Self-Funding an International Digital Bank with bunq
Today, we’re sharing a never before heard conversation recorded earlier this year with Ali Niknam, founder and CEO of bunq.
bunq is a fully licensed digital bank based in the Netherlands and available in 30 countries across Europe.
Prior to starting bunq, Ali founded TransIP, the largest domain name and web hosting provider of the Netherlands.
Ali is the sole investor in bunq, having invested €80m in the company as of this summer. As of July 2020, the bank had €650 million of user deposits.
In this conversation, Ali and I discuss the economics of digital banking, the decisions bunq has made around economic sustainability and scale, takeaways for the broader digital banking industry and more.
Please note that this discussion was recorded in June 2020, which explains some stats and references.
Thank you very much for joining us today. Please welcome, Ali Niknam.
Full transcript:
Will Beeson:
Ali Niknam, welcome to Rebank.
Ali Niknam:
Thank you so much for having me, really excited.
Will Beeson:
Yeah, me too. Me too. I always enjoy having deep dive conversations with visionary founders, in this case, of a digital challenger bank, bunq, in the Netherlands. But right before we hit record, you we're about to launch into your life story, which sounded like it was going to be really fascinating. So, I stopped you so we could capture all this. So, can you start again?
Ali Niknam:
Yeah, sure. Thank you. You're too kind, by the way. I'm not used to getting so much compliments. In the Netherlands, people are very direct, and very critical. So, I'm blushing now. So, thanks for that. Yeah. So, I was born in Canada, and then we moved to Iran when I was quite young. And then, we moved to the Netherlands after several years.
Ali Niknam:
And I started coding at the age of nine, and I started investing in stocks when I was about 12 years old. Founded my first company during high school at the age of 16. Founded my first successful company during university at the age of 21. Today, that company's the world's third largest domain name and web hosting provider.
Ali Niknam:
Co-founded the largest privately-owned data center group in the Netherlands, wrote a book about entrepreneurship. And then, I figured I could contribute even more to this world by changing the perception of what a bank can be by bringing diversity into the financial sector. And so, I founded bunq about eight years ago now. Time flies.
Will Beeson:
Wow, what a track record. So, at Rebank, we cover digital banking quite often. And we've connected with some amazing founders over time. Tom from Monzo, Ricky from Tandem, Ryan King from Chime, Dee from MoneyLion, Colin Walsh from Varo. The list goes on and on. And I guess, actually, the list grows as more and more consumer FinTechs launch debit cards and checking account equivalents.
Will Beeson:
And effectively, we retrospectively loop some digital bank founders in that way. And everyone has a different approach, and everyone launches for a different reason. And everyone has a different view about what the future of their company and the future of the industry is likely to look like. So, I have to start there. I appreciate, it's probably an answer that will require a bit of time from you. But you started bunq, what were you trying to achieve?
Ali Niknam:
Yeah. So, the start of bunq was basically, the height of the financial crisis that we had some years ago, about nine or 10 years ago. And what I noticed is that at least here in Europe, people were more concerned about whose fault it was than how to prevent this from happening again. And so, me being an engineer, I didn't really get the feeling that we were concerning ourselves enough about sustainable solutions.
Ali Niknam:
So, I dove in my perception into our idea, the core of the financial crisis of about a decade ago, is the lack of diversity. If you walk into any bank in the Netherlands, or in Europe, for that matter, they're roughly the same, roughly the same type of people, roughly the same products, roughly the same experience, the exact same business model. And so, as we know from nature, every monoculture dies out sooner or later.
Ali Niknam:
And so, the only way to make that system robust is to add diversity, to add new players that add a fresh perspective of what banking can be, a new player that in bunq's case, really listens to its users, and has technology at its core, and has a business model that is completely different from the traditional banks. So, I think that really sets us apart.
Ali Niknam:
And that was the first reason to start, to show that this different world really can exist. It really wasn't particularly because it was my life dream to become a banker. I still don't think it is. But I do think the financial system being such an important pillar in a healthy society, I do want to contribute, and dedicate this part of my life in improving the stability of that pillar.
