nontech - the other route to profit
Our inital approach to technology was notably non-fintech. Instead of creating a technological platform, we focused on an outcome that our years of banking experience told us was needed. Then we put the human resources in place to deliver it. Technology was, frankly, minimal, but the service was quickly in place.
Oddly enough, our clients never worried too much about our tech-stack. They were far more concerneed about the result. Meanwhile, we were learning what our customers really wanted.
And found out we'd got it wrong.
nontech, or how to learn from your mistakes
When financial start-ups enter the arena, they'll generally adopt a technology based structure - after all, we live in a technological world. And now the world is full of fintechs. Not that there's anything wrong with that, it's just that we decided to climb a different staircase.The fintech development arc generally follows a common path:
- have a really smart idea
- conceive a technological platform that delivers the idea
- convince seed investors that it's worth investing in
- use the seed investment to develop a prototype
- use the prototype to attract further investment
- use the further investment to develop the platform
- use the platform to attract further investment
- sell the company
It's not a bad plan, except that the majority fail. Around 75% of VC-funded businesses don't produce a return for their investors. That means, sooner or later, the rug gets pulled. Without revenue, a business ultimately isn't worth the cloud it lives in. All too often, paying customers don't appear because the original concept wasn't quite right. The fintech gets trapped in a loop of adapting an ever more complex technology stack to the emerging real-world requirements of the marketplace.
where we went wrong
Before we get too pontifical, we should reveal our cards. We made this mistake some time before we even acquired the Clarency business.
Our roots lie in an international remittance business that's been operating successfully since 2004. One key factor in that success has been our depth of compliance that's applied at onboarding - and then to every ensuing transaction. It's so good that we believed it we should offer it as a standalone product. Of course, automation would be needed; of course, security had to be of the highest order; of course it need to be innovative and sexy.
Our acquisition of Clarency in 2019 brought us a Major Payments licence, and the ability to make B2B payments to a vastly increased range of regions. We already had excellent liquidity in hard and soft currencies. This seemed an ideal peg on which to hang our planned domination of compliant world finance. Meanwhile, we'd meet the compliance requirements of our payments business by staffing-up to provide a better-than-bank compliance service, largely manually until our technology stack could be built.
idea meets market
Armed with our new arsenal, we went to market. Here was a company with the best, most diligent AML platform you'd find anywhere. And, not only that, we could make payments almost anywhere and had liquidity in any currency you cared to mention.
We demonstrated our compliance platform and waited for incredulous buying signals.
"Yes, that's very impressive. Can we talk more about those payments?"
We were reasonably successful - in fact we hit a small profit in our first year of trading - but we needed to react quickly to the understanding that our clients saw our key USP as a nice-to-have. Compliance was an irritation to be borne; payments were all about profit.
Our technology development costs at this time had barely broken five figures. It was relatively simple to adjust our direction towards a platform that supported what our customers actually wanted, rather than what we thought they needed.
Three years on, we properly qualify as a fintech. We're using next-generation blockchains, purpose-built customer interfaces, SWIFT messaging, integrated services with tier 1 technology suppliers and all the other sexiness you'd expect. But we're also a fintech with revenue, profit, and no outside investors.
The beauty of nontech is that it gives you room to make mistakes.
related stories
blockchain
Not that we've got anything against technology, of course. Nowadays we've got buckets of it scattered around the place, along with strange, bespectacled chappies who speak in strange tongues and assure us that they know what most of it does. A big component of all that tech is our blockchain structure.
why blockchain?
Blockchain was the buzzword of choice for anyone who wanted to talk credible techspeak, right up until everyone got all excited about AI. We're actually quite pleased about that. Each trendy new technology goes through a phase of "I'm not sure what it's for, but I'm sure as hell going to use it". The Internet certainly went through that phase, producing the dot com boom and bust as everybody threw themselves at online wizardry. Those who survived were the ones who worked out the "why" before embarking on the "what".
We certainly approached from the "why" when we came to considering blockchain. Our model of a complete payments platform presented key requirements that pointed only one way:
- a secure profile of every customer company, including key individuals
- similar profiles of every counterparty involved in - and permanently linked to - every transaction
- full KYC information on all actors in every transaction
- chronological details of every transaction, including decisions, shipping details etc.
While those requirements could have been met by a conventional database, we also needed the strongest possible security, along with a source of immutable truth that could be used evidentially in any regulatory examination. For these, a blockchain ledger was vital. We investigated the available options and discovered shortcomings in many:
- Successful penetrations of crypto chains demonstrated that existing blockchains could be hacked
- the proof-of-work model in use at the time made blockchains unsustainably energy-hungry
- retrieval of large files - which consitute much of our use - could be unacceptably slow
We also found shortcomings in the companies providing the various ledgers, at least for our requirement. The off-the-shelf offerings needed strong customisation to suit our plans. It wasn't until we found InterlockLedger that our questions were answered. These guys understood our need for multiple documents that needed varying many-to-many relationships , and were able to offer innovative solutions to one of the most frustrating dilemmas in fincial records: GDPR demands that individuals have a right to be forgotten, while financial regulations demand that all records be kept indefinitely. Their solution offered higher security than crypto-based chains, better offline availability, faster recovery and an energy footprint many thousands of times more sustainable than proof-of-work or even proof-of-stake blockchains.
More recently, we've integrated the Chinese Tiande blockchain. This gives complete transparency across the full transaction while honouring the data location requirements of eastern and western jurisdictions. The Tiande chain uses a different storage model to InterlockLedger, but equals it in its security and energy and data efficiency.
related stories
extending SWIFT
One of our most exciting and far-reaching innovations of 2023 has been our introduction of a system to extend the data capacity of the standard inter-bank SWIFT payment instruction from 140 characters to an effectively unlimited data volume. This is achieved without banks needing to make any changes to their existing systems. This means that all authorised parties to a transaction can be given full visibility of all the underlying data, from payer/payee/intermediary identity to company verification, trading history, shipping details and more. Transparency at this scale provides a vast improvement to the scant end-to-end KYC knowledge available to participants in the payment chain.
It's a simple solution that becomes considerably less simple on examination.
- information must be available to any organisation with a bona fide reason for accessing it. However...
- access must be restricted to only those with authorisation
- access must expire on completion of the relationship, but data must be retained
- GDPR rights must be honoured, but balanced against compliance regulations
The improved transparency this creates is of such importance to safe international trade that Clarency has decided to release its award-winning solution to any business - including competitors - wishing to put it to good use. Detailed information and consultancy are available on request.
