2016: a vintage year for a start-up that has changed the world of finance
The year 2016 might be remembered for many things, not least that Britain voted to exit the European Union and Pokémon Go briefly dominated everyone’s social life, but it was also when a small start-up was formed in London with big ambitions to literally rock the world of finance. Six years on, co-founder and CEO Nigel Verdon looks back at how the market, and the company, have changed.
It’s now a month since we changed our name from Railsbank to Railsr, so I thought this would be a good chance to sit back and reflect a little on why we did it, and where we are now.
Back when we formed Railsbank it was pretty clear that we were on the cusp of great changes, that the structure of the financial services market was due a massive reboot. Consumer behaviour and expectations had signifcantly changed, the GAFA economy had emerged, and finance continued to give the consumer a raw deal and things could not continue as they were. A new era had to be created.
It also frustrated me that when we started out, we were called disruptors. This wasn’t quite true, because most fintechs were not storming the inner citadel of the banks and building a new regime. We were actually working with many parts of the ‘old system’ to create a new order.
Capital markets
Also, for me, I cut my teeth in the capital markets world; I was part of the system which rapidly changed in the 1990s to embrace innovation and technology. However, the system eventually caused the credit crunch and ultimately failed the person on the street. So it seemed the obvious thing was to take a hard look at what was wrong and help do something to correct it and the world, which evolved into what we now call fintech. This fintech revolution was born out of the dramatic impact of the credit crunch on the consumer - basically destroying the consumer’s trust in the financial system.
I built my second fintech, CurrencyCloud, because I was living in France and I needed some Euros. Firstly, I had to place an order by phone and the broker tried to charge me 4% for changing £100,000 into euros (when the EURGBP market was 1 pip bid/offer spread, or 0.01%). The head of retail customers (now a long time friend Steve Lemon and member of the original Currency Cloud team) got involved and reduced the cost to 0.2%.
I was then emailed a PDF to fill in my settlement instructions by hand and send them off to the broker via a fax. I didn’t have a fax and had to find a shop in my village in France that had one. I thought, there must be an easier way to do this, but there wasn’t. So I founded CurrencyCloud, which basically made forex easy for the consumer. It then became a global FX and payments infrastructure firm powering the likes of Revolut - I’m proud to say it was recently bought by Visa.
With Railsbank, we suddenly thought, look, there’s this huge momentum from a burgeoning fintech industry which lacked one key thing, a low cost and quick-to-connect financial infrastructure capability in the cloud, much like Amazon created for the data centre world with their AWS product. Fintechs are focussed on the consumer experience, dealing directly with the customer and do not want to deal with the cost, and complexity, of building financial infrastructure.
Huge gap in the market
Back in 2016, we therefore saw a huge gap in the market. All the innovative fintechs still had to come, cap in hand to the old finance world, to make their ideas work. There were no financial infrastructure players and that’s the opportunity we saw, staring us right in the face. We would build a technology, operations and financial regulation platform which would act as the plumbing for the whole system. And our APIs were super simple - the boast then was we can connect you with just five lines of code. It was a clarion call for founders and CTOs who craved simplicity, transparency and efficiency. It saved them (and their investors) the cost and time building the pipes and plumbing themselves.
We put the SaaS model front and centre of the financial services industry.
And we were in the right place and the right time. The Government and regulators around the world had acknowledged that the financial services industry, perpetuated by the old guard, was actually doing the customer a disservice. And along came Open Banking, or more precisely Open Finance, which upset the whole apple cart and in the best way possible. Combined with the opening up of national payments infrastructure to non-bank financial institutions, it opened up the market to innovation and excitement. Open Banking begot BaaS, which delivered Embedded Finance. In under a decade, we have travelled fast and come a long way.
Yet in this industry, nothing stands still. To be polite, I’ll call this stage we’re now in Fintech 2.0, because my colleagues hate when I suggest fintech might be a dinosaur term which has outlived its usefulness. But we are now in this further exciting stage, which promises to be even more radical than what has happened before.