Will Beeson:
So, tell us about, I would say, early progress, I suppose it's not early progress, because you've been at it for eight years. But hopefully, it's early in the transformation of the retail banking industry. Tell us about how it's gone. What your experience has been with customer acquisition, the way people use bunq, and how you've evolved the product set over time?
Ali Niknam:
Yeah. So, you're completely right, it's been eight years already. So, that's ages, but also, it's a relatively short time ago, because we chose the royal route, so to stay. We chose to, before anything else, get a banking permit because of our ideological convictions. It was really important to have a full banking permit. The issue, of course, being that getting a banking permit takes years and years, on one hand.
Ali Niknam:
And on the other hand, there hadn't been any other greenfield company getting banking permits for 35 years. So, the first three or so years of our existence, this was our sole focus, to convince the regulator to grant us a banking permit. And this was a major success, because we became the first in 35 years. And the processes, and the way we went about it have now become the de facto standard in Europe to the best of my knowledge.
Ali Niknam:
So, any greenfield company wanting to acquire banking permits now follows that process, because that process had been lost over the past decade. And then, we read, and sat together, and did our utmost best to create a fantastic product, knowing that it wouldn't be perfect, but it would be good enough. And it would highlight how different we were from all the other incumbent banks.
Ali Niknam:
And that's about, I guess, three and a half, four years ago now. And despite the skepticism, of which there is many, especially in the Netherlands, we succeeded in significantly pushing the needle on what a bank can be. And I think ever since launch, we have become the de facto standard of all of the innovation, and all of the new things that at least mainland European banks pursue.
Ali Niknam:
Many of our features have been copied. Many of our ideas have been implemented by incumbent banks. So, I do think we are really spearheading the innovation towards customer centricity towards user friendliness. And I think the rest is following us.
Will Beeson:
Are you public with your metrics, either user numbers, or deposits, or revenues, things like that?
Ali Niknam:
Yeah. So, anything directly user related, we shy away from, and that's because we really uphold the highest standards when it comes to privacy. But we do share deposit numbers. In fact, so much so that in latest version of the app that is now in public beta, bunq V3, you can see the deposit number right in your app in the Us tab.
Ali Niknam:
And you can also see how that money is invested, which is also one of bunq's unique features. Not many people are aware that when you deposit your money in a bank, they actually invest it. And you as a bank customer do not have any transparency in what it's invested in, nor any influence in how banks invest it in. To us, that felt very wrong.
Ali Niknam:
So, at bunq, you can actually choose between several categories, and choose a setting that aligns with your preferences. And then, based on those preferences of everyone together, we align our investment policy to make sure it's aligned. And so-
Will Beeson:
What are examples of things you can select?
Ali Niknam:
Yeah. So, for example, you can select to invest in companies, or green companies, or personal lending, or personal mortgages, or stuff like that. And interestingly enough, we see quite a different setup from one user to another. So, there are people who, for example, disable personal lending, because they think that consumer lending leads to consumer debt.
Ali Niknam:
And that that is not a good idea. There are other people who do not want their money to be handed out to companies, but rather just to mortgages. So, they feel they help other people getting a house. So, it is quite interesting to see what people's motivations are, and how that reflects in their choices. But anyway, I just opened the app, and our latest figure as per June 1st is €607.7 million.
Will Beeson:
Congratulations. That's a huge number.
Ali Niknam:
Thank you, and it's growing very rapidly, actually. So, we're generally perceived to be amongst the four biggest neobanks, together with Revolut, Monzo, and N26. We're slightly smaller because origin from the Netherlands, but we're about the same size.
Will Beeson:
So, I think a core part of this conversation should probably be around just what we've seen in terms of the evolution of the landscape on one end, there are digital banks raising huge amounts of money at $5 billion plus valuations, and serving, "10 million customers." We could probably dig into what the definition of serving means in that sense. But you guys, I think have taken a different approach in terms of fundraising, and question mark, you can tell us in terms of, of your approach to scaling?
Ali Niknam:
Given my past, and the other successful companies I've founded, I was and I am in the luxurious position that I get to choose. And because the ideological component of bunq has been so important, I've decided to self-fund it so far. The latest publicly known figure is, I believe 44.9 million Euros, which equates to about $50 million. I can promise you that number is a lot higher by now.
