Fintech ever after - no fairy tale

Nina [00:00:04] Hi there. Welcome to the second series of Architects of Change, a podcast brought to you by Mambu, the cloud banking platform to help you evolve your business. I'm your host. Nina Mohanty, founder of Blue Money. Throughout this series, we’ll be covering a vast range of topics within the fintech world, with help from some brilliant guests, including industry experts, fintech influencers and more. In this episode we’ll outline why fintech is such a big deal right now. The current market trends and predictions we're seeing, investments and the growth of female focused fintechs. To help me delve into these exciting topics. I'm delighted to say I'm joined by Carolina Brochado from EQT Growth Fund and Mambu’s VP of Marketing Laurel Wolfe to discuss market trends, investment and the growth of female focused fintech. Thanks for joining ladies.

Carolina [00:01:02] Thank you so much for having us.

Laurel [00:01:04] Yeah, thank you.

Nina [00:01:05] Before we get into the crux of it, I'd like to outline the facts for those who are listening who may not know just how big of a thing fintech actually is right now and how it's continued to develop in recent years. So fintech is actually the fastest growing sector, and it's estimated that it's growing 25 percent year on year. It's also estimated that by the end of this year, it will be worth over 310 billion. And according to P.W.C, the number of fintech unicorns grew more than fourfold from 36 fintech unicorns in 2016 to 159 last year in 2021. We've seen a Cambrian explosion of fintech spanning everything from remittances, lending, banking, correspondent banking and financial services infrastructure, without even mentioning blockchain and the rise of blockchain exchanges in two years and more. So to kick us off, Laurel welcome. Do you have any other impressive innovations or anything that's jumping out at you right now that you wanted to add to that list?

Laurel [00:02:17] I mean, I have some history and buy now, pay later. I see that having no signs of abating. I just saw that Scalapay became Italy's first fintech unicorn. Italian buy now, pay later provider. I think another hot area is buy now, pay later, but also for B2B environments. I see quite a lot of providers coming into the space in that area. I think that's quite exciting. Of course, cloud banking - near and dear to my heart - is definitely very popular. You know, using the cloud in general to provide financial services, add some scalability and flexibility. So I think that that is a very interesting area and just sort of the internationalization of financial services and fintech in general, new areas, new regions, you know, coming up with new unicorns and new exciting technologies in different countries, I think is also very interesting.

Nina [00:03:15] I'm with you there. I'm definitely keeping my eye out on the Latin America and the African continent right now. Carolina, welcome. So we've got a few examples of success stories that we've seen, but this is just the start, right? What are you thinking as the next big thing that consumers and companies and investors should be looking out for right now?

Carolina [00:03:39] I think we are always just in the early innings because the big trends that we continue to see is that the world continues to go online. Customers continue to go online. Expectations continue to increase of what customers expect to see of their experiences online. Businesses come online. Offerings need to be more secure. In addition to be higher quality. So there's continued innovation in anything that touches that, right? So payments, of course, was already mentioned with buy now, pay later and lots of different kinds of payments. And you mentioned, of course, you know, crypto workflow. So for example, now that you're running an online business, how do you connect your needs like your accounting needs to what used to be an offline analogue situation? What are the key enablers that can help you like, insure tech, insurance going online, tech enabled or fraud protection as increasingly that becomes an issue, or know your customer? So I think that everything that continues to be super powered by this trend of continued digitisation, continued high expectation when it comes to online digital interactions are areas that we at EQT Growth are super excited about.

Laurel [00:05:00]I think, very much the same the idea of like customers want. Consumers want more convenience, control and choice in their financial lives. So anything that's going to be catering towards that and giving them that are things that are going to be successful and where we're going to see definitely growth.

