Network Effects in Financial Services (#8)

Network Effects in Financial Services, with Evgenia Plotnikova, Martin McCann, Oliver Prill
Network Effects in Financial Services, with Evgenia Plotnikova, Martin McCann, Oliver Prill

Network Effects in Financial Services,
w/ Evgenia PLOTNIKOVA, Martin McCANN, Oliver PRILL

This podcast was recorded at FinTECHTalents’19 Festival and in it we’re exploring the potential of unleashing network effects in financial services. Ben Robinson is joined into the conversation by: Evgenia Plotnikova (Principal VC @ Dawn Capital); Martin McCann (CEO at Trade Ledger) and Oliver Prill (CEO at Tide Business Banking).

Full podcast transcript:

 

 
This podcast was recorded at FinTECHTalents’19 Festival, at Printworks, London (www.fintechtalents.com)

What we’re essentially trying to do is create a network of quality data that provides the potential for innovation in terms of services which can be built on top of that data. But the problem we’re solving initially is that convenience and trust problem of both sides of the network. — MM

What we’d like to distinguish within our business is three things — network effects themselves, then the virality factor and economies of scale. […] in my view, you can actually create significant businesses without having network effects -EP

The platform generates a lot of data […] so we invest a lot in data science and machine learning to basically do all non-simplistic decision making. […] Every time you can’t make a simplistic decision, we deploy machine learning and machine learning gets better the more data points you get from different users because the models become whack. — OP

We’re internalizing, but I think other people who sit on our platform can externalize. So it’s too big a problem for anybody to solve, so we’re trying to do the bit that we know how to do really well, which is to organize the data services and provide them so that other people can create other business models on top of that. — MM

But the key for us at this stage, we don’t think too much about, I guess the detail of what the network effect will be. Because if we don’t get the momentum and the traction and the scale, we don’t get the opportunity to create the network effect. — MM

I mean we currently open more business current accounts than Lloyds or RBS group per month on a flow measure, and the reason for that is very simple that the network effects just don’t exist. There used to be a degree of virality, which really was just brand awareness. You would default to the Big 5, because you just didn’t know that was another. — OP

It’s the regulator. It could probably be more market share with network effects — because the winner takes most of the market — which is actually one of the debates we’re having with all the social networks, should the regulator not start to intervene because they have all of us, right? But we fundamentally believe in financial services. There may be niches where this doesn’t apply, but in general, 15 to 20% in any country exposes you to regulatory intervention risk. — OP

Platforms take a while to build. This is very different to a product vertical that you were talking, in Europe with 20+ countries or, you know Revolut that goes into 30–45 markets. Effectively, they are single product or similar product-centric propositions that very rapidly can go across borders because all they do is marginal change. — OP

There is nothing to stop us from creating a monopoly. So we’re not like a financial service provider. Whether we get to do that depends on the decisions we make about building up the business. A lot of that has to go back to what I said earlier about momentum and scale and the ability to keep creating additional value add and value adding services for the participants of the platform, in different regions. — MM

I love the fact that we’re a technology company. I mean, I would never want to be a bank because I think that model has so many constraints with it that you have to work within the system, whereas being a technology company, you’re completely unbounded and you can re-imagine completely what the value proposition in the marketplace looks like. — MM

I’d say in the beginning, it can be poor product that can accelerate network effects. You mentioned LinkedIn, you might remember monster.com. So that kind of became a large business driven by network effects before LinkedIn came. And so I think that’s actually a case in point of eventually poor product falling on its own sword despite the network effects that existed there. And so for me, ultimately, it’s not about sort of internalizing and externalizing. Ultimately it’s about category dominance. And so the way that we think about opportunities to invest is we don’t just look at a market that’s large. We’ll look at a specific value chain and where the business positions itself within that value chain. — EP

Ultimately I wouldn’t say that you necessarily get a huge premium for the network effects. It’s more your ability to have your cost base being linear, whether it’s your revenue is exponential. And so whether it’s network effects that that got you there or whether it’s your virality factors or your go-to-market, ultimately the great businesses will get the right price tag, regardless of what made them get there. — EP

We’ve been raising money, we find that the investors we spoke to honestly couldn’t give a c*** about network effects. All they care about is financial fundamentals and team. That’s it. All they care about is how much money are we currently making? What’s our attraction and how fast are we going to grow our revenue? And when are we going to make profit and how are we going to make profit, and do we have a good team and do we believe we can execute? That’s all they care about. — MM

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