Platform
Bear in mind that for the first three years of our existence, we were building our platform, establishing the brand and staying focussed on creating momentum as a business, and attracting some of the leading investors to our cause. But we quickly began to see that far from being just the company that provided the pipes, we could also play an active role in shaping the future of the new financial services industry.
We did this in three ways: firstly, by working within the highly regulated industry to ensure that we adopted a gold standard when it came to how we and our customers behave; secondly, by creating the whole category, embedded finance experiences; and, thirdly providing an ‘incubator’ environment for the fintechs, our customers, to grow.
Being ‘compliant’ and ensuring our customers understand just what that means has been a priority right from the start. This has meant a huge investment at Railsr, hiring teams that work closely with the regulators and the Bank of England, and other central banks.
We have also invested heavily in fincrime teams, that are experts at spotting fraudsters and criminals. I read recent stats that show financial fraud is still escalating at an alarming rate and it is a constant struggle to stay ahead of the criminals who are determined to defraud people of their money.
Our exposure to certain sectors and trends is also a key consideration, and although I am a big fan of crypto, we have limited our involvement to companies that have strong business models.
Seismic power shift
Given all that back room work, our main outward focus is the finance experience and a dramatic move away from the banks, towards any company that serves consumers - think Starbucks, or Uber. We are witnessing a seismic shift in the power within the financial services industry.
We devised our new category of embedded finance experiences as a rallying point for our customers and their own customers.
And you’ll have to forgive me for some interesting observations. Embedded finance as a term became quickly overloaded, being used by everyone in the sector to try and show that they were not only digitally savvy, but were on point. Sadly, that is not the case, but it does cause me a wry smile when I see so many companies now speaking about embedded finance experiences, as though it's another term they need to aspire to and quickly. They say imitation is the sincerest form of flattery, so I’ll leave it there.
Railsr and consumer desire for experiences
Railsbank has now changed into Railsr - a natural evolution which reflects the seamless financial experiences and positive disruption of traditional finance we deliver. Running on Railsr helps our customers deepen relationships, deliver finance at the relevant point of a customer experience and generate revenue with their own customers.
We need to bear in mind that the world has reached an inflection point. A time of radical digital transformation. The pandemic accelerated a decade of change into a single year. Consumer expectations have evolved dramatically across all ages, and their desire for experiences is more urgent than ever. Yet while we live in a universe of amazing customer experiences, the finance industry is still stuck in a world of products and transactions.
We think differently. We are ‘experience natives’ and we created a whole new industry category based around the intersection of radical digital transformation, embedded finance and the consumer desire for experiences. And that’s why we call it “embedded finance experiences.”
Consumer
We deeply understand the consumer. What’s more, we have all the capabilities, tools and advice to ensure that embedded finance experiences are truly embedded, at the relevant time, in the customer journey.
Before us, if a company wanted to use all that embedded finance offered, it would have to do a large number of integrations, which could range anywhere from three to nine separate commercial agreements, especially if they had disparate pricing schedules. So for these companies, desperate to keep their own customers on side, it was really difficult to grasp the real economies.
With Railsr however, it is one integration, one contract and one side of paper of commercials. We accelerate the ability to embed finance experiences into a customer journey. It is super simple and super quick.
Simplified finance
We have literally simplified finance and taken it from the world of transactions to the world of experience. Skype did this within the telecoms world, it allowed a transactional phone based activity to be transformed into an embedded telephone experience - for example “click to call” embedded in the customer support experience Twilio has taken this even further.
What we now have with Railsr, in one place, is all the tools, technology, capabilities and advice for embedded finance experiences. It is the complete turnkey platform.
So what now from here? We have a very clear vision, one which we all share at the company: to be the Amazon Web Services (AWS) equivalent of the financial layer of the internet.
When AWS came along everyone could launch a server, or launch their business technology, on a credit card in 20 minutes. Prior to that it was six months, and significant funding was required to get your data centre up and running. The commitment we make to our customers, and to the market, is that Railsr will accelerate and become, as AWS is for servers and the cloud, the place to launch and create your embedded finance experiences.
