountants and bankers Checkbox is considered the ideal tool to fix the Regulatory and Compliance issues facing many financial institutions.
Evan: I founded my first business when I was 17, an education business called Hero Education. Until that point I’d never shown any signs that I was going to be an entrepreneur. Looking back, I did possess certain entrepreneurial qualities; constantly learning, the drive and desire to solve problems.
What you bring into the world as an entrepreneur is so unique and it really cannot be matched with any other experience in your life. Because of your hard work, your decisions, your creativity you've now put something new into the world. It is an unparalleled feeling when you know that this has impacted so many people for the better. I really got hooked on the drug of being an entrepreneur with Hero Education. So, when I left university at the age of 22 it felt natural to get started with Checkbox.
Evan: Like every other startup, we didn't begin our journey with this idea. People think you need to find the right idea before you launch a startup. Most startups aren’t successful because of the initial idea. It is usually through a diligent process of speaking with customers, understanding the market, and understanding a customer’s problems that an idea then refines and pivots. Eventually it becomes a viable business not just an idea.
In my experience it is best to start with a big, broad idea that's anchored to a very strong and passionate why. Checkbox happened because I was passionate about two things: Simplifying the complexity around regulation and compliance. I felt that first hand running Hero education. And my second passion was empowering non-technical people to build software.
A lot of people ask me how did you start a software company when you don’t have a software background? Checkbox solves two of the biggest problems I faced when launching my first startup. I hated compliance and process and I hated that I couldn't code.
Evan: So here is my tip for people launching a startup and that is you should never approach new contacts with the intention of making a sale. If you want to sell your product you first need to build the right relationships. When you start out, you can't make the sale anyway because the product isn't there. The way to frame your approach is to always ask for advice and feedback. People are more than happy to help you out, especially if your product is in their space.
But what you're doing is a presales process. The advice you get can be used to improve your product from a customer's perspective. And the customer is now invested in the product from an emotional viewpoint. In a few months when you have built your MVP they can’t wait to see the demo.
Then it is a much easier presentation and sales process because you are not coming in cold. The client has contributed to the product, they are invested in its success and if the product delivers value they will buy.
Starting Checkbox straight out of University, I had no professional network to tap into. All our clients are Tier One corporate's, banks, accounting firms, law firms etc. Two years ago, when I started Checkbox, I didn’t know a single person in these types of organisations.
Evan: As a founder you must be quite good at hustling. I had to grow our network of clients from nothing. Coming straight out of University, there were no existing contacts or network in Corporate land. So, I started out by creating a general profile of people I thought that would be interested in the product. Through a combination of research, Google searches, reading articles, blog posts and LinkedIn profiles I built a target list of ideal customers.
Next, I’d reach out by email asking to set up a short call for feedback, not to sell anything! Just feedback on the Checkbox value proposition. The discussion would usually be followed up a few months later with an in-person demonstration of the product. At the end asking for recommendations or referrals to other contacts in their network. Today most of our business comes from word of mouth and thought leadership marketing. Being active at industry events and conferences helps our profile a lot.
Evan: There is a lot of buzz and hype around innovation and technology. Bluntly speaking corporates are still learning how to integrate technology into their day to day processes. There is a lot of excitement surrounding startups and corporates are always willing to have discussions. But you must cut through that first layer and understand quickly who the real customers are. The real customers are people who take you seriously, treat working with startups like a project implementation and have the intention of purchasing a license. It's tricky but you learn from experience how to prequalify the right opportunities.
Evan: Checkbox was under the radar for over a year. There was no product to show potential customers. No one knew about us until we won Regtech of the Year at the 2017 Fintech Awards. Fast forward 12 months and we have grown from four to twenty people. Today we have a product that is purchased by tier one enterprises. We went from bootstrapping to closing a $1.7m funding round. We have gone from no revenue to now generating revenue. And we won Regtech of the Year again at the 2018 Fintech Awards. It has been a totally crazy year.
Out of all the challenges we have faced, finding the right people has been the toughest. As soon as the business gets to a certain level you can't do it alone anymore, no matter how brilliant you are or how hard you work. At the end of the day it's going to be a team of great people who will realise your vision and build on the initial success of the founders.
I have learned people are the most important factor to business success. You need to be very, very precious about who you bring into your team. When you are a startup every new addition changes the dynamic and culture, way more dramatically than it does at a larger company.
Evan: I hate to say this, as it's a love hate relationship, the best way we have found talent is through recruiters. But they're expensive. We started off hiring through our personal networks, but we didn't know the right people. Then we tried out some of the newer recruitment platforms. They were okay, again the quality wasn't quite there.
Then the pressure hit, and we had no other option but to use recruiters. The amount we've paid in recruitment fees over the last year is enough to justify two full time in-house recruitment resources. So, we are exploring tools like LinkedIn recruiter. But we are still finding it very difficult to find the right quality if I'm being honest.
The secret is to create partnerships with the best recruiters in their field. Using multiple recruiters was probably our greatest recruiting flaw. Maybe that is the right thing to do at the very beginning because you don't know anyone in the market? But eventually you realize that by working with so many different recruiters you don't get the best talent. Recruiters will save the best talent for the clients they have the strongest relationships with. People are the most important asset in a company. It is the one area where you can’t afford to cut costs, even in a startup.
We have gained the best results by working in partnership with select recruiters and paying their fees. I have found if we give exclusivity we can negotiate cheaper fees and still get access to the best talent. It is all about creating a win/win relationship. We get great talent at a reduced fee; the recruiter gets repeat business and knows they will get paid for the work they do.
Evan: Getting the right talent to stay is even more important. Especially when you consider the pain and the cost for finding someone. Founders can sometimes be a little complacent and don't fight for employees when they resign. How expensive was it to get them into the business? How much time did you have to spend convincing them to join? How much time and money have you invested in them as a person? Then why aren't you figuring out ways to make the person want to stay? Especially when replacing them is an extremely expensive exercise. Will the replacement be a fit to your company and can they perform? Retention of good people is more important than acquisition of good people.