Ali Niknam:
But this is the latest public number. And the reason for doing so is not so much that there's anything wrong with investors. But to me, it was really, really important that we took our time to create a product that people really love to use, instead of rushing it to market, and focusing on metrics that depending on who you asked, some might say are maybe vanity metrics, and don't really mean much.
Ali Niknam:
So, we've indeed taken a very different approach that has allowed us to have a laser focus on our users, and what really drives them, and what excites them, and has enabled us to then create this wonderful product that they really love to use. If you look at many of our metrics that I won't disclose, but if you look at many of our metrics, you can see that user engagement is much higher that people are actually using our product for day-to-day, and that they're really happy with it.
Ali Niknam:
And I think our strategy has paid off, and especially now, is really paying off. Also, because to us, I have a background in tech, and in tech, things move a lot faster. But in such a heavily regulated environment, things just move slower. And so, we came prepare to run a marathon at our own pace, rather than being tempted to run a sprint, and then maybe running out of breath before you reach the finish line.
Will Beeson:
So, I think that is particularly relevant today, given the COVID-induced global recession that we're facing. We've seen all sorts of consumer FinTechs seek to shore up funding positions by topping up existing rounds, or raising new money. I'm sure I'll confuse some of these numbers. But off the top of my head, I think maybe N26 has $150 million, or Euro, fundraising recently.
Will Beeson:
I think Monzo has been reported to be raising an additional maybe 70 million. I think Starling raised 40 million. The way that a lot of these businesses drive revenues is through one travel, it's through discretionary spend, it's people using it alongside maybe their core account, it's maybe FX revenues, it's interchange to some extent, which is proportionate to spend.
Will Beeson:
And then, it's probably some form of either net interest margin, or float on deposits, which is a function of the amount of cash that people have sitting in their accounts. And I think people are preparing for the worst. There'd been this, I guess, ongoing conversation over the past number of years to like, "Can you hit scale before the music stops, and funding runs out, and VC stop writing ridiculous checks into these companies?"
Will Beeson:
How do you think about where your business is now from an economic sustainability standpoint? And the resources at your disposal, in terms of getting to where you need to be?
Ali Niknam:
Yeah. So, that's a great question, and a complex question. Because some of the things you mentioned requires some, I think, additional information to paint the right picture. So, for example, in mainland Europe, the interest rates are negative. So, having floats, having deposits, actually doesn't help you build a sustainable bank, build a healthy bank, because it just costs you money.
Ali Niknam:
Interchange in Europe is capped on 0.2%. If you take your duties as a bank seriously, if you take your duties to fight money laundering, and terrorism, financing, seriously, and you really spend the resources on it that they require. It is very difficult to actually have a healthy business with just 0.2% margin on transactions.
Ali Niknam:
On top of that, I think, and this is one of the things that we noticed a bunq, and that frankly, surprised me is that we haven't been able to see a lot of network effect. So, traditionally, in many tech companies, as soon as you hit a certain scale, your customer acquisition cost, and your customer... your unit economics improve rapidly. We haven't really seen that in banking yet.
Ali Niknam:
And I think that's because the onboarding cost is quite big. We need to validate everyone's identity. And then, once a user is on your system, you still continue to bear costs for that user, because you still need to monitor every transaction, you need to redo their KYC, the know your customer, every once in a while. So, the business model is not like Facebook, as in grow as big as you can, as quickly as you can.
Ali Niknam:
That would be a zero-sum game. So, once you hit that point, your costs will go down. And actually, you will become the de facto standard, doesn't work like that in banking, or at least not as far as we've been able to see. And so, at bunq, again, going back to our ideology of adding diversity to this financial sector, and doing things differently, our business model has been very simple.
Ali Niknam:
We just charge a couple of euros a month in subscription fees. It's not a lot, but it's just enough for us to have a healthy business. And this has been working out really well for us because, for example, despite this Corona crisis, our revenues have been growing month over month. We have continued to hire people. We can see interchange revenues a little bit lower.
Ali Niknam:
But so are the costs of that interchange revenue. So, the net result isn't affected at all. And I think maybe this is one of the items that we were talking about before on this banking sector being a marathon rather than a sprint. I think, now really is the time where you can see basically, who has a healthy business, who has a plan, and who just started, and was hoping for the best, which is a strategy as well that sometimes worse, of course.