Nina [00:05:16] Laurel, you mentioned, of course, already cloud banking. Obviously, you're at Mambu and we've already talked about buy now, pay later. But I also wanted to touch on your experience having worked at VeriFone and kind of where all of that intersects. So we saw in the U.S. that, you know, we've got this square now block buying Afterpay. So are you expecting anything new or exciting in that space, a new player or maybe a killer product putting you on the spot here?

Laurel [00:05:50] I don't know exactly. Block is an interesting example of consolidation with Afterpay and like people coming together to offer, you know, sort of a one stop shop from a payments or business enablement type of offering or proposition. So I think that's interesting. Yeah, I spent quite a few years at VeriFone in payments. I mean, the big thing for us is that during that time was the launch of contactless, which was now seems like such an old and crazy technology. But we were there during that time that that was like a big project for us is putting contactless terminals into stores. We had a big push, for example, London 2012, the Olympics, that was a big push for us at the time. Like, let's see how many contactless enabled shops we could have for this big event that was happening in London. So yeah, there's so many things that kind of come into our lives from a payment standpoint that we don't really think about, but, you know, really fundamentally change our lives. I used to sort of joke at VeriFone, you know, actually, that's a brand that you touch every day. You use a payment terminal when you're in a store and it's a brand that people didn't really notice or see. As soon as I told them what it was, they would come back to me. They go, you won't believe how many times I saw your brand, but it's so ingrained in our day-to-day life; payments and paying with cards and paying and all kinds of ways that people, you know, almost take that technology for granted.

Nina [00:07:23] I want to switch gears a bit and talk about investing, and I actually just came off of a conversation with a group of VCs based in the U.K. talking about investment, and they were specifically speaking about LPs and founders and that relationship there. But Carolina, what is getting you excited right now and what? What is an attractive innovation? What is the contactless of 2010 that you're seeing today that is getting you excited when you are putting on your investor hat? And what are some of the best, best businesses that you've seen or best teams coming to you that you've seen recently?

Carolina [00:08:04] So I'll take it a little step back just in terms of the frameworks that often helps investors identify what then might be become something like, like contactless. You know, what we look for is we look for large markets, obviously payments, even though in different markets, people behave very differently when it comes to payments. So we should point that out and then we look for large pain points in those markets. And I think one of the reasons fintech has seen so much disruption is because there are several things about fin services that made it very slow to take up innovation. Obviously, there's regulatory pressures that are onerous for younger disruptors to take on. And there's also the issue of trust. You are at the end of the day dealing with people's money. And if you look at, for example, the behaviour just to take it back to payments, the behaviour of certain countries, for example, in Germany, where there's very low credit card penetration. Still, you know, Germans don't like to put their credit card information online and as a result, buy now pay later is about 30 percent of all online transactions in Germany more or less, because you can just put it in one place. So we're looking for markets that are huge and that have large pain points for whatever historical reasons infant services, regulation, analogue behaviour, et cetera that might be digitising. And then we look to find a company that has a product that is solving that large pain point in some way. And of course, with product, there's always lots that you can do to improve the product and cover more of the pain point. But you can see that the early innings of that. And then, of course, the final component. A very important component to maybe the most is that it has a team or the beginning of a team that can execute against this opportunity because sometimes something may not start as contactless but become contactless. And you don't know what the beginning of the journey, what's going to become at the end of the journey. But if the market is there and the product is there and the team is there, then all those things can triangulate to, you know, really great innovation and really great disruption.

Nina [00:10:28] Yeah, I think that is a very good point, that sometimes it's not necessarily what you set out to build. I learnt recently that Slack was not actually founded to do what it does today, but was actually the internal communications messaging for that business. And then they thought, Wait, hang on, this is working a lot better. And that's how Slack became Slack. Carolina, now you, you have a very, very unique background and I have my fair share of venture capitalists while fundraising for my own business. And so I can definitely say that your background really jumped out at me in that, obviously, you're a woman, but you're also originally from Brazil. And I also learnt that you studied Foreign Service at Georgetown and you were also an operator prior to starting your journey as an investor. So that, to me, means that you have a pretty unique outlook on the world, on the problems that people may be facing. What do you see differently from where you sit across, you know, EQT’s Growth Fund? How would you say your perspective differs from those of your colleagues?