Evan: Retaining the best people is about leadership. It's about being a good leader. Good leadership includes understanding and listening to your employees. You need to understand what your peoples career goals. When issues arise, you need to act quickly and resolve in a professional, mature and empathetic way.
Culture has the biggest impact on retaining talent, especially if you're a startup. If you're a startup with a crap culture, then you are a crap business and a crap place to work. As founders you need to work out exactly what your culture is going to be. Get your vision, your purpose and your values set early days. The values of your company must flow from the values of the founders. I feel very strongly about this. When you are starting a business, the founders are the brand of the company. The founders are going to set the energy, the expectations and the culture of the company as well.
Similarly, the values of the company must reflect the values of the founders. We have three founders at Checkbox. Now all three of us may not have the exact same personal values. So, we have spent days working out what we truly cared about. Collectively we decided on the top five shared values. Values we could demonstrate and action every day, values our customers and employees would also care about.
Practice positivity, master empathy. It's about creating a very positive outlook no matter what happens. It is about choosing positivity over negativity and keeping up morale in the team.
No ego, no blame, no mercy. No mercy means having an open company culture where if there's a problem we talk it through. There's a mutual understanding within the company that there are no personal attacks. We are just calling issues as they are but bringing no ego and no blame to the discussion.
Simply first class. We strive to over deliver in everything we do. We want to exceed expectations.
Empowered as a team. This is a concept whereby we provide autonomy to all team members, so they can direct the company in a way they see best, as a team. If it's not done as a team everyone is just running around like headless chickens. But if we are all aligned to the same target then people can make autonomous decisions.
Be Bold. Suck less. Be Bold means taking calculated risks and experimenting. Learn so that you can Suck Less. If you understand what you suck at then you can fix it. It's about continuous improvement.
I feel aligned to all five values but the hardest one to practice daily is Simply First Class. As a startup we've got limited resources. You often compromise. The quality of the code, the type of talent you can hire or the product you present to the customer. There's always going to be a compromise. It is tough because you don't want the company values to be something you aspire to. They should be the expectation today.
Evan: We are considered a Regtech startup. For now, we are focusing on regulation and compliance. But there's no reason why we can't extend the software for other purposes. Our mission is to empower business people to build software. The vision for our company is to become the industry standard for anyone who wants to build software. In the same way Microsoft Office is used to create documents, presentations and spreadsheets. We see Checkbox as the tool to create software. But today we are focused on business applications to manage processes, policies and decisioning.
Over the next 12 months we have a major project in Asia. International expansion is very much in our sights. In my role as CEO, right now is about laying the right foundations for scalable growth. We are past the phase of product validation, but we are not quite ready for high growth.
We are in a period where we need to hire the right people so that when we hit the 'Go' button the business won't fall apart in the process. We have just hired a Head of Finance and Operations, Head of Professional Services and a Customer Success Manager. These are examples of the more operational roles we need to hire right now. But we are hiring across the whole spectrum; engineers, developers, sales people, operations. In two years, we could have two hundred employees, so we are always open to conversations with talented people who have what it takes to grow a business and share our values and culture.
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Eric Wilson is CEO and Co-Founder of Xinja one of a new breed of Neo Banks.
Dexter Cousins talks with Eric about the Xinja journey. It turned out to be the most refreshing and enlightening 30 minutes we have ever spent with a banker!
Eric Wilson: Good question. Let's look at how banking has evolved. Legacy banks, big monopoly banks (or oligopoly banks as we have in Australia) have gradually moved to online banking. More recently we have seen web and phone apps, but Australian banking has not evolved in the last five years.
Online banking in Australia is effectively a last century business model delivered through a different channel, your smart phone. The next evolution of online banking is a bank built specifically for smart phones. This is where Neobanks and Xinja come in to play.
Australia is in catch up mode with Europe and North America. The regulators have just allowed a new type of banking license to help businesses like Xinja get started on the journey to becoming fully fledged banks.
This is the first step. If we look overseas you get a better idea as to how the model can develop. The market ends up with four or five digital banks designed entirely for mobile.
But a digital bank is not a Neobank. Xinja and other Neobanks (Monzo being a great example) aim to revolutionise the banking model. NeoBanks are not only changing how the service is delivered but fundamentally changing the products and services a bank offers.
Sure, a Neobank might still deliver a home loan through your mobile phone but maybe Neobanks come up with alternative ways of sourcing the funding; Peer to peer? Arbitraging across jurisdiction?
Neobanks are designed for the smart phone and can deliver products, services and features a normal bank can't. I am a big admirer of Monzo Bank and we are very fortunate to have a co-founder of Monzo on the Xinja board. When we talk about digital banking he describes the journey as being one per percent complete. I agree. We are just at the beginning of the change.
Eric Wilson: I've spent over half my career in banking. Most recently I was the chief executive for a subsidiary of a big four bank. My father in law was an old school banker. He grew up in the country and was a bank manager for towns out in the bush. In his days, bankers were respected members of the community. They helped people manage their money, helped them get ahead. They did good and didn't lend too much money.
After years of working in the modern banking industry I recognised the banks have little connection to customers and the community. And it didn’t sit well with me. Ultimately, I was lending my strengths and expertise to something I didn’t believe in. My gut was telling me there had to be a better way.
I kept thinking of my father in law and what it used mean to be a banker, very high levels of personal service and humanity in banking. So, I set out to build a bank to deliver a similar level of care, compassion and consideration, but in today's world.
A Neobank has no branches. The shop front is a customer’s mobile phone. And with technology we can hyper personalise the service. A neobank can help people manage finances better by giving them nudges and reminders on spending.
Customers have access to loads of data to help them change their behaviours around money. A Neobank provides tools to make banking fast and hassle free. Why does banking have to be miserable and grey? Why can't it be enjoyable, fun and ultimately work for the customer?
