Reimagining SME banking with Eytan Bensoussan Co-Founder & CEO of Ferst Digital
This piece was originally featured on my blog Simple.Innovative.Change
Recently, I had the pleasure of sitting down with Eytan Bensoussan, Co-Founder & CEO of Ferst Digital and I have to say it is hard to compare his enthusiasm and level of commitment to redefining small business banking to anyone else I have met. Like any good former consultant he has studied the space from top to bottom understanding the intricacies and challenges faced by his consumer base.
He is also working to include small business owners throughout Canada to partake in the building of Ferst Digital, which has the aim of providing the number one financial management platform for small businesses.
When you think about it, so many small business owners are so effective because of their passion and their niche capabilities that enable them to thrive within their limited market focus. However, being great at providing one type of product or service is way different than also being a good business person.
Ferst Digital is working to enable small businesses to thrive on the backend by automating and removing much of the dirty work that many small business owners don’t know how to handle when it comes to their financials. It’s going to be an exciting next year for Ferst Digital, and I am looking forward to watching their path forward. Check out our discussion below.
CL: Eytan, like myself you come from the world of management consulting. Now you are running an SME financial services startup. Can you talk a bit about your unique transition into this world?
EB: It’s an interesting story. I actually started as a scientist doing math and biochemistry, but eventually made the switch when I went and pursued a JD/MBA. I ended up at McKinsey for five years. I found my time there to be so fun. I felt like a kid in a candy store, it was at times painful of course, but I just loved a lot of it, and during that time I had an opportunity to work extensively in the financial services space specifically on digital customer experience.
My work enabled me to go really deep into the world of digital customer experience in the financial services sector, and helped me to realize this was an increasingly evolving industry. It just became clear to me that I would be so much more fulfilled, trying to solve the problems that I cared about versus staying in an advisory role.
So in a bittersweet move I left this amazing group of people I worked with cold turkey, and hoped for the best. At the time I was interested in financial inclusion, which I had done extensive work on while at McKinsey.
CL: I’d love to hear your perspectives on what financial inclusion means to you?
EB: Financial inclusion is about combatting the rising income equality gap. It’s about immigrants being able to rebuild themselves in a place like Canada or the US, and about empowering female, and minority leaders to create a leadership base for themselves in the world. To me all of these themes tie back to financial inclusion because they are very much tied to financial outcomes and decisions.
CL: Can you tell us more about the investors in Ferst Digital, which is Ferst Capital and how the team came to the conclusion to invest in this space?
EB: Ferst Capital is a VC firm started by two brothers Jay and Dominique Ferst. They spent their lives building and selling high-tech and Fintech companies. First they built and sold one of the first internet service providers in Canada in their 20’s. Then they had another huge success when they built TradeFreedom, which became one of the larger direct market stock trading platforms in the country, and sold it back in 2007 to Scotiabank.
They opened up a Fintech focused VC office in their own family office that’s called Ferst Capital Partners. They realized that there were a handful of areas in Fintech that needed special attention where you couldn’t just start it in a garage because of the complex structure of the financial system.
Canada is a difficult country within which to scale businesses because we have this massive landmass, of 35M people that includes two languages, and nearly a dozen provinces and territories all with their own intricacies and geographic barriers. And so, they said there’s an opportunity where you’re going to need experienced, connected, and senior hands to be part of the next generation of financial services.
CL: So how did you end up in your roll at Ferst Capital and what did the decision process look like to have you take on the role of leading Ferst Digital?
EB: It’s an interesting story. I was fortunate to have helpful mentors from different parts of my life all point me in the same direction, which gave me clarity. They all told me, “You should speak to these two brothers, Jay and Dominique Ferst” which is what I love. After four or five people gave me the same advice I decided to reach out.
I came walking in the door with the message of, “Hey, I know a ton about banking and digital banking, and customer experience, do you guys have any thoughts on this?” I knew I really wanted to start a transformative company with major potential and I had some ideas, but I also knew they had a better handle on the space than anyone I knew.
