An auspicious dinner threw Michael Kent and Ricky Knox together at business school more than a decade ago, laying the foundations of a business partnership that would see the pair create remittance firms Small World FS, Azimo and most recently challenger bank Tandem. They’ve also invested in many more including bank card killer Curve and bill paying app Splittable through their firm Hexagon Partners. Michael Kent is CEO of Azimo, which is also co-founded with Marta Krupinska, while Ricky Knox heads up Tandem, which is also co-founded with Matt Cooper.
With Azimo recently raising $15m to grow its footprint in Asia and Tandem on the cusp of launching a £1m crowdfunding campaign, in this episode of the FinTalk podcast we talk to the pair about what makes the partnership work, what drives them and what’s next for financial services. Listen to our conversation in episode two of the FinTalk series or access the full transcript below.
How did you first start working together?
MK: At the end of my first week at business school INSEAD in 2003 there was a dinner and I sat next to two people who ended up being pretty important in my life: the guy on the right was American, talked fast and probably a bit too loudly and that was Ricky. The person on my left was beautiful and English and became my wife Sophie. In 2005 Ricky and I decided to formalise our relationship and friendship, looked at some business opportunities and consolidated them into Hexagon Partners.
How did you start your first business, remittance firm Smallworld FS?
RK: We felt that that was a massive opportunity to do something that both felt good to us in terms of working with consumers, but specifically consumers that needed help. We set up Hexagon to invest in a combination of where tech was meeting the disruption wave in financial services and where we felt that wave was changing things for good, rather than bad. Small World FS was really our first foundry project.
MK: It became apparent to us that people’s relationship with money is a difficult one in many cases and it’s inhibited by many of the players operating in the market. They’re not transparent, they’re not helpful they often don’t have consumers’ best interests at heart. Where I came from in media we’d seen a handing of power back to consumers through tech and that was just not something we were seeing in financial services.
RK: We call Tandem ‘the good bank’ because it is supposed to be enriching people’s lives through improving their relationship with money. Money right now is confusing and stressful and difficult for people. We think we can change that for the better using technology to make money do what it should do, which is let you live your life and enjoy the things money can bring you.
Talking of confusing and stressful, entrepreneurship is both of those things – what works about your set-up?
MK: One of the things I took away from business school is that two heads are better than one. It is an immense privilege to have someone in your professional life who’s always on your side – pulling you up when needs be because entrepreneurs are occasionally party to hubris and believing their own hype. If you can have someone to ask whether you are making the right calls it is great to have someone at your side.
Azimo just raised USD15m in a round led by Rakuten, why was that?
MK: We get our fair share of people knocking on our doors but we thought they’d be really useful for two things we are focusing on right now. One is expanding the geographical footprint eastwards – so looking at the opportunities in Asia which is already about a quarter of the volume we send but actually getting into servicing customers in Asia because they need it. The second thing is we are building integration into all the mobile messaging platforms, things like WhatsApp, WeChat, Viber, which Rakuten now owns all of.
Remittance is still very fragmented, when will that change?
MK: 90%-plus of remittance is still happening in legacy retail high street locations and that means it is expensive. It’s generally not great for customers but we’re seeing that change and Azimo is growing exceptionally fast. Others are doing well too and I think in five to 10 years’ time, just as you will struggle to see a travel agent or outside certain parts of London a book shop on a high street you’ll struggle to see Western Union or Moneygram location on the high street – everyone will be doing it on their phones. People have put up with ‘good enough’ for too long.
What made you decide to go about the giant task of starting a bank?
RK: If you look at the disruption wave moving through financial services: it started with transactions, then moved to lending though the P2P lenders but did not touch the core of retail banking. Looking forward across the industry we saw some of the changes happening in the UK around licensing. Combine that with our ambition across fintech to see this disruption wave through and we thought it was right time to drive through the front window of financial services and nab the banking business.
MK: For better or worse we try to do stuff where it is broken and hard. As entrepreneurs you can go out and copy what 10 other businesses have done before, or you can do the hard things that will actually make a difference.
Why did you go for a license rather than the neo approach?
RK: It’s an interesting one. Early movers like Simple and Moven and in Europe Number 26 didn’t go for a license, but the challenge there is you are working on someone else’s rails and they may work very badly or slightly badly.
The other issue is that if you want to rebuild banking, the core revenue engine is net interest margin. That core transaction cannot be done by anyone who does not have a license and so that leaves you with the part we are trying to get rid of, the nasty fees or charges that rip everyone off. If you can’t make money out of the fair business of banking you’re left with the unfair business of banking.
Are neo banks just at risk of banks upping their game on user experience?
MK: It’s hard to underestimate how inept and slow some of these larger financial institutions are – there is an organisational behaviour challenge that really inhibits their ability to innovate. Potentially some of the neo banks will be acquisition targets for banks looking to accelerate their innovation. The neo banks are doing an okay job and we are all pushing on the same door. But in some ways they’re putting lipstick on a pig where actually you need to build a whole new pig.
RK: The way we built Tandem is completely different to the organisational model of a bank and that drives a different model. Where we try to find ways where when a customer wins, we win. Where we take fees and charges we are trying to align them so that when customer behaves better they pay less fee. As opposed to what banks do at the moment where the customer gets kicked really hard when they’re down. The metaphor is punishment in banking and we are trying to reverse that.
What’s one piece of advice for startups?
RK: Start your business with a clear purpose in mind. That could be as cynical wanting to make £5m in three years, but ideally it has something your employees can get on board with and your customers can get excited about. Be very clear about why you are doing it because if you’re not you will have trouble sharing that and inspiring the team around you and getting people to invest in you.
MK: Get a business partner. Two heads are better than one. There is a tendency to over-romanticise entrepreneurship right now but it is tough and lonely and has more than its fair share of hard knocks. There are definitely ups and downs so find someone that will have your back and you’ll have a lot more fun along the journey because of it.
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