True Neobanks are changing the model by putting customers right at the heart of everything they do. Xinja has a win-win philosophy. Every decision we make must be good for us and it must be good for our customers.
At Xinja, literally every decision we make we put the customer at the heart of it. When we design a product, we don't just come up with a product and launch it. We have real customers coming into the office, sitting with the team giving their feedback and developing product ideas.
The process of allowing customers to design the products they want, the bank they want and have ownership through crowdfunding is wonderful. It's so exciting to build a bank with your customers and for your customers. Let me give you an example. The Xinja prepay travelcard we recently launched, it glows in the dark! When the marketing team first mentioned the concept, I thought it was a gimmick.
However, the card was designed based on feedback we got from our female customers. When they out at night they take a clutch bag. The problem being in the dark they can't see which card which is. By making our card glow, they can see it. Now as a banker sat in an office not talking to people, I would never have known. But because we put our customers right in the heart of every design process, it means we can do these cool things.
Eric Wilson: Mind-blowing is the honest answer. The actual mechanics of getting ready for it were rigorous. I'm reasonably comfortable working with regulators, it is a key part of a banks work. The data you provide must be correct and complete. We found ASIC very helpful and great partners through the process. I can't speak highly enough of ASIC as a regulator. They were rigorous and thorough but very fair.
What really surprised me with the funding round is the appetite from your everyday Australian for a new bank. Our initial goal was to raise $500,000 and hopefully attract a couple of new investors who could become customers as well. The target was hit in four hours. Then passed $1million after three days and finished at $2.7 million dollars, which is a material amount of money in a $15million dollar series B raise. We will be going through another crowd funding raise in early 2019.
There is no better endorsement than having customers as investors.
They want to be involved and are wonderful advocates for Xinja. Our customers are willingly promoting Xinja to work colleagues, friends, family. It's so satisfying to work with customers and shareholders in this way.
A Neobank is built by its customers for its customers. It's for profit of course but it's also for purpose. Treating customers as a profit center is not how Neobanks work. We absolutely want to make money and be profitable. But the only way Xinja can be successful is by putting our customers at the center of every decision.
Australia, for too long has had too many big, oligopoly banks. The alternative has been smaller financial institutions which don't have the resources to react to customer needs. I genuinely hope Australia can have several Neobanks not competing against each other but competing against the big banks.
What we have seen in the UK is the digital banks and Neobanks don't compete against each other for customers. Customers will usually leave an established bank, CBA, NAB, ANZ, Westpac or whoever to move to a NeoBank.
In the UK, once there were two or three Neobanks established in the market customers began moving in volume. (Monzo went from 0 – 500,000 customers in the 12 months since they were awarded a banking license) I am sure we will see a similar pattern once Australians get familiar with the concept of a Neobank.
Eric Wilson: This is a question I ask myself every day. First, I feel a massive personal and moral obligation to our shareholders. Many are mum and dad style investors who have placed a great deal of trust in me and the team at Xinja. I started Xinja because I want to build a highly ethical bank. But me making personal promises isn't enough.
We invested a lot of money making sure Xinja has the right risk and compliance teams and frameworks in place. It is critically important, but it still isn't enough. Just look at the banks and financial institutions currently in court with the royal commission. They have spent millions on risk and compliance and employ thousands of people in risk and it still hasn't worked. Risk management is an essential element to building trust but it's not enough.
In my opinion it comes down to leadership.
The BEAR regulations, whilst a bit scary being a senior executive at a bank, are important because they bring accountability back to the directors and senior executives. Every person Xinja hires meets me at the final interview. I make our stance on compliance very clear to potential employees and our staff. My philosophy is fair and very clear.
If you make a mistake by accident and you stuff something up on compliance let us know straight away and we'll fix it. You won't be in trouble we can get it sorted. But if you try and do something dishonest in this business you will be out of the door and reported to the police faster than you can breathe.'
This message has to be made clear from the offset. You have to make sure there is never any ambiguity.
Everyone at Xinja is there to build an ethical bank. When you walk into an environment where people expect ethical behaviour it breeds ethical behaviour. And don’t reward people in a way that encourages them to behave badly.
Eric Wilson: In some ways we've been very fortunate in the timing of Xinja's launch. The royal commission will leave a scar on the financial services industry in Australia for many years to come. But at the end of the day you just set expectations. We make it clear to our investors and our customers Xinja will make less money per customer than the big four banks. If we're going to look after our customers and we're going to treat them fairly, then naturally we will make less. When customers get something of value we'll charge them for it.
Xinja aims to deliver massive amounts of value and a hyper personalised service using technology. The model is closer to a tech business than a bank. Rather than charging 10 people $10 you build something scalable where you charge 100 people $1.
Eric Wilson: It's been surprisingly easy. There are currently 50 people in the business, all top talent who could easily get a better paying job elsewhere. Xinja presents a compelling career opportunity for outstanding banking professionals who have spent a career working in traditional institutions. As a native Englishman, we have an almost Churchillian rallying call to the people we think can play a significant role at Xinja
'Now is the time you need to step out, make a difference and actually do something for Australia. Help build a bank that looks after people and makes amends for what the banking industry has done.'
It is surprising how many bankers have a big heart and want to do the right thing. I can't think of anyone who has turned down an offer we have made. Most hires have approached us direct or responded to a post on LinkedIn. We usually get hundreds of people applying for roles.
People really want to work for Xinja. I feel deeply honored people entrust their careers to us. But, Xinja is doing something incredibly exciting. It is a fun place to work with no organisational hierarchy. Even our intern is quite comfortable telling me what I should improve.
Xinja offers an unlimited leave policy, employees can take as much time as they need to re-energise and be a success in the business. There is no dress policy. If you're going to trust your staff to deal with people's money, then you don't need to tell them how much leave they can take and what they should wear to work.