Ali Niknam:
And interestingly enough, we can see a lot of people being very interested to participate in bunq, because I think a lot of investors can see that the future is going to be digital and mobile, of course, but can also see that that future will be made up of companies who actually have a business model that makes sense.
Will Beeson:
Does charging for the account help you get a higher proportion of users that view it as more of a real bank, as opposed to a spending card?
Ali Niknam:
Definitely, definitely, definitely. And in doing so, the requirements of your bank account in turn, get a lot higher. Building a card that you can use globally, and getting great exchange rates, and stuff like that is by itself, complicated enough. Building a fully digital bank that aligns with the wants and needs of local users is way more complicated, especially in Europe.
Ali Niknam:
Where in Germany, for example, people tend to use a lot of cash money. In France, people still use checks. The UK is a credit country. The Netherlands is a savings country. And you have all these local differences that you really need to spend time, and energy on to get them right.
Will Beeson:
To what extent are you guys engaged in lending? How important a part of your business is it?
Ali Niknam:
So, the deposits we attract, we partly invest in bonds. So, that is a form of lending. As of today, we do not do any consumer or business lending yet. Partly, because we haven't made up our mind whether it's a good idea or not. We only do in institutional lending, as of now.
Will Beeson:
What's the best way to build a genuinely economically viable indeed, economically attractive consumer digital bank? It's not clear that anyone out there yet has really cracked that. And the easy answer is consumer lending, especially in the US.
Will Beeson:
You have just made clear that you're not sure whether that's the right route. And I totally understand what you're saying. You're trying to do something different. Consumer lending as important as it is, is associated with a lot of evils, and a lot of pain. What's the best approach?
Ali Niknam:
Well, I think you hit the nail on the head. Traditionally, consumer lending has been one of the main driving factors of income for banks. But this comes at a huge cost, on one hand. In some cases, not in all, because learning also has its upsides and benefits, obviously, but in some cases, personal tragedy, and in many other cases. And I think we're seeing this happen right now, as well.
Ali Niknam:
All of these loans, become non-performing loans or bad debt. As soon as the crisis hits, we of course, know that crisis hit every 10 years or so. So, because of these issues, we have been diligently looking at other solutions. And the way we think about it currently is that what bunq really is a great service. We go out of our way to make sure that our users are really happy with the service we provide.
Ali Niknam:
We are providing so many great tools that help you save time, help you save money, help you save CO2, carbon emissions that nobody else is. So, for all that value, we think it's fair to charge a couple of euros a month. It's even less than Spotify for something that you use every day. For something that keeps you safe for all the work you do, all your life savings.
Ali Niknam:
So, basically, these subscription fees, although not that high, it's just €7.99 a month, for us, they really make a difference in having the freedom to not having to do lending, or to choose if and when we do lending, in what form we do so.
Will Beeson:
If you look around the market, what's your gut feel about where some of the other European and international consumer digital banks are, and where they're likely to go to solve the unit economics question?
Ali Niknam:
Well, interestingly enough, and this answer might surprise you, but I don't know many of them. bunq is a very creative, internally-oriented company. We typically don't look much at our competition. We really focus on our users, and try to come up with smart solutions that helps make their lives easy.
Ali Niknam:
So, it's difficult for me to answer your question into detail, or into specifics. But generally speaking, unfortunately, I have an advanced age, or more advanced than I'd like to admit. So, I've been around the block in these-
Will Beeson:
Advanced by FinTech founders standards maybe.
Ali Niknam:
Yeah. I feel really old. But having experienced quite a number of crises so far, basically, what happens is always the same. So, the really shitty companies go down the drain, the okay but not great companies get bought up. And the best companies remain. And I think although it is an emotional rollercoaster to experience a crisis, crises are fundamentally important for progress.
Ali Niknam:
Without the dotcom bubble of the year 2000, I'm not sure whether we would have had a Google or a Facebook, because these companies were the remains amongst the ruins of all the others that were just doing stuff. And the crisis allowed them to grow into what they are today.
Ali Niknam:
So, without knowing who will emerge, I think this is going to be a great, great opportunity for the really great companies to move ahead, and emerges as... well, winners is maybe not the right word, but emerged as winners after this crisis is over.
