Show 110 – Unicorn Interviews – Dr Tim Sievers – Deposit Solutions

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The 6th in our special series of episodes that we’re recording in partnership with the European PR Agency Tyto and their Own Without Borders podcast. Joining us online from Hamburg was Dr. Tim Sievers, CEO and Founder of Deposit Solutions, an open banking platform that, as reported in the Financial Times, reached unicorn status in September 2019 after securing a $55m investment for a 4.9% stake from Deutsche Bank.

Deposit Solutions provide open banking for deposits. Deposits are simple savings products. Tim said that it’s about overnight accounts, fixed term deposits and notice accounts. He added that for savers, deposits are an important product category for the financial services’ needs, that’s just where you put your money, the excess cash that you want to save. For banks, it is a really important funding source, 40 percent of European banks balance sheets are funded in deposits. What Deposit Solutions brings to this product category is the ability for a customer to use products of different providers under their existing home bank relationship, the point of sale, the interface to the customer, because the point of sale can implement the platform into its own offering. And then if their own customers have access to all these Third-Party provider products and on the other hand, the product providers, they gain access through Deposit Solutions to a huge additional addressable market for their funding. So, it really is a win-win. Tim added that it can also be called open architecture and something that’s quite well known from other product categories, they are really trying to bring this into the product category of savings.

Tim believes that becoming a Unicorn in many ways it didn’t change the perception of the company much. However, he agreed that it may have brought them a little more attention, comparable to when Peter Theil invested. Tim said that he was also surprised how becoming a Unicorn gave them some more credibility with parties that didn’t know them before. In their industry, as a fintech and especially as a B2B focused fintech, Tim said they are selling to banks. Banks are very conservative organizations and typically they’re much larger than Deposit Solutions, Tim added that they’re always worried about whether they can trust a partner or whether the partners are going to be around for long enough. So, he said that on that dimension, becoming a Unicorn may have helped them a little bit.

Tim explained that building a company culture in such a fast moving and high growth environment is a challenge. Because they are fast growing, it means many people who work with them today haven’t been with the company for very long and it’s an environment that is changing quite fast paced as well as being demanding on the team. He said that the first thing is, you’ve got to make sure that you find the right people, eager to take responsibility; that’s the sort of team building aspect of it. When everyone’s there, he said that you’ve also got to make sure to unite them behind a common goal. That’s really a communication challenge; to make sure everyone understands the vision so they can take the right decisions decentrally, even though they may not have been with the company for such a long time. Finally, what Tim has noticed is that it’s not only important to say what behaviour is wanted, it is also important to have a very clear code of conduct, such as, what isn’t acceptable. This is also something that one has to find a consensus and build a consensus around.

Tim explained that in his early 20’s, just after graduating, he joined a start-up with a friend before founding his own start-up. He said that the two main things that he took from this experience was to focus on both the team and the product.

Tim believes that talking about and understanding what open baking is, is really important because there is some discussion and unclarity sometimes around what exactly banking is. To him, open banking is about putting the customer at the centre of everything, the customer’s needs at the centre of everything. It’s not about pushing products onto a customer base off of your balance sheet, it’s about really understanding what your customer wants and needs and adapting around that. Tim added that he thinks this, of course, includes the whole PSD2 world, which is, especially in the UK, the focus of discussion and that’s rather recent. But it also contains the whole world of open architecture, which is actually a little older and some product categories; already 20 or 30 years old. He added that it’s the principle of making available on top of your own products as well as third party products to your own customer base and the two together. PSD2 and Open Architecture are really very powerful in transforming the industry to the benefit of the customer. They also create huge opportunities for those industry players that embrace it and especially the incumbents. Of course, there are a lot of challenges, such as new players in the industry, but especially for the incumbents. Tim believes open banking is a huge opportunity.

Tim said that their vision is to build an infrastructure for the deposits product category, and that is a B2B focused vision. That’s how he set out as well, 10 years ago when he started the company, they spent about three or four years building the platform and then when he went to present it to the first partners, and tried to win them to participate, the distribution partners told him; look, come back when you’ve got products on the shelves. But the product providers told him; come back when you have distribution. So, there was the giant chicken and egg problem to solve. And at that time, he said that they started our own B2C point of sale, their clients direct line facing business which runs under the brand of ZINSPILOT in Germany and Savedo in their international markets. With that, they distribute the products listed in their platform directly. Tim explained that this was really useful because it proved to other market participants that this works and it’s feasible, the regulator is fine with it and customers want it. But it also meant that for product providers, he could say; look, here’s the vision, we’ll have lots of distribution for you but regardless of what happens, I have this channel here which works already, and I can get you deposits tomorrow. So, with that, they were able to beat the product panel and bring more policy partners. He said they have more than 100 product providers from for more than 20 European countries today. The B2C platform was really helping them to overcome the chicken and egg problem. He added that putting it like that shows that they are all about B2B, but it understates the relevance of the B2C business a little bit, too, because even stand alone, this has definitely been one of the most successful European B2C fintech and is doing quite well today. Tim added that they can learn from the user experience and optimize their product with direct insights. So, it has many secondary advantages.