We spend a lot of time with individuals in the recruitment process before hiring. It is essential we get to know the person we are hiring. The Xinja fit is someone who really cares about doing the right thing and is committed to creating an incredible customer experience.
A Xinja person is not the type of person who would take 5 months off just to take advantage of an unrestricted leave policy. My challenge is getting staff to take holidays and time out. Xinja is not a job for our people. Sure, they receive a salary but many of our staff are earning a lot less than they could earn in the market. They're at Xinja because they want to do the right thing. We have a cause and a purpose.
Hashching launched in August 2015 as an online marketplace connecting borrowers to a local mortgage brokers. It is a pure Fintech play operating an Uber style model where consumers are connected to a mortgage broker who comes direct to their home.
Dexter Cousins of Tier One People caught up with HashChing CEO, Mandeep Sodhi. He shares a compelling story and the secret sauce to making a Fintech startup a success.
Mandeep: In August 2014, I decided to buy my first home. As a loyal bank employee, I reached out for the staff discount. At the time, I would boast to my friends about the special discounts I was entitled to as an employee of the bank.
A few days later I found out from a friend that they had secured a better rate from the bank I worked for. How come when they were not entitled to a staff discount and had never even worked for the bank?
I was infuriated, so I reached out to my bank asking how my friend managed to secure a better rate.
The bank simply replied, ‘Because your friend used a mortgage broker.’
Their answer made me even more frustrated, so I started to look at the mortgage broker model in greater detail.
From my research, I could see how much value mortgage advisers were providing their customers. Not only were they saving customers more time by taking away the hassle of completing documentation etc. brokers were securing better rates.
Initially the idea for HashChing, when we joined H2 Ventures in January 2015, was to work with the banks. We approached four of the banks who basically said;
We are happy to work with you guys, but our advisers are only available from Monday to Friday during operating hours only. We do not call clients on Saturday and Sunday or nights.
Consumers need the convenience of a broker coming to their house on the weekend. So, we quickly pivoted the model to service mortgage brokers. More than 50 percent of loans are written by mortgage brokers so we had a huge market to target.
HashChing went live August 2015 with nine brokers. The platform has 586 mortgage brokers across Australia. Each borrower rates a broker based on the service they receive. Any broker who receives less than a 4-star rating is expelled from the platform. Brokers understand.
The brokers have strict KPI's and must call customers within 12 hours of an enquiry even on a Saturday or Sunday. Today an Uber driver can turn up to your house for a ten-dollar ride within five minutes. Borrowers can be making a million-dollar decision, they expect a first-class experience.
Mandeep: Year one, just two confounders, Atul Narang and myself. I was responsible for the broker/customer support and CEO, Atul CTO. The reason for keeping the business so lean was to understand firsthand the customer’s needs.
The approach helped in building the right product first. After year one we expanded our team from two to five people and now we are ten full time staff and one part time. It is a lean business even though we're growing fast. As a tech business, you don’t need an army of people. We are not a call center selling home loans.
HashChing is a technology business with bank level security in place. Brokers use the HashChing dashboard to collect bank statements, loan documents etc. to be lodged to the lender. The information consumers provide to us is completely secured and protected, even our staff cannot access the information. All information is encrypted, we have to make sure we hire the right technology people.
Mandeep: I was lucky to have a Tech co-founder. As Hashching has grown we've hired a CTO from a big four bank. It is their job to make sure we continue to keep taking security to the next level. And hiring a Senior Architect from a Telco has really helped in making the business scalable. We have grown 10x this last year but the team has not grown. It was always the vision to build a technology platform that can scale quickly.
Equally as important as the tech, is the relationship with mortgage brokers. We hired a Chief Operating Officer, Siobhan Hayden, who came from MFAA. We have not spent a single dollar on broker marketing and the reason for that is the trust Siobhan has within the mortgage broker community.
The final piece of the puzzle is marketing. How do we make the consumer aware of HashChing? If you google hashching you will see, we are in the media quite a lot. The PR has been great for brand awareness. That's because we have the right marketing team in place. When I call it a marketing team, it's a team of two people.
What we need in the future are specialist skills in certain areas of the business. People who can help us continue that growth trajectory. When you start scaling you need to grow your team accordingly, otherwise people will burn out. New skill sets need to come into the company as it continues to grow.
Mandeep: I realise that top talent do not leave a cushy job at a corporate to have the same experience. We can attract better talent than a bank because we give employees the flexibility to do their job. There are very clear expectations and KPI's from day one. We remove all bureaucracy.
HashChing empowers employees to make decisions and offers an accelerated career path. People who joined Hashching six months ago have already moved up because they are performing well and show passion for the company. This doesn't happen at a corporate.
We have a unique environment with diverse backgrounds. Everyone is treated in the same manner. The intention has never been to hire for diversity, only to hire the best people. They just happen to come from different backgrounds. However, diversity is critical for innovation. When I consider the backgrounds of our people, they reflect our customer base. The team isn’t measured on innovation, it happens naturally. We think like our customers because we are just like them.
The environment at HashChing is like coming to work with your cousins. Going to see your cousins is fun. We have a bond with one another, where we can have fun and feel like we are a family. But at the end of the day, we can go home, so you don’t get the arguments like you might with your siblings. Our people love being here.
They're not getting paid top dollar. I know they can get paid a lot more in corporate world. But it is the satisfaction they get from working with a startup, building something special that keeps them motivated and hungry.
Most of the team approached HashChing directly, explaining how passionate they were about the company. Importantly, they understood the nature of a startup. They did not approach us looking for a fantastic salary and work life balance.
I was on the stage at a conference recently and someone asked me the secret sauce of the company. I thought about it for a while and I realised the secret sauce is your team. It's not the technology or the algorithm. Technology is an enabler. The team makes the vision come to life. And if you have the right team, even if it is a small team you can out play a bank.