Will Beeson:
You mentioned that you don't consider yourself a banker, and I'm probably in the same boat, despite working in this space. What's your vision? What's your goal for what banking looks like, should look like, and is bunq trying to drive wholesale change in that direction?
Ali Niknam:
Well, that answer is actually quite easy. I want banking to be the same as ketchup. You go to your grocery store, and you look at the shelf where they have ketchup, you have 20 different brands, six different sizes, you can choose whatever you like. You can have one, you can have multiple, you can go for a cheap brand, or a valuable brand, or a tasty brand, or an environmentally conscious brand, or whatever it is you like.
Ali Niknam:
If you sign up for a bank account today in Europe, you really don't have that freedom of choice, except for bunq. So, my goal, my vision is to bring that diversity in the financial sector, so that it becomes resilient towards all of these crises that we have. But also, in doing so, gives the freedom of choice to users, to people, to consumers, to choose whatever bank they want that suits them best for whatever reason it suits them best.
Will Beeson:
You mentioned your long in tech years career as a tech founder prior to bunq. What has surprised you about the banking space, the financial services space compared to other experiences that you had? Or I don't know, what expectations were shaken when you started working on bunq?
Ali Niknam:
Yeah. That's a great question. So, the interesting thing is before I started in this sector, I thought I think like almost everyone else, the bankers were evil, and they were only in it for themselves, and they were greedy, and they were looking for bonuses. And that's why everything went south. But actually, that's really not the case.
Ali Niknam:
And it is so interesting to see that this sector is populated, mainly by people with great intentions, whether it's the politicians, or whether it's the regulators, or whether it's the incumbent bankers. They typically genuinely want what's best for the consumer. And this is a big but, and this is very interesting.
Ali Niknam:
The interaction of the system of politics, and over regulation, and all of these processes, and public perception of what a bank should be, makes it into this cocktail, where when you speak to any high-ranking banker, all they're worried about is managing risk, managing the regulator, and managing their internal processes.
Ali Niknam:
And their customers, everybody knows they're important, but they can't be bothered, because they're busy doing these other important things. And that's really not the case in tech. In tech, you just build something people love to use, you become successful because you do so effectively. And people really love to use it, so they start using it, and that's it.
Ali Niknam:
But in banking, there's so much other stuff going on that is a constant distraction of what I think should matter most, which is the happiness of your users. That so many companies, they just lose perspective.
Will Beeson:
What are you doing to fight that inertia that develops as you guys a fully licensed bank, and work through the daily grind of regulation, and compliance? And how do you prevent that from slowing you down or undermining your vision?
Ali Niknam:
Yeah. Yeah. So, it's definitely slowing us down. There's no way getting around it. The law is the law, and we have to abide like everyone else. But I think the more important thing over the longer term is that we do want those perspective of our users. And the way we're doing that is, first of all, the founder is a maniac, only concerned about its users. So that helps.
Will Beeson:
I love it.
Ali Niknam:
Second of all, I think we have a very user centric DNA in this company. So, we have three pillars when you come in as an employee, and those are number one, being user centric. Number two, being effective in your communications. And number three, being an effective owner of whatever it is you get your responsibilities on.
Ali Niknam:
But one of those three pillars, and the first one is being user centric. So that's the second way we are trying to keep our focus on what really matters. And then, the third way is within the company, we have so many rituals, and processes that involve, and include our users that although we have a really strong voice in the form of a regulator, we have an equally strong voice in the form of our users.
Ali Niknam:
So, for example, every four months or so, we present the latest version of the app in something we call a bunq update. And we fill an entire theater here in Amsterdam, it's a beautiful theater, it's right in the center with those red velvet seats. It's really amazing. And these sell out.
Ali Niknam:
So, we have 600 users in the room, just being there, being a part of the moment where we launch the latest version of the app, and we highlight all the cool things that we have been building for them. And the vibe is amazing. And it's the accumulation of all these things that hopefully will withstand the logical inclination to focus more towards regulation, and the regulator than your users.
Will Beeson:
Yeah. What is your experience been with user testing that there're all these great quotes from history with-
Ali Niknam:
Henry Ford, right?
