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Helene Panzarino: [00:00:00] Welcome to another episode of Banking on Air. My name is Helene Panzarino and I’m your host for today. At Vacuumlabs, a solution-based tech powerhouse, we believe that the future is in communities when it comes to digital transformation and financial services. If you’re interested in hearing more about FinTech, digital banking or payments, please don’t hesitate to subscribe. And as usual, I’m not alone on this podcast. Today I’m joined by Nicolai Hack from Nucoro and we’re going to hear about what Nucoro is obviously, but we’re also going to have a conversation around what it’s like to be a business in different parts of the world, in the space that we’re all in as well. Nick, do you want to introduce yourself to the audience?
Nikolai Hack: [00:00:40] Yes. Absolutely. Thank you, Helene. Good to be with you, good to speak to you. I’m Nicolai, I’m the Head of strategy and partnerships for Nucoro. I’ve been with the firm for a very long time, for as long as we exist. Even before we were Nucoro, when we were a different team working on a different project. Then became, by now as a client Nucoro, as we moved on to work on different things and to what we work on now. I came to London, because we started in Madrid three and a half years ago, four years ago, actually. I’ve been here ever since I was in a more operational role for awhile. So taking care of all the things that happen behind the curtain is basically the illegal aspects of contracting with the third parties. The hiring policies and all the things you don’t necessarily hear and see much of that when you deal with the business. But now I’m for, the last year or so in this role where I built nurture, initiate new partnerships with wide range of players across different verticals that help us build client solutions and then I guess the strategy part is the fun element of doing stuff like this to come on to your podcast, for example,
Helene Panzarino: [00:01:39] We talk about the strategy that you’ve taken as affirming in terms of your expansion and which areas you are seeing coming to the fore. Because let’s roll it back to the fact that Nucoro is broadly speaking in the FinTech vertical world. We’ll talk about wealth management, robo advisory as our buckets and where you want to fit into that. And we’ll talk more about that as we go through this podcast. You and I have had many conversations about the space initially not achieving the targets for assets under management that was set out in around 2014 by a lot of the industry. By the time we got to 2018, it was still half of what it was meant to be and we ask ourselves, why was that? And where in the industry moving to, in terms of the incumbents, is there a possibility for incumbent financial institutions to get on board with this again? And when we talk about wealth and advisory and what it is that the individual wants, why we’re in this space, where we haven’t achieved what was in the forecast and we look at the moment we’re in now, how have we moved on to a time where this vertical is part of FinTech and will it have its day? We could also look at the impact of the pandemic and the impact of the world becoming much more aware of it globally and how we’re not just looking at the US and the UK anymore. So let’s roll it back to describe really where your place in the universe of FinTech vertical is.
Nikolai Hack: [00:02:58] Maybe I have to explain that I’ll go back half a step or a step maybe just to explain where we come from. It has to do with what I said in my introduction, where I said we were in different teams. So when we started working in 2016, early 2016 together, where we come from is a joint venture between Ariane de Rothschild, the head of the Rothschild family of Switzerland and ETS Asset management is a quantitative asset manager in Spain, one of the biggest ones in Europe actually. And their idea was we have incredible technology that highly automated fashion manages the money of high net worth individuals. Why don’t we use this tech and bring private banking great asset management to a mass market? To do that at the core of what you need is technology to automate as many processes as possible. So you’re still able to do individually managed portfolios for every single client at scale. Because if you don’t have technology that automates and brings down the unit cost, you cannot do it at scale. You can only do it, again for the high net worth individuals. So we started working on this project and what then became EXO investing. EXO investing it’s a live robo advisor platform now in the UK. It built the tech, we launched, it got regulated, went through that entire process and brought it to the market in the UK. For the two parties, ETS and the Rothschild family, this was as much a test balloon, but also a stepping stone into what we became afterwards. Which was actually, we realized, okay, there’s a much bigger opportunity to not directly try to build one proposition for the market, but instead use the tech foundation that we had built and allow others to build all kinds of propositions