They said, “You know what? We’re actually thinking that we might want to cofound a company with the next generation of entrepreneurs in the country.” So we worked together for about three months, just to test the waters and see if we fit, and the fit was excellent. Then we looked at each other and said, “Okay, let’s go for it. What is the most unbelievably ambitious but pertinent company that needs to be built, that won’t be built if we don’t do it?” And that’s where we came up with the idea of Ferst Digital.
CL: Now you have this company, it’s been born, how do you define Ferst Digital?
EB: This is the one that always gets me excited. The purpose of Ferst Digital, is to empower business builders to build companies, be successful and to do what they love. There’s no mention of banking there, right? And that’s kind of the point to me.
Our goal is to do whatever it takes to help a small business succeed.. We want to build the kind of banking experience and banking platform for the world that we know is emerging.
As far as we’re concerned, we’re really building a mobile first, API based banking platform. The level of expectation in financial services is going to mirror the level of customer service that you see at Amazon or Zappos, and the level of integration that you get with Google Chrome, or any of the tools that you use to work. We want to enable small businesses to integrate all of their banking, financial products, and services into a simple and intuitive to use financial management platform.
The thesis underneath this is that the role of the bank can be different today than it was 100 years ago. 100 years ago banks helped build our economy by storing people’s money and by lending it back, and literally banks fueled the expansion of our country, and we’re all beneficiaries of that. But if you say today, start with a blank slate, the technology that we’re seeing elsewhere has demonstrated that this can be different.
We believe that the role of the bank is to remove the burden of financial management from the backs of the businesses, and how do you do that? Well, you don’t define the role as just a deposit to the payments. We really think its about helping businesses to manage all of the activities that they do when they shut the shop down. For example, we want to help them get their bookkeeping done by having engines that categorize transactions and push the data into their accounting software. We want to give them the ability to observe insight into their cash flows. Managing these processes removes the anxiety and burden of financial management busywork. Solving busywork for business owners is a natural fit for the banking providers, because bank data is the definitive source of truth when it comes to the financial health and needs of a company.
The pieces start clicking together when you think of the bank account as the control center for all financial management of a company.
CL: As I understand it, Ferst Digital is about providing a full financial services platform to manage the backend of the business. Can you talk a bit about the platform approach?
EB: Building a platform that integrates seamlessly with the best service providers out there is about swallowing a dose of humility and recognizing we will never say be the experts of everything.
The vision is that the APIs of a bank account should plug seamlessly into all of your financial products such a Quicken, Xero, and Wave Accounting. Our job is just to enable those products to shine, by making the connection and experience seamless. We’re not trying to reinvent every single platform out there. We just want to provide access to the best of breed service offerings out there.
At all points, we really are trying to make it as easy as possible for small business owners to shop through the financial system with the one really important piece being that all we care about is that they have the right tools to survive and to do well. For instance, if you are in need of capital, we could help find you a lender by getting your application plugged into 15 of the most innovative lenders in a fraction of the time.
To that point, our business model is focused on never getting caught in conflict of interest. You look at Wells Fargo that had big issues, where they were caught pushing cards and accounts at people who never needed them. Because even very well intentioned people can do wonky things when they’re incentivized to do that.
Our model, very much in the Facebook kind of business model where if we present you with the right tools and services at the right time, you’ll go and you’ll transact and find those, and we’ll get a success fee in that financial service marketplace. Our goal is always to make sure that the right options are available to these businesses at the right time so as to ultimately ensure their longer term survival.
CL: How do you manage not to blur the lines between providing suggestions to financial products that you think will help an organization and just pushing product for the referral fee?
EB: We think about that a lot, and for us, what’s really important is when you look at the relationship with your clients as something that goes on for decades in the future, rather than months, our best interest is that they keep on growing and surviving, and that means that you are giving them the right product and service, or at least allowing them to choose between the right product and services when they need it. If you’re pushing debt onto them that’s not healthy, you’re actually putting your client into a shorter lifespan.
