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TechvisionOctober 1 2014

Anthemis Group founder thinks ahead

New players, new technology and new processes are changing the face of the financial services industry. Udayan Goyal, founder of Anthemis Group, is investing in the agents of this change – new service providers that are looking to take some of the value chain away from the banks.
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Anthemis Group founder thinks ahead

Imagining the future of financial services is something that many people can do, but few actually put their money where their mouth is and invest in what they think will be the next big thing. But this is something that Udayan Goyal, founder of Anthemis Group – an investment and advisory firm – has been doing in the years since he broke ranks from Deutsche Bank to invest in some of the industry’s most innovative ventures.

His vision is to redefine financial services, an industry he believes is ripe for disruption. Of banking prior to the financial crisis, he says: “The industry had not really changed for a long time, not even in 50 or 75 years. The industry lost its direction and rather than focus on the customer, it focused on itself."

Mr Goyal concentrates on redefining business models, and using technology as an enabler, rather than thinking solely about financial technology or ‘fintech’. Anthemis Group’s investments cover the spectrum of financial services and include companies such as Germany’s digital-only Fidor Bank, financial information company ZyFin, and eToro, a social trading and investment network.

Making it simple

One of the most well-known companies it has invested in is Simple, a digital financial services provider that focuses on user experience and customer behaviour. It was not set up as a regulated bank but instead used third-parties to provide the plumbing and hold funds behind the scenes.

“Simple redefined the banking model by separating the personal layer away from the balance sheet,” says Mr Goyal.

Anthemis Group was a seed investor in Simple, and also invested in the company during later rounds of funding, before it was sold to Spanish bank BBVA in February 2014 for $117m.

The principle behind Simple is similar to that of Moven, another of Anthemis Group’s investments. Moven also does not have its own balance sheet and concentrates instead on how financial services are distributed at the point consumers interact with their money. The company has been built as a branchless, digital proposition with mobile and social media in mind.

When asked which investment is his favourite, Mr Goyal chooses Moven. “My personal favourite is probably Moven just because of what it does and how fundamentally it completely commoditises what banks think their core strength is,” he says.

Mr Goyal says the customer relationship is one of the most important parts of the banking value chain, and now there is a new breed of player – such as Moven – that do not need to be regulated and that are able to make their mark in this space, taking the customer relationship out of the banks’ hands.

Widespread disruption

This is just one of the ways in which Mr Goyal sees traditional banking models being disrupted. He expects the value chain of banking to be stratified, with various players taking pieces of the value chain for themselves.

He expects the distribution of financial services to continue to evolve and go digital. Also, he sees the need for banks’ internal processes to be disrupted. One area he highlights as being ripe for change is credit underwriting. He believes the problem for banks is that their internal processes mean that the cost to underwrite a loan of $1m is the same as for a loan of $5000. “The processes are manual, but now there is a new breed of small and medium-sized enterprise and peer-to-peer lenders that are basically redefining how credit scoring is done,” he says.

Also, infrastructure is now being decentralised and new organisations have the option of starting out by putting their infrastructure in the cloud. Major banks and large financial institutions, he says, are still running their infrastructure themselves but he expects small and mid-sized institutions to 'cloud' their infrastructure. “That will be a significant trend in the next five to 10 years,” he says.

Another major trend that Mr Goyal anticipates is the disruption of correspondent banking because of the rise of crypto currencies such as Bitcoin. With a decentralised ledger, there is no need for central banks or banks – which have traditionally played the role of book-keeper for financial transactions – to be involved in crypto currency payments. This trend, he argues, also removes the need for organisations such as the Society for Worldwide Interbank Financial Telecommunication (Swift).

“The whole concept of correspondent banking may just disappear,” he says. “It is very fundamentally game changing.” 

All this talk of disruption may suggest that banks will soon face a huge identity crisis. What then, are banks are actually for? “As regulated institutions what they are best at doing is keeping the money safely," says Mr Goyal.

In the future, he anticipates that banks will no longer control the whole value chain, but will rather be part of an ecosystem where they will have to collaborate with many other players.

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Read more about:  Digital journeys , Fintech , Tech vision