Will Beeson:
... the one that's attributed to Henry... yeah, that one. And so, the Henry Ford one being if I ask customers what they wanted, they would have asked for a faster horse and not a car, and then Apple-related lore. How do you ask a user to invent something that they can't see and tell you reliably whether or not they would use it? How much of the user feedback is genuinely monumental versus, "Hey, it'd be great if you paid me a higher interest rate," sort of thing, those incremental improvements?
Ali Niknam:
Yeah. Yeah. That is a great question, and it is... I can answer how we do it. So, we have three main pillars of feedback loops upon which we decide what to do. One is people's opinions, so feedback. Many of it is, frankly, quite unusable because indeed, it boils down to, "Hey, give me more for less quicker." That's not feedback, that is unusable.
Ali Niknam:
Second of all, and this is a very important one to us is we look at how people actually use bunq, we look at data. Because there's this famous saying here, and I don't know if it's politically correct, but we tend to say nobody ever admitted to vote for bunq, yet he became the president. So, rather than looking at people's opinions, we measure what they actually do.
Ali Niknam:
Because this gives us much better insight in what it is they want. And the third category, and how we have this feedback loop, and invent new stuff is internally by ourselves, we just try stuff out. And then, we launch it, and then we see if people use it, and how they use it. And then, we take it from there, improve it from there.
Ali Niknam:
If I go back to user feedback, I think if you ask someone, "What do you want?" And they tell you faster horses, then what they're actually telling you is, "I want to go from A to B quicker." If you take it too literal, you're setting yourself up for failure, because obviously, nobody can breed faster horses or only marginally.
Ali Niknam:
But if you take it the way it's meant, which is I have an issue, I need to be at location X at half of the time that I'm now, then you enable yourself to build something like a car. And I think that's what we do at bunq as well.
Will Beeson:
Great point. You guys recently expanded, I believe, to the entirety of Europe after having launched in a few specific countries over the past couple of years, I think. Where in Europe are you guys getting most traction? What are your expectations for the opportunities in specific European markets based on what you've seen?
Ali Niknam:
Yeah. So, we don't rush things up bunq, because we want to make sure that things are right. And when we enter new country, we always do so in two phases. Phase One is general availability. So, that enthusiasts, and people who are curious can start using bunq, and can give us feedback. And then, depending on that feedback, we really improve the product to make sure that it adheres to local standards, and local preferences, and local wishes.
Ali Niknam:
And only then, we go into phase two, which is we start investing serious marketing money, and really try to get some traction. Our expansion in those 30 countries that you mentioned, was mostly phase one. We made sure that all the regulatory, and compliance, and legal stuff was taken care of.
Ali Niknam:
We launched everywhere, and now, we're accumulating data, and feedback to see where we can get most traction. Now, if you ask me, where are we most successful today? Then, I can say today, we have a lot of traction in Germany, and the Netherlands, and France is upcoming.
Will Beeson:
Excellent. Ali, look, great work. It's very, very exciting to see what you guys are doing. We didn't even get time to discuss it today. But I love the sustainability aspect. And I imagine that that resonates deeply with an important and growing segment of your customer base. And it's tough not to look around the world right now.
Will Beeson:
We're in the midst of very vocal protest for equality and justice, certainly, in the United States, and in other parts of the world as well, including many cities in Europe. It's tough not to look at that, and that energy, and that demand for change, and apply it to this traditional industry banking.
Will Beeson:
And what new companies are doing versus the way the traditional companies have operated, whose interests are being served, and what the future may bring. And it certainly feels like you guys, among a few others are well positioned to meet the needs of customers now, and going forward.
Ali Niknam:
Thank you so much. And I fully agree, and I am so much aligned, and welcoming all of the protests that are going on now. Because I think the world today has never been better than before. Today is better than yesterday, yesterday was better than the day before. And I think the only reason why that is the case is because people stand up.
Ali Niknam:
And they look around them, and they see things that need improvement. And by sheer will and energy, they actually get to improve it. So, if we can get past parts of our horrible history once and for all, that would be absolutely amazing. And I look very much forward to that.
Will Beeson:
Fully agree, fully agree. Ali Niknam, thank you very much for joining us today.
Ali Niknam:
Thank you.