HashChing is fortunate to have super smart people who get on with the job and don't need to be managed at all. The team owns the culture. In fact, it was the team who came up with the HashChing values after two years in business. Culture is critical in a startup and if you hire the wrong person it has a huge impact. You need to act swiftly and decisively. We have made a hiring mistake in the past and I regret not acting sooner. But it was a good learning lesson.
Mandeep: It is a very exciting time for HashChing. We have grown 10x in the last financial year. That level of growth is across revenue, number of mortgage brokers on the platform and number of mortgage applications processed. It's enormous growth.
Our first home loan product has been launched and is being distributed via our mortgage brokers. We designed the product based on the needs of the broker and the consumer. It is a product that provides same day approval. Brokers and consumers are loving it because now they don't have to wait five days for approval.
The team is continually looking for the parts of the home loan journey that are broken. If you compare home loans from the 1990s nothing has changed. We have 1500+ home loan products in the market but they're all the same. The question we ask ourselves everyday ‘How can we give the consumer more choice and help the brokers more easily fulfill a customer’s needs?’
Mandeep: HashChing is not exclusively for the Australian market. Today, Australia is the biggest market for us and we need to stay focused. But we are looking at other geographies who have a similar home loans model and regulatory framework. Before going into the other markets, we want to make sure that the model is scalable.
The UK, Canadian and New Zealand markets are the countries we will be exploring first. In the geographies where mortgage brokers do not have a significant presence, we will look to operate a direct model launching our own products.
Mandeep: I'm not thinking about exit at this point. I know a lot of investors do not like that answer but I do not want to sell to the banks. There's a reason why we're going with equity crowdfunding and that is to make sure we stay independent of the banks.
A lot of our competitors are backed by financial institutions. Some have openly disclosed their investors, some have not. Two of the big four banks have approached us in the past. We've politely declined their offers. It's just not the right model for us.
Why would a bank want to invest shareholders money in a startup? It stands to reason that they want to influence their own products on our customers. So how can we claim to be independent if there is a conflict of interest?
What we're seeing with the Royal Commission clearly shows you that banks and financial institutions have very different KPI's to HashChing. Our KPI’s are all based around customer satisfaction and we have a very clear review system to measure that. Where as banks and financial institutions base their KPI’s on sales.
Mandeep: The regulators clearly want to work with startups. But they are not clear on how they want to engage. My view is regulators are setting too many boundaries around innovation which makes progress very difficult. Startups are not trying to disrupt the industry they are striving to give more choice and transparency to consumers. To do that, we need to disrupt existing models.
The regulators seem to think startups present a systemic risk. Regulatory bodies need to acknowledge that startups do better job than the major financial institutions in certain areas. We need the support of the regulators.
Yes, regulators must ensure startups do not cross certain limits or mislead the customer. But regulating a startup in the same way as a bank or financial institution is not going to work. We just don't have the resources or funding to compete.
The royal commission has been a real eye opener for ASIC and APRA. They have openly identified that the banks have done some terrible things. Maybe the regulators can now work with the startups and find ways to solve some of the issues the banks are facing? We are happy to show our tools and share our knowledge with the regulators.
Cover Genius is an Aussie success story and is on course to becoming Fintechs next Unicorn. They are the Keith Urban of Australia’s FinTech scene, much bigger in the US than they will ever be at home.
Over the past twelve months, Cover Genius has been gaining recognition. With accolades including ANZIIF Insurtech of the Year 2018, Smart Companies fastest growing company, KPMG’s FinTech global top 100 and Insurance Innovator of the Year at Australia's Fintech Business Awards.
What is truly outstanding is the commercial success of Cover Genius. I caught up with Co-Founder, Chris Bayley to find out the secret to bootstrapping a global business from zero to US100m GWP in less than four years.
Cover Genius began four years ago with Angus McDonald (CEO and Co-Founder) and myself having this vision of empowering the world's largest e-commerce companies to sell insurance products.
As we see it, the market is at about 1 percent penetration. Cover Genius has developed two critical technology platforms that bring connectivity to big eCommerce companies wishing to sell or optimise their insurance products. We are the pipes, not the plumber!
We see it as our job, mainly because large insurers are not that good at providing the technology to enable eCommerce partners to sell insurance. It's difficult for them: technology platform development requires a lot of work and a skill set you will not find in a large insurer beset with legacy systems.
A sweet spot for us is global insurance wherein we combine our platform capability with extensive global underwriting capabilities (we are an authorised representative in over 60 countries). e-Commerce sites can very quickly sell insurance all around the globe from a single API call.
Heaps. They were short conversations, but we've done it!
We are regulated in more countries than the largest insurers globally who all require dozens of country managers to sign off on every multi-jurisdictional deal.
Neither myself or Angus come with a traditional Insurance background, which has probably helped us in achieving what we have. Looking at Cover Genius from a traditional Insurers angle and seeing the scope of the challenge, I can understand to some extent why global insurers would think building a global platform is not possible. But we have done it in four years.
I previously ran the insurance team at Google. So, coming out of the Google business I could see the commercial opportunities for selling insurance online. It was just a matter of finding the right model.
The ancillary revenue for eCommerce sites is significant. However, it needs to be done at scale and to do it at scale you tend to need partnerships with the big e-commerce players. Initially Angus and I took a reasonably cautious approach because we were largely bootstrapped (Cover Genius is not VC funded and the small rounds to date have been funded by London-based insurance executives including Jim Sutcliffe, former Chair of Sun Life Canada and Julian Roberts, former CEO of Old Mutual).
We were extremely focused and spotted an opportunity in a sizeable niche that was being overlooked by the large insurers. The niche we identified was car rental insurance. It's worth US$7 billion globally, US$6 billion of which is profit.
Compare that to travel insurance, US$21 billion gross globally and about US$12 billion profit. So, the car rental market is 50 percent the size of the travel insurance market. And there was no one doing it. None of the big Global Insurers had customized car rental access products. None of them were able to sign deals with the largest distributors. It was totally overlooked. And when we engaged global insurers to provide policies for our early clients, their inability to provide capacity in short time frames and other archaic processes all got in the way.