Carolina [00:11:45] I'm a huge believer in diversity in general for, you know, I think because of all the reasons you mentioned, because in some ways in a lot of the rooms I've been in, I've been diverse and and I think it's really powerful because sometimes you don't know in what ways your perspective is going to be different, but you realise that they really, really are. And that's everything from the way you communicate to different things that you might have seen. So I think that every time I'm building my team or I'm sitting on a board and helping teams build their team, whatever, it's so important to have different kinds of life experience and different kinds of perspective, which of course then means different kinds of diversity. And I think that I've seen that play out because oftentimes I've been in rooms that tend to be very homogeneous and I stick out and I've realised that, you know, in some instances, my perspective can be quite different. And when you sit in rooms where everyone comes from a different place and I mean that not just as an actual specific geography, but background, lots of creativity emerges. And of course, there can be friction in that. But if you know how to manage that, then it's really quite a powerful thing.

Nina [00:13:10] Well, speaking of geography, you are Brazilian by birth, correct? And we've seen Nubank go public. So very exciting time for, well, this Brazilian unicorn, but also actually is it a decacorn now? But also the continent in general. Is there anything that you are keeping an eye out for in LATAM specifically? Or is there a special place in your heart for that or something that you kind of just keep an eye on on the side?

Carolina [00:13:42] Yeah, no. LATAM, obviously is a very special place in my heart. And, you know, several years ago, I actually was able to invest in LATAM and have been lucky enough to invest in a couple of businesses that have emerged from Brazil and gone beyond Brazil. For example, there's a business called Gympass, which sells fitness activity provider network to employers as a benefit to employees. And that was a business started in Brazil, as you might imagine. Brazil is actually the second largest fitness market globally. Brazilians like to stay in shape, or some Brazilians, I guess, because the reality is is most people don't have access to a fitness activity provider, whether that's a studio or climbing wall or gym, either because for financial reasons or for logistical reasons. And one of the things that really moved me when I first met Gympass very early in their journey was that 72 percent of people that were now able to access this through a benefit and never had access to a gym before. I think, of course, LATAM, like anywhere else, has that potential, but had been historically very underfunded, not too differently from Europe, by the way. We're there, you know, Europe had been historically underfunded, and as a result, entrepreneurs had to either sell early because there was an existential threat to them in running out of cash or they had to drive the business to profitability. And as a result, they were never able to raise rounds large enough to really innovate, step on the gas push for a full potential. Make mistakes. Right. That eventually got them to innovation. And that's why I'm so passionate about growth, especially in places that had historically been underfunded, like Europe and like LATAM. And you can see Nubank once you give, you know, entrepreneurs capital. In large markets that are solving pain points, they can become very large businesses.

Nina [00:15:46] Absolutely. And picking up on that thread, you know, with living in Europe, it's been a very interesting time to look at tech. Laurel, I think that, you know, it's fair to say that a lot of people think of Silicon Valley as being the hub of innovative technology, and they think of, you know, world leaders, tech leaders by name. Even so, you know, as the two Americans on this on this podcast, is this changing? You know, you've lived here for a while now, as have I. Is this changing a bit? Is there more focus on Europe? And are we going to hear more hype about Europe?

Laurel [00:16:34] I think we definitely are. I think I think actually we've proven ourselves in Europe to have some some pretty good ideas that are worth, you know, investing in, and we have some very interesting stuff going on. That's not to say, you know, Silicon Valley is going to stop being what it is, but it has big, major players there. I think over here we are starting to get bigger and bigger companies that have higher valuations. But I also think, you know, this is also an area where you can still come up with cool ideas and sort of incubate them and grow them and get them into a lot of different markets at once. That's another interesting thing about Europe, of course, is that there's so many different countries you can enter and you can sort of stress test your offering and your proposition with a lot of different populations. So I think there's some very interesting things that can happen here. So I think we are proving ourselves to have some, some good, something good to offer, for sure.