Everything we’re doing is to anchor ourselves in the long term view of these clients. The other part of it, though, is that we do believe in this idea of, when a bank account has an API with it, you enable an ecosystem of products that you can build a financial ecosystem around. The market is going to start holding companies more accountable, because you will be able to compare and contrast products through an open-sourced API based app. The more people start shining sunlight on the prices of services, and health barometers for businesses, the more empowered those folks are going to be to make the right decision. Transparency is the other key component of this business.
The goal is to build out more transparency to ensure that nobody can be taken advantage of. And that’s what we see happening in Europe now where PSD2 regulation is enabling you to see payment data. People are now starting to build applications where you can compare and contrast banking costs, which is a level of transparency that never existed before.
CL: On the operations side how manageable is it to be able to integrate APIs across various digital products that your end consumer may be using such as a Square POS system. Is there a lot of manual processes to make these integrations happen or is it fairly straightforward?
EB: it depends. Some companies have public APIs where they really do want people to use their products easily. It doesn’t mean that you won’t have to be on-boarded by those companies if you ever become a client, but they try to make the effort involved fairly minimal. In other situations vendors will require pretty meaty integration projects to onboard with their APIs, so it really is all over the place.
What’s interesting and what we hope to see happen over the next few years, is the development of standards across hopefully all of North America. Standard structures for APIs will make our lives a lot easier.
A really important piece of being able to provide better financial services is having people whose sole purpose in life is to provide the best possible APIs for existing products, and by that I mean the middle layer that is connecting all the dots in terms of financial information that needs to be shared seamlessly.
Figo, in Germany for instance, have been doing things that I think are really exciting, and they actually have a guy whose job title at the company is API Evangelist. At the end of the day there’s only so much that a company can take on at once, and the more the ecosystem matures and the more folks start creating standardized API bundles the easier and more accessible innovation is going to be.
CL: What does the decision process look like to determine what services to provide based on effort to implement and which to wait on?
EB: We have to triangulate between three kinds of inputs. The first is obviously customer feedback. If we hear overwhelmingly from customers that a certain type of functionality is needed that makes prioritization of that feature easy.
The second one is, our partner deposit taker. There are certain things that they can or cannot do, and that also provides us with the sense of what is and isn’t possible. We can scream until we’re blue in the face, but if they can’t provide us a certain kind of functionality, we won’t be able to offer that feature.
The third one is about looking at the technology, and determining what do we need to build ourselves versus what’s becoming available from other service providers that we can implement. At the end of the day we have limited funds, time and resources so we have to analyze these three factors to determine what features are worth investing in right now versus later.
CL: Will this financial management platform work for cash businesses as well or is it strictly for organizations that are completely digital?
EB: The first wave of customers that we’re going to take will be digital natives, because we don’t currently have the infrastructure to pick up cashs. But, we’ve studied the world extensively, and there are some fascinating solutions that have emerged in other countries that at the right level of scale we think can be really interesting.
For example, in Poland, we’ve seen examples of an “Uber” type service for ATMs, where you can call an ATM to the door of your business, and deposit your money, versus having to walk to it. Now obviously that’s a whole other business, and it’s further down the line, but people are trying to solve this idea of how do we manage still being a cash society for the next ten or twenty years? The way France solves it is they utilize their post office as a way to pick up cash.
The one that really inspires me is Number 26 in Germany. They have a deal with drug and grocery stores where all of their point of sales across Germany become opportunities for cash withdrawals and deposits for Number 26 clients. That’s such a brilliant way to use existing brick and mortar stores to bridge the cash to online economy gap for the next few decades.
CL: Managing regulatory compliance has proven challenging for several Fintech startups. Your team seems to be taking an approach of ingraining it in every aspect of the business, can you tell us more about what that looks like?