Complete product
Railsr is now uniquely positioned in the market to take advantage of the changes happening right now. We have spent the last six years building the platform and operating as a global business. So, we ‘re ready and we’ve got a complete product set, from rewards, banking, wallets, credit, cards through to data - the complete breadth of product.
All of this enables the market to make those changes. Now, for the first time, brands and companies have access to capabilities that had to be previously white labelled from banks, or required a complex integration together.
Sports businesses, and other companies, can now come to one vendor to get a complete turnkey financial experience stack that their agency or internal User Experience (UX) teams can integrate and embed into their customer journey.
They can now use an embedded finance experience as a strategic tool for engagement, for revenue, for reward and to drive the economics and engagement with their customers to get deeper relationships, and also obtain revenues from customers you wouldn’t ordinarily revenue from, or re-engage with them.
Strategic tool
Embedded finance experiences can be used as a strategic tool to accelerate into the market and scale businesses.
Fintechs, startups and scaleups, as well as companies and brands, are taking financial products (such as banking, cards, accounts and payments) and embedding them into the user-experience (UX) they are building. The embedded finance experience takes those financial products, their experience and what they’re trying to deliver to the customer, and delivers them as one, together.
And here’s the real clincher, the future is bright for embedded finance experiences because it’s not just about fintech, it’s about any company. We are now in a world where any brand, or company, can take embedded finance experiences into the customer journey.
A month is a long time in fintech
Also, to paraphrase that well-worn political change that a week is a long time in politics, a month is a long time in fintech.
Last month (June, 2022) is when the fintech industry had to finally wake up to the fact that it's not in some weird way isolated from the macro-economy. We don’t live in a bubble.
The stark facts are worrying. We’ve just experienced the biggest funding drop for global tech in three years. That’s the reality about Q1 2022 and in my many conversations with economists and forecasters, no-one really knows when the recovery will come. It will, there’s no doubt about that, but the big question is, when? Waking up from a global pandemic, coupled with geo-political troubles, has created a near-perfect storm in which we are now travelling. It’s not uncharted waters - I’ve personally been through four downturns in my own career - but until we see calmer seas, it is going to be a choppy ride.
It’s also not that there’s no money around - money will still find its way into good companies. But, what we have here is a massive drop in confidence. Investors don’t have the visibility they once had, which means they are less likely to re-invest, or invest in situations which were once dead certainties.
VCs are still flush with cash and some, cannily, now see a chance to back situations at a lower valuations. For them, the upper hand has switched away from the management teams who could maximise ever-larger rounds of equity financing to cash flow their companies. Now we’re all looking at debt financing again and finding support from ‘traditional’ corporate finance houses.
And for many founders, the idea of down rounds, or ones that give existing shareholders a severe haircut, are abhorrent. You can quickly undo all the good work that’s been done over the years. Those that can, know that it’s best to wait this out, not to make knee-jerk reactions and take the cash at any price.
Railsr itself has not been immune from the downturn and as a senior management team we have had to make some tough decisions about our business, including seeing good people go.
It’s not surprising that many of the events I now talk at, when it comes to the Q&As, it's all about surviving this current crisis. I give the same answers every time: watch the burn rate, build a long runway, employ the capital in the strictest way possible (remove all flipperies) and keep the customers happy. If you do that, you will get through it. This is when you need to keep your eyes firmly on the ball.
Goodbye to Railsbank
And am I a little sad to say goodbye to the name Railsbank? Yes. It has been a name which has served us well from our origins to now. It has been a banner behind which we have built a large following, attracted great people from the industry to work with us, solid investors to back us and brilliant customers who look to us to provide them with an exciting, stable platform on which to build their own businesses.
But, as in all things business, times move on, things evolve and unless you are prepared to develop and grow, you can quickly get stuck in the past and lack a sense of focus on the future.
So, I welcome Railrs with open arms and look forward to the coming years with great excitement.
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