Nina [00:17:30] I wonder if, from where you sit, you think that this is being echoed by your friends, your colleagues in the industry, are there any thoughts that people might have that you disagree with when it comes to European tech and the opportunity that's there right now?

Laurel [00:17:47] I don't feel that way. I don't think people are like, oh, no, this isn't, you know, it's not. It's not as exciting as you think it is. So I don't feel that there's anything holding us back except ourselves really in Europe, you know, to be able to keep pushing the envelope, keep doing different things, don't get don't get too complacent. That's sort of my worry actually is a little bit like, oh, standard, doing the standard stuff, doing the me too. Still getting excited about coming up with the amazing idea. That's different.

Nina [00:18:17] Well, since I have you both here, we'll play a fun little game and say that you have a big bag of cash. And from an LP that you love that lands on your desk right now. If you could invest in a particular company or team or idea anywhere in the world, what would it be? I'll go to you first, Carolina, because I guess that's what you do every day. Oh yes,

Carolina [00:18:46] Exactly. I do have a big bag of cash.

Laurel [00:18:48] It's right behind her. Don't you see it’s piled up behind there?

Nina [00:18:52] It sits on your desk.

Carolina [00:18:56] Again, I go back to what I said earlier. Large markets, big pain points. Amazing entrepreneurs. I particularly like big, highly regulated industries. So to me, things like, you know, fin services and health care are places where I like to spend a lot of my time. And I think in addition, there's a lot of positive benefits to society that comes from entrepreneurs disrupting in those businesses because you're, of course, you know, treating people's health and wealth. And that's always a pretty important and fundamental area. So to me, those are the two areas that I spent a lot of time. And then, you know, if I had to point to a third where we are as a team trying to spend more time, it's in climate and trying to find businesses that are using technology to drive change and drive innovation. And it is a particularly difficult area because the business models are so immature and so. Creating a business that is then sustainable is something that, you know, we're in the very, very early innings of. But we definitely think that from, you know, the theory, there should 100 percent be so much innovation and some very, very large businesses that emerge in that space.

Nina [00:20:19] And you laurel. I mean, just for our listeners sake, I had the pleasure of getting to work with Laurel in a previous life, and she's one of the most fashionable people I know. So I'm half expecting you to say something about fashion. What would you invest in?

Laurel [00:20:33] If I had a bag of cash? I couldn't resist in investing in something I'm interested in personally, right? Like beauty or fashion, or, you know, something that's like female investing, female health tech. I really am interested in that. But yes, of course, there's things like Vestiaire Collective. I love. I love them. Etsy, I'm a big vintage shopper and resale shopper. So those are types of things that are interesting to me. Sort of the sustainable and circular fashion is really great and I love to see, you know, kind of younge - I've been doing it my whole life - but there's younger generations that are, you know, making it not even a side hustle, their whole hustle, you know, recycling and, you know, reselling clothing. I think that's great. And I love it so that, you know, the Etsy’s of this world, I think are fantastic. Vinted is another one here in the UK that I think is really good. So those are ones that I would definitely be interested in.

Carolina [00:21:30] I’m sitting on the Vinted board, so I'm very excited to hear all of this.

Nina [00:21:35] Well, I was just about to say I've been getting notifications on my Vinted while I've been away, and so I love that that circularity of being able to rotate my wardrobe, if you will. So one area that I wanted to touch on and I think we've kind of alluded to it throughout, is the growing presence of female focused and female founded fintech companies. And one of the reasons that I want to talk about this is that there are studies that show that women as founders tend to build businesses that have a greater ESG impact. This is not to say that it's necessarily focused on that, and it's not a terrible project. It's not a nice project, but they just bring on board principles of what we might consider the UN Sustainable Development Goals or something like that when they're building their business. So Carolina, have you noticed this from where you sit as an investor and why do you think that is the case?