EB: We take our responsibility very seriously. We work hard to create a culture of compliance within the company, and there are a few parts to that. I think the first is that one of the first senior advisers that we brought on at Ferst Digital was a compliance guru, and one of the voices of authority in Canada, so we have that voice at the table to help guide us. The second one is that we study regulatory developments around the world very, very deeply. We are constantly watching what is going on in the UK and Europe, because that’s in many ways the closest example of Canada. The US is not as active on the regulatory front as Europe is, but there’s some interesting things that have come out of the OCC recently.
The goal is to have a handle on where the puck is going in terms of regulation, so that Ferst Digital only becomes more profitable and successful for its clients in a world where regulatory winds blow in a certain direction.
Lastly, we spend a lot of time with our regulators in Canada, trying to understand how they define success for themselves, because that will give us a better sense of what is palatable or not in terms of regulation over the next five years.
CL: How is this investment in regulation going to benefit the build out of this business in the long run?
EB: We want to make sure that we are in good standing from day one. We should never have any stain on us as being irresponsible and we want to keep it that way. Also, it would be shortsighted not to recognize that wherever Ferst Digital goes, we know we’re only going to be deeper in regulation, so it has to be ingrained in our DNA from day one. And if Canada does ever get some of the progressive regulations, similar to the ones being rolled out in the UK, where new banking charters are enabling several startups to actually become bank, we want to be prepared for that.
CL: When will you be officially launching Ferst Digital and what is the go to market strategy?
EB: In terms of our launch time, the frustrating part is that a lot of this is out of our control, because it depends on our deposit taking partner. If you look at where we are headed in the future look to Germany where they have SolarisBank. That’s what the future’s going to look like. You just plug into the bank, you figure out the economics with them, and you’re up and running in short order. We’re not there in Canada yet.
In terms of the go to market strategy, though not up and running fully, we have started outreach by putting it out there that we’re the digital, mobile first financial management platform for small businesses in Canada. Our website conveys our vision for the fully launched business, and through that we’ve been growing 10% week over week since we launched it in early January without actually promoting it at all. We now have 350 businesss who have requested invites. They are excited about the potential they see in our business and they like being the early adopter and promoters of the platform.
Right now we are building a ton of resources to support the businesses who believe in us. We’ve been providing them with value long before we ever had a product that they could possibly benefit from. The go to market is really is really tied to this concept of community. If you have ever heard of Gary Vaynerchuk, I love so much about him, he has this concept called Jab, Jab, Jab, Right Hook, where you just give and you give and you give because it’s the right thing to do. But you’ve earned the ability to ask for something. And that’s the guiding philosophy on so much of what we do. When you say, “Just try us out.” A lot of people say, “You know what? Let me at least give them a shot, and we’ll earn your loyalty the rest of the way.”
We’ll never be able to outspend banks on SEO, or Facebook ads. That’s never going to happen. What we do have is a compelling story and voice, and the people that have helped us, they’ve just been so important to our team’s energy and our ability to make that story echo more broadly across the country.
The Minute Rundown with Eytan Bensoussan
CL: If you could provide one tip to someone considering starting up what would it be and why?
EB: Surround yourself with people that are better than you at something.
CL: Since you are from Canada, what is your favorite Canadian hockey team?
This is a political question. Any answer you give will get you chewed up in one part of the country or another. I’ll say Team Canada — our awesome Olympic hockey team.
CL: If you could model yourself after one founder who would it be and why?
EB: Gary Vaynerchuck. I love how authentic and driven he is.
Eytan and his team are investing heavily both in time and capital to build the best platform for managing the financial backend of small businesses. It may not sexy at first glance, but they are solving a major pain point for small businesses that don’t have the in-house capability to do their financials well.
What Eytan and his team are really doing is enabling better profitability for small businesses and giving more time to the owners to invest in their customer. It’s a win-win all around. With businesses continuing to be intrigued by Ferst Digital and some recent hires that are positioning the business to accelerate product and market reach growth the next year should see the formation of one of the more interesting SME Fintech applications out there.
Eytan, thanks for investing in Simple.Innovative.Change and be sure to learn more about the organization here.