Building an open banking unicorn in collaboration with banks and fintechs

Posted on

8 Apr


The text is based on a free transcription from the discussion Daniel and Kristian had at the Nordic Fintech Summit 2021 organised by Fintech Farm Helsinki on 17 March 2021. Fintech Farm Helsinki is a digital finance innovation service provider and a fintech hub that operates an innovation ecosystem with partners across the Nordics and globally. Dittmar & Indrenius is the legal partner of Fintech Farm Helsinki.

Dittmar & Indrenius > Insight > Building an open banking unicorn in collaboration with banks and fintechs

D&I’s Kristian Karlsson got a chance to sit down with Daniel Kjellén, the CEO of Tink, Europe’s leading open banking platform, to talk about building an open banking unicorn and the role of collaboration in achieving that.

Kristian: Could you start by telling as a bit about yourself and Tink. How did it all start?

Daniel: It has been quite a few years now, sometimes it feels like yesterday and sometimes an entire adult life. No, but seriously we founded Tink back in 2012. We started to reverse-engineer mobile banking APIs to access our customer’s banking data with their explicit consent, and we felt that it was unlocking amazing value. At the time, what we did was not regulated, so people basically said that you are going to go to jail for that.

There was certainly no B2B market around. Instead, we decided to launch a consumer app because there was basically no other way to show that what we did was adding value to users of open banking technology. Me and Tink’s co-founder Fredrik Hedberg recruited a small team and in 2013 we launched a consumer app. We also started to go back and forth to Brussels to lobby for this to be regulated and in 2016, as a lot of people know, the second payment services directive was adopted. PSD2 is a regulatory framework surrounding open banking and that opened up a B2B market for the first time. In my opinion, the EU was very clear on the direction of travel and we saw the rise of a new generation of bank managers and fintech start-ups that understood that the world will look different in the future and wanted to win that, and wanted to delight the end users of open banking technology. The first two banks Tink partnered with were ABN AMRO and SEB. I think it’s fair to say that we did a semi-pivot back in 2017 and became a B2B open banking platform.

Today we like to think about ourselves as the European open banking platform. We talk about it as we are the rails and brains of open banking, meaning that with rails we build connections to some 3,500 banks in 18 markets. And with brains we refer to data and value-added products that help our customers – banks, fintechs and start-ups – to get the most out of the underlying payment infrastructure. Tink is a 380 people organisation across 13 offices in Europe, and we are headquartered in Stockholm. We serve not only the likes of PayPal, Klarna and the largest banks but also hundreds of fintech companies, such as online lenders.

Kristian: What is it that puts you ahead of some other players in the market? How do your products benefit the client and the end user?

Daniel: I think that there are a few distinct areas how our clients are using our services. The first would be to sign up users faster: our customers use Tink’s services to do KYC or to connect the bank account for example to a PayPal service or similar and to increase conversion and speed at sign up. The second would be to increase engagement with our customers’ end users: Tink’s services enable aggregation of data from multiple sources and also give the end users, as in our customers’ customers, a richer user experience by providing the end user with a better understanding of their finances. The fintech or the bank will also better understand their user base. The third would be to increase sales and use the same data to create triggers in CRM systems or apps that support sales. The fourth would be payments in general, both to replace card payments and to, for example, enable instalment payments.

There are a bunch of very talented companies in Europe. I think that when a client chooses us, we are super happy about it every time and typically our customers say that they like both the quality of engineering and the developer’s first experience. We also have a fair amount of rich data services that helps them get up and running faster.

Kristian: You mentioned that you had two partners at first. What was your strategy when you entered into the partnerships, what did you want to achieve and how did the cooperation in practice start?

Daniel: Our strategy was stupidity and ignorance I think. Jokes aside, our focus at the time was on building the consumer app, and we had been at it for three years. We learned a lot and gained understanding on how important it is to delight the end user, but we had not found a business model yet. So when ABN AMRO and SEB reached out we basically said that we are not interested and we kept saying that for quite some time. Eventually, the potential input and effect by the amount of money that they were willing to pay was so high that we were like okay, damn, we need to do it. So there were no “smart moves”. Fairly soon after the collaborations started, we were awarded the product of the year award with SEB. When they did a survey at ABN AMRO after six months, the perception of the entire bank of that user base had completely changed. And ABN AMRO has been around for more than a hundred years! We figured that maybe this is the way to get leverage on the underlying technology.

We have a lot to thank those early cooperation partners for. Eventually, we concluded that Tink should be a platform. That is how we make a dent, that’s how we get leverage on technology, and that’s how we really can scale this.

Kristian: You mentioned that you made a semi-pivot back in 2017. Has Tink’s purpose or vision changed in other respects during the journey? Has it always been clear that you want to conquer Europe for example, or should we say start with Europe and then take over the world?

Daniel: In my mind there are a few things that are similar, and then we probably express some things a bit differently nowadays. It is the same underlying technology. We help people – as in bank customers or what we refer to as end users – to connect their bank accounts, with their consent, to the services that they love and enable them to aggregate their data and to make payments from these accounts. When doing that, when enabling consumers to bring their bank accounts with them, it creates competition on a level playing field and that will bring out more competition, and more fantastic end user services. So I think that in that regard it has not changed so much from the times when we were a consumer service. Already then, we had identified that what we want to achieve is financial happiness. By unlocking this technology, we should help people understand their finances, make better financial choices and eventually achieve financial happiness.