Tim said that some of the things that are interesting is everything that is going on around new regulation, PSD2, payments, new products and performance that are tested on customers. What he finds interesting is that this is one area where it’s not like the innovation is happening in the US and then the rest of the world follows, there is exciting stuff being invented in Europe as well as in the States. In fact, there are quite a few European start-ups which are starting up businesses in the US now, Deposit Solutions is one of them, as much as the other way around. Also, beyond Europe and the US, Tim thinks it’s quite interesting also to see how, for instance, in Africa they’re leap frogging directly to mobile applications and how customers haven’t learned the desktop behaviours so they are more open to try new formats on the mobile.

Tim also added that their plans for launching in the US are going really well, they’re really far advanced as well. Unfortunately, this has been one of the projects that has been delayed by the Coronavirus crisis, but they are looking to launch as soon as they can, within this year depending a little bit on how the situation in the US evolves. It’s something that they have been preparing for two years already, it has been a big challenge for them as a company. He said that, whilst they want to use their core strengths, the product market fit in Europe doesn’t always translate to the product market fit in the US. They went to great lengths to actually make sure to adapt the product to the local requirements, not just in terms of regulation and the contractual frameworks and but also in terms of the competitive landscape and customer needs. So, they actually invested quite a bit of time and they now have a team in New York, which is their own home office whilst they are preparing their market launch.

Tim explained that Coronavirus has changed the way he communicates with his team a little bit. But he has generally found that sitting with the team helps because there is more informal communication that is happening all the time. He said that he has tried being in a separate office just by himself, which obviously when you’re on the phone, for example, has its advantages. But the other model was better, so they went back to that. He added that what they also found over the years is, especially coming back to what he said earlier about uniting a team behind one common goal and vision, you have to have some sort of organised, centralised formats of communication on top of the informal things that are going on. Obviously, lots of that is happening, trickling down the line management structures, every leader with their teams, then you speak to the team leaders and so on. They have also experimented with some direct formats as well, but it’s not always easy to keep it at the same time, for example, Tim added that it’s hard enough for everyone to keep attention long enough to be able to provide sufficient substance. But they found this has become quite an effective format for them, too. So, he tried to communicate directly to all as well as to the individual leaders or individual people. He said his colleagues in the management tried to do that, too. He said that during the current time, where there is increased remote work and people are at home, they have seen people having many team video-calls, multiple times a day. They have also found that it is very useful to provide higher frequency of internal communication formats, like a newsletter, to still get across that you’re part of one team, one community, even though everyone sitting at home.

Tim said that this has been really quite challenging, especially on the communications side, but also in other respects. While they are lucky in many regards compared to other industries, this is still been hugely challenging for their clients and for them with delays and projects and teams in different places.

He said that this has had an impact on everyone, and it’s certainly had a big impact on Deposit Solutions. They are in their fourth month of home office and remote work, they started at the beginning of March. Fortunately, Tim said that the team has done well so far, but it’s affected them, it’s affected how they work, it’s also affected their business. However, he did acknowledge that they are in a fortunate position because they are not in trouble like other sectors. For them it has meant that many projects that they had planned to implement with partners in the second quarter have been delayed or cancelled because the partners were busy with business continuity management and crisis management. It means that this year they are growing slower than they had planned to grow, but they will still grow. Tim added that they shouldn’t complain too much, demand for their services hasn’t broken down or anything, but it’s definitely been a tough time.

It’s a challenging time for everyone, for savers and for banks. For banks, deposits are really important as a funding source. Funding costs for banks have brought home the importance of retail deposit funding because that is stable, it’s granular, it doesn’t run away in panic, when something like a crisis hits. So, it’s an important funding source for banks, regardless of the interest rate level and having access to it. Diversified full of retail clients to tap into for your funding is of strategic importance and risk management boards, regardless of the cost, but it also increases the pressure. So, when your home bank is giving you zero or threatening to give you a negative rate, other way to look at it is; where can I make sure I’m not losing money? So, Tim said they feel that demand from savers has not at all been going down with this decrease in rates over the past year, if anything, the problem of the saver has become bigger. The question is what else to do right? What else do you do if you don’t put it in the bank? In the bank, at least its deposit insured. You can be pretty sure you will get back your money. You might not earn a huge interest, but you would get back your money when you put it into the stock market? Of course, in the long term, that’s likely going to be giving you a good return. But then you have to have good nerves to take those swings of 30 percent down and 50 percent up. He added that what they have seen in these past months, also depends on what stage in your life you’re in. There is a huge demand from banks and from savers, it’s pretty robust. The market is huge in Europe alone, it’s more than 10000 billion euros, that’s a pretty exciting market. It seems very robust to any changes in the interest rate.