So, we took it upon ourselves to go and find smaller agile underwriters and shortly thereafter we signed a cornerstone partnership with Booking Group (the owner of Booking.com).
The nature of partnerships has changed over the last five years. Startups like Cover Genius exist to resolve pain-points that are inherent for companies who would otherwise need to partner with incumbents.
If your business model is to power insurance offerings on the world's largest e-commerce sites and you're the world's largest e-commerce site, who are you more likely to partner with? If you have grown an internet business to that sort of size and scale you're looking for like-minded businesses. eCommerce businesses know inherently from their own experience and by the nature of the industry that they're in, that it's going to be the little guys who can make it work.
When you're pitching your service to someone who understands you can do it - and you come with an attitude of wanting to make it happen - that's how eCommerce companies partner.
The alternative is big corporates who put everything through an RFE process.
That doesn't get you into the position of co-creating a solution.
It doesn't get you into the position of aligning mutual interests.
What tends to happen is the incumbents reply, because you have not engaged the tech startups, ending with a substandard outcome. And it is a real shame, because there's always a tech startup who wants to do it, who can do it and who won’t fail the partner.
We also have a great Tech team, many of whom were in the founding team of Viator (which sold to Tripadvisor for US$200m. )They had an excellent vision for a micro-service architecture, well before the word was coined.
The early versions of the API were very well received. The early release of our XCover platform was one of the world’s first APIs for insurance distribution. So, we were able to go from a couple of small clients in Australia to having the largest global travel sites within 6 months. We’ve increased gross premiums from a tiny amount in August 2015 to an expected monthly GWP of $30m by 2018 year end.
There's all sorts of stuff. The technical challenges are interesting but they're solvable. Scaling products, scaling technology, scaling the team etc. they are all interesting challenges.
We've deliberately not sought outside funding. So, we have the freedom to run an efficient, focused business and not worry about external investors. The lesson we've learned is it is better to have the founders running the business, not out raising money. It makes a huge difference.
Angus and I know all the internal workings of the product and operations. We know the internal workings of how we get new partners in place. The execution risk is reduced immensely.
It's very difficult to have your executive or senior management level performing the roles which would naturally fall to founders. I think that's probably been a cornerstone of our success, having the founders around.
Complementary skillsets. I used to think meant having someone technical and someone commercial, but we're both commercial. I am more product focused and Angus is more partnership focused. Both of us being commercial helps in the way we communicate and how we manage our expectations.
Ultimately it is like a successful marriage. Which means making it through difficult patches and remaining close. You must keep celebrating all the little victories.
We primarily apply machine learning and data science through a part of the Cover Genius platform, BrightWrite. While our XCover platform does the connectivity, BrightWrite introduce dynamic pricing and product recommendations. These optimize a partner’s profit margin, both on premium and on the risk side. BrightWrite primarily concentrates on non-traditional ratings factors and pricing factors. It enables partners to sell product packages where the mix of individual products is bespoke to a single user.
Brightwrite is part of XCover, our distribution platform, but the microservice approach means we also sell Brightwrite to insurers.
Simple - continue to work on the original vision and expand the reach of the XCover distribution platform. We’ve set up our US office, ably led by Mitch Doust who has years of US insurtech experience. Big e-commerce partners want to sell insurance and its Mitch’s job to get those to commercial and product outcomes.
Follow the money. Figure out who can be a big distribution partner for your business and talk to them. Then invest in the operational and technical scale.
Ben describes himself as a tech nerd (although he is anything but a nerd). Make no mistake, Ben is a serial entrepreneur and a pioneer in the digital space. Ben was first introduced to the world of insurance when Simon Monk hired him at Travel Insurance Direct. Back then, Ben recalls making bets on the platform selling 10 policies in a week. In 2017, the business is writing over 10 policies every minute!
A family man hailing from the Northern Beaches of Sydney, Ben breaks the stereotype of a hyped up digital disruptor. He brings a humble, fresh and unique perspective to the world of Insurance.
Ben kindly shares his journey and secrets on how to bootstrap an Insurtech.
"I'm an advocate of starting your own business and bootstrapping it. So not taking any external investment. I will always want my children to start their own business."
BEN WEBSTER - INSURED BY US
Insured by Us is a white label travel insurance platform. Travel insurance tends to fall to the bottom of the list for general insurers, mostly due to the tight margins in travel. A motor or a home policy can make you hundreds of dollars in commission per policy and there is also an annuity stream. Using discounted cash flow models, insurers can predict, based on their churn rates, how much profit they're going to make out of each individual customer.
Travel insurance is a one-off purchase. Consumers don't have a lot of brand loyalty. They shop around and that means travel insurance falls to the bottom of the priority list. We built the platform based on the lessons I learned at World Nomads. It is low touch for insurers, underwriters and brands who are distributing the policy.
The Insured By Us platform allows the brands to bypass all the technical problems and focus on distribution strategy. We enable the brands on the platform to establish a distribution strategy and model that works. A brand like Woolworths is after high volume to enable cross-selling to their higher valued lines. A brand like RACV or RACQ are looking to drive benefits back to their membership base and earn solid commission as well. Some brands have broader products with features and benefits, but also a slightly higher price. That is the Insured By Us platform, we simplify distribution and make it easier for the consumer to purchase Travel Insurance.
Together with Peter Richardson, I have another business, 365 Roadside Assistance. Peter was previously part of the roadside team at ISOS so his knowledge was invaluable in this area. We are growing 365 through brokers, fleet services and retail partners like Midas. I personally like roadside because it has a nice predictable model, we know the frequency and severity of claims. Roadside is also not a regulated product, which is why insurers use it as a ‘foot in the door’ product.
In 2017 we launched a Lloyds agency called Agile Underwriting. Together with the help of Robin Barham Agile took on a slightly different model. We're attracting underwriters by providing some equity in the business. By offering 'skin in the game' we can attract people away from large insurers. The Agile business is growing, and the goal is to become a $100m GWP agency within five to seven years.