Carolina [00:22:47] Yeah, it's really interesting. And of course, anything I see is it's kind of purely anecdotal, right? Because I haven't seen it all. But I do think that female founders have been so purpose driven. And so not only is that part of the journey, not to see that the business is an ESG business in itself, but it's also part of everything and all the internal processes and how they think about their impact and how they think about their employees. And it’s always front of mind, as opposed to many other businesses where the idea first is, OK, let's find product market fit. Let's get some customers and then we'll tackle some of these ESG things. And then this ends up being tackled much, much later, which is fine and, you know, better late than ever. But I think, you know, impact tends to be important to women. And that, of course, then gets reflected if you have, you know, women in leadership.

Nina [00:23:53] One of the things I want to ask you, Laurel, as a long time operator and very, very senior woman in fintech, is if you could give some examples for us of some strategic initiatives of how tech companies today or start-ups are actually creating environments that help get more women into leadership roles. And are there any companies that you admire in particular?

Laurel [00:24:20] I think there's things that companies have to start offering. All employees at Klarna, for example, had a very generous paternity and maternity leave, for example, in some countries so that everyone could enjoy being at home with their new baby or their child. I think that was extremely important. I think there's initiatives like that to attract talent, talent, talents quite hard to attract. Nowadays, you have to, you know, think about it more holistically, the offer that you're providing to potential employees and what you bring to the table. So I think those are things like that I think are what make you attractive in a very competitive market and you have to think as a company, what are some of those things that you you can do to to make sure that the person not only flourishes at work, but in their professional environment, also in their personal life as well? Yeah.

Nina [00:25:12] And Carolina, you know, sitting on the on the boards of Vinted, Bought by Many. But then, of course, having visibility on your portfolio companies and others, I'm sure. Is it fair to say we've made a lot of progress when it comes to women in senior roles, especially in start-ups? And the reason I ask this is because I think there's a really great virtuous circle that happens when we get senior operators in start-ups in the event of an exit. You know, perhaps there is equity there that becomes liquid, which means that it can be reinvested into really exciting new projects or businesses or female founders. So have we made enough progress?

Carolina [00:26:00] Not enough, for sure. But I think from the very low baseline they used to be the world of entrepreneurship when it came to diversity in general. But let's just stick with women at this point because it's just better documented. We've made a lot of progress, and I think part of that is has been the awareness ride and has been the fact that a lot of attention has been brought to this issue. And you find that and I find that so many entrepreneurs genuinely care about this and they want to change. And of course, awareness is a first step. The next step is, OK, how do you change this right? How do we bring and it's interesting and it ties back to one of the things you talked about before, which is when I'm talking to a female entrepreneur or even a diverse entrepreneur, I don't worry about the answer of, you know, how diverse is your team? It's always super diverse, whereas the other side of that is almost always not true. Interestingly I think that it's changing. There's a lot of awareness. People are increasingly having objectives and goals that they want to reach. What I'd like to see more of is those getting attached to incentives. So if you don't reach some of these goals, there are some repercussions. And if you reach them, there's a positive right to go back to the meritocracy point because teams are better if they're diverse. And that's a real thing, and there should be real KPIs and incentives around that. And I think when that happens and investors and their carry are starting to get attached to those things, then I think we will make more progress and we will make faster progress more than we've done so far.

Laurel [00:27:49] Definitely. I agree with all that. Is it perfect? No. Is it better? Yes, Definitely. We have to be brave and put ourselves out there, whether we're totally comfortable with that all the time or not. But now there is a responsibility for the company to offer us a seat at the table as well, right? There's this give and take that before it was all on us. You need to do this. But no, actually, the company needs to offer you the opportunity to have your voice heard, and there's much more thoughtfulness around that point, I think, than there ever used to be.