That is, however, not how we talk about it today but rather say that we want to power the new world of finance. But I think that the next step, when we power the pioneers in the financial industry, is probably something similar to what we did from the start – better end user services, putting everyone on the same level already from the start. I think there will be great new fintechs that will deliver value we have never seen before, but I think there will also be a few of these large incumbent banks which are in the process of reinventing themselves. I believe some of them will do really well because they have a brand, funding obviously, a user base and a lot to lose. That could be a lethal combination as well.

Kristian: Does the fact that the banks have started a digitalisation journey and some have reinvented themselves or are in the process of doing so indicate that they find open banking beneficial also from a business perspective?

Daniel: I think open banking in general has made a huge transformational journey over the past few years. In 2018-2019 it was more a nice to have and an exploration for the banks. These days most products are driven by return on investment (ROI), meaning that they will have tangible metrics, the purpose of the product is clear, there is a business case and the outcome is certain. I think that we grew by almost 400% last year and that is driven by very tangible use cases.

Kristian: You have partnerships both with traditional banks and fintechs. What are your reflections on such cooperation? Do you think that they work more or less the same way or are there some differences that you should consider when contemplating cooperation with either type of player?

Daniel: I think there are actually more similarities working with someone like BNP Paribas or Paypal than you could imagine because they are both enormous organisations. I think it is also fair to say that a lot of the start-ups – and it’s not true for all in any of these groups – would be typically more focused on technology and end product delivery than incumbent players. Because start-ups typically need to deserve every new customer interaction, which means they can’t take any customer for granted. It is fierce competition every day. If you are not using Paypal, you’re going to use Klarna or a credit card wallet or something similar instead. That means that start-ups have less time for politics, less time and tolerance for moving too slow. Still, many processes have similarities in banks and fintechs because of the challenges of running such an organisation. Tink is now almost 400 employees, and it is now different compared to the times when we were 25 or 50.

But there are also differences of course. Some projects take longer and there may be slightly less scrutinization on the ROI in some cases when cooperating with the fintechs, but I think all banks are also on a massive transformation journey. I don’t think there is anyone who says that what was good enough yesterday, is good enough today. I think they really want to be progressive, and I think that some of them are doing really well.

Kristian: It’s interesting to hear your thoughts on the client base and churn, because it’s easy to imagine that if someone uses an e-service they might switch the service provider more easily than if they have all accounts and housing loans and all other financials with a one service provider. It takes a lot of more effort to move all that. What has been the role of partnerships in Tink’s international expansion? Tink has 13 offices already and you are present in 18 markets.

Daniel: Partnerships have proven more important than we first realized. Obviously, the first partnerships in the early days were really important to get and set us on the right track altogether. I think that we realized pretty soon that the banking markets are still pretty national. It means that for every new country you enter you need to have new test accounts, new test users, a reference customer, a localized product, and you need a local office to show that you are committed to this market. Because people know that it will be complicated to switch and it is a mission critical software for many of our customers. So if you could launch in new markets and expand into new markets with existing customers or real partnership customers, that would make the journey so much easier.

I think that what we have done with BNP Paribas going to multiple markets, or PayPal, have been extremely important for us. You need to passport all that knowledge and reputation you may have from existing markets into new markets. In order to do so, you need one of those blue chip customers to vet you and say that this is something you want to work with and help you in each market. Partnerships in general have been important for Tink, but in my opinion also the fact that when really trying to create partnerships it also means that you get very aligned with your customer’s success. And that is equally important for all our customers.

Kristian: Being nowadays in a B2B business Tink has banks as customers and cooperation partners, but some of them have also invested in Tink. What are in your opinion the pros and cons of having banks as investors?

Daniel: The pros are fairly easy. We need outside investments in general, and having customers as shareholders is a way to cement these partnerships and to make them stronger. Relationships that typically would take years and years to build without an investment – boom, it’s there from day one. That is because both know that we’re going to be associated with each other for a long time. It is more difficult to walk away in a year’s time and say I’m not happy about the partnership. But that of course goes both ways, both on the bank’s side but also on the fintech’s side. I believe our investors also saw pure financial value in our business during times when we had a slightly more complicated journey back in 2014-2015, before we found a working business model. The banks wanted an innovation partner, so such capabilities have also been helpful.

The downsides become visible if the independence of a platform like ours is questioned. We felt that a little bit when we brought in SEB and ABN AMRO, because in Sweden we were then perceived as their portfolio company. We have never been a portfolio company, and it’s very important to keep in mind that we could never share data or information about someone else’s doings. But when we started bringing in a few others like BNP Paribas, PayPal and a few others I think that kind of also neutralized that effect. That made things significantly easier and I don’t see any of those downsides anymore.

Kristian: That’s good to hear. So to the last question: which three words would you describe Tink today and which words would you like to use in five years in 2026?

Daniel: That’s a complicated question. I mean, I don’t have any smart words. I’m super proud that we continue to challenge ourselves to be better every day, and that we continue to be curious and to know that we have very talented customers that should demand a lot from us. My worst fear would be to be a fat cat.

Kristian: Thank you very much. Daniel! It has been very interesting to hear your thoughts and I appreciate a lot that you took the time today.

Daniel: Thank you so much for having me today, thanks.

The above text is based on a free transcription from the discussion Daniel and Kristian had at the Nordic Fintech Summit 2021 organised by Fintech Farm Helsinki on 17 March 2021. Fintech Farm Helsinki is a digital finance innovation service provider and a fintech hub that operates an innovation ecosystem with partners across the Nordics and globally. Dittmar & Indrenius is the legal partner of Fintech Farm Helsinki.

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