We see Agile as a counterpoint incubator for the large incubators. If someone has an intuitive idea we have an AFSL, access to the Lloyds markets, access to all kinds of capacities across all lines of business. Agile is across most lines of business, even space underwriting, as this is one of Robin’s areas of expertise.
Since launching Insured by Us I've been working four days per week. The first two years I worked from home, so I could be there when our first baby was born. The structure and flexibility we offer our employees is very attractive to both women and men. Surprisingly, it is not as attractive to younger people. They don't see the value in the flexibility and prefer to work in a place where there’s beer and vodka in the fridge, people stay back for drinks or go to the pub.
That is not Insured By Us. We always say we work to live and not live to work. Our team is distributed around the world. Remote working is the priority. In Australia, we have teams in Sydney Canberra, Melbourne and Broome, it is all about flexibility, for example our team member who now lives in Broome came in one morning and said,
'I'm moving to Broome, my partner has got a job and we're moving there.’
She knew her job wasn't in jeopardy and that she could just pick up her life, move to Broome and still have a job. She wasn't saying "I'm moving to Broome, what can we do about it?" She was just telling me she was moving to Broome. On a Friday, she packed up her house. moved over the weekend and on Monday morning she was at her desk on the Zoom. There was no productivity issue at all.
We have people in Cape Town, London, Scotland, Japan and will soon have someone in the US. Flexibility also works for the people who don't have kids. I have someone in the team who has no kids but wants flexibility, so the last two years she's taken a couple of months off in the middle of winter, this year she went to Thailand.
It's a mix. Our designer is in Japan. He moved there with his family. One of our senior developers lives in a remote part of Scotland. The team here in Sydney often call him The Code Fairy, because they go to sleep and in the morning, they wake up and he's fixed their bugs. There was an old IBM study about developers, that if you get four hours of good flow out of a developer, in a day you're doing very well. Having developers in time zones where they overlap is positive for our business.
Video meetings really help because you do need body language to communicate well. There's a small amount you do miss by not having the opportunity to go to lunch or drinks after work as a team.
Because we're remote first, all systems and tools are online. It is easy to know when someone is not being productive. We use Zoom and Slack a lot. Everyone’s activity feeds into Slack, so there's always a way to monitor what people are doing. But I don't want to monitor what people are doing. I don't want to hire people where I must look over their shoulder. I want to hire grown-ups who can get on with their job without me.
We are very Developer heavy because we are a technology platform. The make-up of the team is changing as we seek to own more of the value chain. As an example, we have just built an online claim system and gradually we aim to bring more of that in-house.
‘Travel with Jane’ is one of our brands where it makes sense to own the entire customer experience. You really don't experience an insurance product until you claim. It's simple for us to build a slick front end and a slick purchase path. But if we don't have a slick claims process and first-class customer engagement it's all for nothing. Customers won’t come back and buy again.
We're finding that when you outsource the claims function to a third-party administrator it doesn’t suit your business as well as if you bring in-house. World Nomads went through this very issue, so I'm not reinventing the wheel.
In a large insurer, you have many kinds of people. What we're looking for, from people leaving a large insurer, is an entrepreneurial spirit. People who are frustrated with the internal structure, who want to get sh#t done and are frustrated by their current environment.
It's not hard to find claims people who want to do claims, it's not hard to find content and marketing people. It's very difficult to find good developers who have any domain knowledge about insurance. It's very, very difficult to find any actuarial skills or anyone with any data science or machine learning skills as well. These people are very thin on the ground. Someone recently fell into my lap with data science and machine learning abilities. I snapped her up as quickly as I could.
I'm an advocate of starting your own business and bootstrapping it. So not taking any external investment. I will always want my children to start their own business. My wife and I would be at dinner parties and someone would say ‘I've got this idea’ and I would respond 'do it leave your job now, do it, do it, do it' My wife would be kicking me under the table. Then we'd leave the party and she'd say ‘you know John, who you just told leave his job? He is the worst person to go into business for himself. He's going to totally fail.’ And she was right.
I've learned this the hard way, going into business for yourself is not for everybody. Every day is a grey area. Some people can thrive on and hack it and other people can't.
People come to work and they don't realise that there's a whole bunch of infrastructure to allow them to have a chair, a desk, a computer, the internet connected, payroll, all those things. When you start a business, some people don't realise that you must wear all those hats until you can afford to pay someone else to wear the hat for you.
The reason Agile exists is a desire to broaden the portfolio of products away from travel. We did launch a couple of products with large insurers here in Australia. Those products were live, selling and had customers. But they were pulled from the market because of internal political reasons within the insurers.
To get those products live involved a two-year journey and after just a few months they were pulled. That is when I literally threw my toys out of the cot. I called Robin Barham, who at the time had just finished up running Arch in Australia and we formed Agile. I called him up and said ‘Robin, I'm done dealing with large insurers I need access to capacity.’ Lloyds gives us the flexibility to do really niche products.
The lack of appetite for risk from large insurers is my biggest frustration. A perfect example: Agile picked up most of a large insurer’s Aviation book, worth around $15m in premiums. This insurer was prepared to drop that business altogether.
For Agile $15m of premiums, that's an entire business division and they we're just going to drop it because it just wasn't worth their time. This insurer couldn’t make it profitable even though there was only a team of two or three people working on it. I find working with large insurers and the incumbents massively frustrating. They're so risk averse to trying new things which makes it difficult to get any venture off the ground.
Legacy systems are a problem, but those challenges are solvable, if we're collecting the right data. When we started Insured By Us we were sending data in multiple formats to multiple underwriters. Now we've built our own data warehouse, we give each underwriter a single feed coming from our data warehouse exclusively for their data.
From our perspective, the client owns the data and they need to get it in real time, in a raw format or they can get it in a pretty dashboard format from our live web service. Initially, this was a tricky problem to solve, but it is just data. We find it interesting that large insurers have trouble consuming data, aggregating across their book and then using the data in an intelligent way.