on that basis. So if you want, you can build one e-commerce online shop or you build Shopify, right? And you enable thousands, millions of other people to build their e-commerce shops. And that’s exactly what Nucoro is and Nucoro platform is all about. We are a fantastic foundation to build saving, trading, investing, also wealth to a smaller degree, but saving, investing, and trading proposition. So for retail clients, that’s where our main focus is. Now we come to what you said, who was interested in this and whom do we try to sell this to. Where’s the opportunity? For quite a while we actually looked at the wealth manager market. And we thought there was space and there was appetite and the wealth management also in the UK, didn’t you very specific the IFA market and their wealth management is an extremely slow moving sector. Some stomaneded by quite legacy or even legacy heavier structures than you would find in banking or insurance from a tech perspective. But then also just the firms are run by relatively old individuals actually. Little appetite for change for disruption, for renewal, which is why we moved away from that sector entirely. The biggest opportunity in that space to build propositions with the technology that we have is for existing banks and for existing insurance firms who have millions of clients. They have the high street banks here, double digit millions of clients in the UK, of course. And most of their clients have deposits, they have a card, maybe they do some lending, maybe a bit of effects when they travel, but for the big, big chunk of retail clients, they don’t do anything with their money. It just sits there. It sits on the balance sheet of the bank, costing the bank money, if you think of negative interest rates, which are all even in the UK sometimes discussed. And in means of inflation it costs the individual money. Actually you lose purchasing. Probably not doing anything with it. So it’s a lose-lose situation. For a bank to build an exciting proposition that can rival what some of the challenges have built and are building the Robin Hood of this world the eToros, the Acorns, the Money boxes also the Revoluts. If you can build something like this and stop the loss of market share towards these challenges, towards these aggressive entrance into your home turf by building something that is as exciting as well working and also creates a benefit and value for the client, then you’ve turned the lose-lose into a win-win and that’s what we try to be a part of.
Helene Panzarino: [00:06:42] Fairly interesting, and actually listening to you I reminded of a few years back when there was a bit of a shake up in the sector in the UK. I can’t speak for the rest of the world where there was some miselling and there was a real fear, I think, from the bank’s perspective that they could get wrapped up again and get their knuckles rapped again and they could be fine. A lot of them pulled back. A lot of independent financial advisors pulled out of the space because of miselling. And if you lived in the UK or you were in this space, you heard of PPI, which was the Payment Protection Insurance scam. So all around at the time and it really made the market shrink, but it also put a spin on what was a normal thing, if you’ve got a mortgage or an investment tool from your bank, you would normally get the wealth or the other tool with it. That was really, it changed, right? So that was pretty standard fair. It probably wasn’t the most high performing investment portfolio, but you could change it from a bank because it wasn’t something that anyone thought about. It just came with the package. It came with the mortgage. When it stopped, it was almost like saying there was a little bit of a gap in the market until we started to see, as you say, people coming into the market, targeting this space, people that were not yet sitting on a decent amount of money, but we’re all aware that we were encouraging everyone to save and invest because we all know at some point, wherever you are in the world, our pension pots are not going to be enough for us. And that market wasn’t wealthy enough to create breakevens or profits for the companies that were entering it. Some of the ones you mentioned that are profitable. Yes. Some of them are not profitable. Some of them have raised hundreds of millions of one currency or another and are still finding their way around. And I think we’ve discussed that something like over 80% of bank customers would like their banks, their retail banks, to come back with a proposition, but they’re not doing it. I wonder if part of that is because they were burned and they were frightened from going down that road again. They don’t have the internal expertise. They don’t have the internal technology, which is where you can plug in, for example. And then what’s the role of the intermediary themselves? Is there a B2B proposition, almost like a junior B2B proposition that isn’t going into an organization with 30 million customers, but go into the brokers or the financial advisors in the middle to give them a level of intelligence to then share with the end user?