Looking at both groups who we are working with the savers and the banks; for banks, when they have defaults and default rates are increasing, that means that the swaps, the spreads are going to widen, it means that funding is becoming more expensive for them and when they try to get it in wholesale markets or capital markets. This also means that, relatively speaking, deposit funding is going to be more attractive and more important, especially as some banks worry about rating decreases or things like that in the deposit market. Everything’s deposit insured at least up to a cap of hundred thousand euros, which is well above the average, which is at forty thousand euros per saver. Savers don’t need to worry about counterparty risk, this is a really important funding source. It doesn’t dry up in a crisis, from the bank’s perspective, if anything, a recession is going to make deposits more important and more attractive. And from the savers side, of course, people in a recession might have less to save, but then also typically stock markets aren’t doing so great. So, this all comes back to deposit just being a very robust market, partly because it’s so huge and partly because it’s a default of what you do with your money.

Tim explained that in the first couple of years he didn’t spend much time on communications at all. He said they were very product focused and focused on building the team. It’s probably something that with hindsight, he maybe could have started to do a little earlier. They weren’t very busy on the founder press side, it was pretty much focused on just getting the right product out and speaking to their clients, getting the product market fit. This is led to, for the first couple of years, people typically being surprised, firstly, wondering who we are and then secondly, surprised that we were actually perceived to be smaller than we were. What they have done over the years then is that they have increased their attention to communications, firstly, by contributing to the debate around topics that are relevant to them; They have a thought leadership program where they commission research around their area of expertise, around deposits and bank funding, etc. They’ll be participating industry conferences, they have an event series where they invite industry players to present on different topics, both internal know how, but also external speakers. So, today they are doing much more than that in the past. But in the early years, Tim said they were rather inward oriented. He added that they’re still not the loudest in the room, but he doesn’t think you have to be, they are pretty B2B focus and we’ve got to sort of convince with their products.

Tim believes that to be a good spokesperson and representative of the business, you shouldn’t be too loud, too early. He said that they have been criticized sometimes for being louder externally, not getting enough attention. But he thinks it’s also good to not be too loud, too early because it helps build credibility and then if your product is too far behind the narrative that usually catches up with you in sales, which is not good either. What Deposit Solutions have been trying to do is contribute to the industry debate with their research pieces, they have also tried to contribute to the debate by participating in different committees. For instance, in a committee of the German finance ministry on different fintech related questions, together with industry leaders from the established banks and similar formats. They are also participating in a workshop series of the German Banking Association. In the countries they are in, they sometimes also try to get involved with the sponsoring of industry events or participating in roundtables and things like that. There is this participation, which Tim said is important for them, in terms of shaping the space they are active in. They have had many challenges, for example, the European single market, sounds great but in practice, it’s just so far from where they need to be, he thinks there’s a lot of work required by everyone active in the industry, it’s affecting fintechs in particular, especially the ones that have been looking for international markets.

Tim explained that communication has been a development for him. He said when they started, he wasn’t used to giving speeches are presenting to large audiences. He said that it’s something you pick up with practice along the way, it also comes with a job on the interpersonal side. Deposit Solutions are quite an international team, of the 300 employees, there are 44 nationalities. So, when collaborating there are these cultural aspects on communication, too. Tim is northern German, so he said he tends to be pretty direct, that has also been a journey for him; trying to adapt and work a little bit on the style to be more compatible for people from other cultural backgrounds. He added that about three years after he started the company, they realised that the it was hard to find the people they needed in the local labour market, so they switched the company language to English and then just started hiring internationally.

Tim believes that the Coronavirus crisis has been the biggest challenge in many dimensions, but also in communications. He said it has been difficult because you have to be straight and honest with the team and the people you’re talking to. You can’t pretend like everything’s fine, but at the same time you want to make sure to also provide context and calibrate it correctly and show that there is no need for panic. He said it’s been a challenge to find a balance. Things that may have been done before, when everyone was in the office, such as walking through the rooms and having a chat or presenting to individual teams, now have to be done through new formats remotely. So, this is this has been a communications challenge.

Tim believes that an important piece of advice he was given would have been to stay authentic. People notice when you’re not authentic, so you’ve got to stay close to who you are and then work with what you’ve got.

When asked what advice he would give to his younger self, Tim said that whilst he would stick with focusing on product and team in the early years, he should have started to contribute to the wider industry context around their expertise earlier as this is proven to be really effective for them. He said that it has been a good instrument for them to reach their audience, their target groups.

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