There is a significant barrier to entry. I was fortunate in that I had domain knowledge both in insurance and in technology. I also had contacts in the industry. But the first two years were hard. We’re four years old now and I've only just started paying myself a proper wage and super for example. But that's the life of a start-up. Right? I was underpaying myself for a long period of time.
Many people will point to regulation as a barrier and it is, but I'm more of the mind that regulation is a good barrier to have and that you need to earn your stripes. I don't find regulation a big barrier, I find the appetite for risk from the underwriters is the biggest barrier. Even within the products that we're offering now. Looking for an innovative way to sell travel insurance and getting underwriters to buy into that idea of selling travel insurance in a different way is almost impossible.
I have only recently, in the last six months, started worrying about another Insured By Us coming along and leapfrogging us. That's what worries me. I'm not really worried about a large insurer waking up and getting their tech in order because I'm not sure it is possible to be honest. Insurers are increasingly looking to partner with technology start-ups. Maybe that is the way forward for them because to get things done rapidly you need to do that outside of or at least at arm's length from a corporate environment.
My biggest worry is another Insurtech coming up while Insured By Us becomes mired in the compliance frameworks hampering large insurers. When this happens, you get stuck and inevitably miss the opportunities to innovate.
To launch the Future of Insurance series, we welcome Brenton Charnley who is lead and co-founder of Insurtech Australia.
Brenton was previously Head of Innovation at MetLife Australia and is now Chief Commercial Officer at CoverGenius.
Insurtech is now an industry in its own right with over $6.3bn US invested in the sector globally. Although the majority of deals have occurred in the US and Asia, Australia has a rapidly growing Insurtech scene. Insurtech Australia formally launches Thursday October 26th 2017.
BC - We are a national, not-for-profit organisation, run for the benefit of our members and partners across all corners of Australia. Insurtech Australia is a division of FinTech Australia.
Insurtech Australia aspires to make Australia one of the world’s leading markets for Insurtech and insurance innovation.
We do this by collaborating with insurers, startups, regulators and investors to create the best possible regulatory environment, and by fostering an ecosystem of supportive partners and networks so Insurtech can thrive and grow in Australia.
BC - Back in 2016 I was working with Metlife as Head of Innovation. I could see the changes that were happening in the insurance industry, and the potential opportunities ahead. For innovation to occur, you need to gain as many external views as possible and not look at change through the myopic lens of Life Insurance.
So I decided to set up the Meetup group ‘Insurtech Sydney’, just to encourage discussion across the insurance and tech sectors. I expected maybe ten people would show up. There were almost 300 people at the early events. Lots of interest from incumbent insurers, but there was not a great deal of representation from the tech/startup scene.
At the same time, Sarah Fountain, Senior Associate at DLA Piper set up an Insurtech Melbourne meetup, and gradually the word spread to the tech scene.
Within six months we were partnering with insurers and ecosystem partners. In March 2017, we partnered with ANZIIF and Stone and Chalk, holding the Insurtech pitch event at the ANZIIF Insurtech conference.
Insurtech Sydney became a diverse community of insurance innovation and collaboration by bringing together insurance practitioners, entrepreneurs, technologists, innovators, and industry stakeholders across Australia.
By early 2017, we had demonstrated there was a clear need for the platform across insurance and insurtech.
So we went about the process of formalising a national non-profit body. ANZIIF and everyone in the industry has been super supportive, and we are excited to be launching Insurtech Australia officially this week.
BC - Globally the mood is very positive. Investment in Insurtech has exploded over the last few years. And the largest investors are incumbent insurers, so they clearly see opportunities.
There is so much talk in the industry surrounding disruption. My take is that incumbent insurers view most tech startups and Insurtechs as enablers, not disruptors.
We can already see technology improving many aspects of the value chain and distribution model. The tech is there to empower the industry, not replace it.
And it makes complete sense. Most Insurtechs have to partner with underwriters as they are not regulated or licensed.
BC – If we look at global funding, according to CB Insights only 1% of that has come to Australia. Many of the major VC firms are US-centric, and it is a massive market. So of course, a VC will invest in the largest market. The biggest Insurtech deals last year were Zhong An in China (US$931m) and Zenefits in North America (US$584m).
Australia doesn't have a big enough market (yet perhaps?) to attract that type of investment.
However, when we compare Australia globally against other metrics, we are quite advanced. Australia is quite far ahead of North America for example on digital/online distribution. Australia is moving on to what I call innovation 3.0
BC – Put simply, it is a world in which we are not just replicating old processes and digitising them. An example may be an online application for a policy. The customer has the same experience, they just don’t have to post the application in the mail.
Innovation 3.0 is a world where protecting your assets, insuring your health, your life, your holiday can happen in real time, on-demand at the push of a button. Innovation 3.0 is creating an environment where insurance is bought NOT sold. The insurance product is integrated into the asset/thing to which we seek to protect.
BC – Insurtech Australia is here to support and grow the Insurtech community and help the entire insurance ecosystem thrive. We are involved with technology startups, hubs, investors, brokers, advisers. Insurtech Australia is there for the benefit of both the insurtech members and corporate partners.
There is a lot of change ahead so we provide an environment where ideas and relationships can incubate and be nurtured and ultimately succeed.
We see Australia as the ideal mini-market for global insurers to launch new products, new ideas and new initiatives. So our goal is to make Australia one of the world’s leading markets for Insurtech and insurance innovation.
Insurtech Australia seeks to advocate on behalf of its members and partners and become the champions of change with the regulators. Australia has to accommodate new technologies, new models and innovative ways in which insurers can manage their capital if we are to compete in a global market. That being said, we must ensure that we retain a strong regulatory environment that continues to protect the consumer. Insurtech Australia seeks to work with the regulators to create the environment where insurtech innovation can thrive.