Nina [00:28:22] I agree I had a mentor who would say when she was starting out as a banker. Forget about having a seat at the table - she was just trying to get into the room. So I think that's a really great way of putting it Laurel. One of the reasons I'm particularly passionate about female founders, not just in fintech, but across the board is one because I think the problems that get solved and addressed with a more diverse set of founders means that there are better products for more people. But two, those virtuous circles that we talked about earlier where when there is an exit, you know, people are able to bring their diverse teams and build their own wealth so that they can kind of reinvest it, hopefully into new and exciting businesses. So this is why I'm really excited, but I'm curious. Just last question for both of you and Carolina, maybe if you want to go first. What's the end game for? A female led or female founded businesses in fintech or not?

Carolina [00:29:31] Well, I think to me, the end game is that we don't have to label it as female founded anymore because they are, you know, half of all the entrepreneurs, as is the reflection of the world, right? 50 percent of the world are women. And so that should be reflected in entrepreneurship. And I think we still have to label it today because we need to bring attention to the issue. And I think in Europe it's only about nine percent. But there's no reason for that not to be, you know, at least half. And then that's not even a label anymore. You know, it astonishes me sometimes that I come across entrepreneurs and a lot of their audience. A lot of their end customers are actually women. But then there are no women on the exec team, right? And it just happens like all the time. And so I think eventually, you know, we can hopefully in a utopia, the end game is that you have so many that you won't be you have to label it as female founded anymore. Just be great entrepreneurs. And they're being funded because they're great entrepreneurs, because they have great businesses and people are joining them for all the same reasons.

Nina [00:30:41] That's the dream. Laurel, what about you?

Laurel [00:30:44] Yeah, I think that's a really, really great conclusion because I don't think that female founded or not, the end game is very much the same. Can I make this business that solves a problem that people, my customers, are having? Or can I found this business so that I can leave the world a better place and make my mark? I don't think, you know the differences are that vast between the groups, female founded or not. But I absolutely agree. It's a very good point. You have half the population is female, so half the entrepreneurs and half the start-ups should be female founded, but you don't see that. So somehow we have to help that happen in a better way.

Nina [00:31:23] Brilliant. Well, thank you both so much for joining us today to discuss so many topics close to my heart. I very much enjoyed our conversation, and I know that I could keep going for hours and hours and hours, so I hope we get the chance to do it again soon. Thank you for joining us.

Carolina & Laurel [00:31:39] Thank you. Thank you. Thank you, Nina.

Nina [00:31:41] Well, I am absolutely winded from that brilliant conversation with our guests, Laurel and Carolina, and I really enjoyed being able to touch on such a range of topics today, starting with, of course, fintech and the trends that we're seeing, including really exciting things like buy now, pay later, sticking around and even growing to new markets and to new use cases within businesses, but also touching on investment and how we look at investments not just from the businesses themselves, but also the teams and the very interesting geographies that there are for us to look at beyond just the Silicon Valley. And lastly, a topic very, very close to my heart that of female founders and female founded businesses. And it was wonderful to get to hear the thoughts of two women who I respect so much, share their thoughts on where we could be better, but where we're going, and that we actually have achieved quite a bit. And hopefully one day we won't be calling them female founders anymore. We'll just be calling them founders. So that brings us to the end of this episode, the first and an exciting second series of architects of change brought to you by Mambu. Thank you to my two guests today, Carolina Brochado and Laurel Wolfe. If you wish to follow more of Carolina's work, please head to EQTGroup.com. And for more information on Laurel's work with Mambu, please connect with her at Mambu.com/insights. For more Mambu podcasts and the complete first series of Architects of Change, head to wherever you get your podcasts. I've been your host, Nina Mohanty. See you next time. Oh, and if you've liked what you've heard. Don't forget to subscribe to our channel to hear the latest episodes.