Nikolai Hack: [00:09:05] You mentioned a lot of good points. The interesting one is what you said about the well miselling and what that triggered and it’s a part of a bigger package, right? And especially with the last year, there was a lot of talk of K-shaped recovery. It was right that the stock market goes up, but the real economy actually goes down in wealth management that has been a K-shaped development for quite a while, that actually AUM goes up and if the SSI management go up, but profitability is constantly and has been declined for two decades now. Since 2000, it’s a staggering picture, if you see it on a chart, actually AUM up 30% profitability on 30%. So in a market where there’s more money to manage, you actually make less money with it. And that’s just says a lot about this industry, how inefficient it is. How low productivity must be, how bad performing a lot of the marketing and sales efforts must be. A lot of things are to a degree broken a bit. I think there’s some organic limit to how much reform you can trigger and how much you’ve reform or renewal you can kick off, which is really sometimes ends with the firm, not surviving, but disruptive change. It’s the new players that come in and they actually take the entire cake, not only a piece of the cake. And I think to a degree, full wealth management is true, but you’ve mentioned also there are still some players who came into the space of investing so saving, and I’ve mentioned some names already that are actually quite successful, but then still the major entry point for people when it comes to money is a bank. It’s the one point of also financial connection outside of groups of friends and also our family that we automatically turned to because obviously everybody has a bank account. You need a bank account for your salary, your bank account to pay your bills, etc. So it’s a, why not mandatory. You will have a bank account at some point in your life. This entry point is extremely strong. This is also why the biggest opportunity to capture people’s attention when it comes to any of those things, saving, investing, pensions protection. If you think of a life, what is life insurance? A life insurance is a forward looking arrangement for your money, right? While the product has a different name, it’s not very different to a retirement portfolio. All of these entry points where banks have the strongest connections to the individual, for them, the opportunity to do something and build something new, take inspiration from what has been built, you don’t have to reinvent the wheel, but to make use of a leverage. They have also not only in terms of actually existing client base, but also in terms of friends. And that’s something interesting while a lot of people will say they don’t like bankers or they don’t trust bank us, they will still trust the high street bank more than a challenger bank with their salary. That’s just the fact that it’s reflected in a lot of the balances to have the challenger banks where what’s a couple of hundred pounds or 250, 300 pounds, maybe the average account balance. These strong relationships to use them, that’s the opportunity for the existing players. I think there, enabled with the right technology, because that’s the enabler. If you don’t have the right tech, if you build it again, based on your current business model, your current processes, your current operational model as well, it’s not going to work. It’s going to fail from what UX perspective. What’s more important, it’s going to fail commercially from a business perspective.
]Helene Panzarino: [00:11:59] So there’s a question around the technology that banks have and that they need to open up the concept of having technological plugins. And obviously, you know, we’re building products and services. You have technology that you can add on. We can do work around the integration and they can get on with it and I’m sure there are times where there’s a debate between the department of a bank and people that actually wants to move things forward. Whether or not they run in parallel or whether there is a resistance to this, but it seems mad given the size of the market and the demand of the population, not to do them externally. Now we’re talking about this case, the UK, and I’m sure you have a sense of your connecting the dots between Spain and here and other parts of the world. And now of course, you’re looking at MENA or specifically Bahrain. Is it the same everywhere or the attitude’s different in other parts of the world?
Nikolai Hack: [00:12:51] Actually do your first point because you mentioned it, the it departments, because it’s such a constant phenomenon, of course of the conversations we have. That’s actually interesting because for just coming quickly back to wealth management, where tech players did themselves a big disservice was by choosing the term robo advice because robo sounds like no people and wealth management is a people business. So obviously the hostility there was only fueled by just the terminology, which I totally understand. If your business relies on the people to people interaction or robot sounds like, that’s not going to happen. Why would I want that in my business? For internal IT departments of especially banks platform quite necessarily at the core of what a platform is, it’s not custom software development. So it is to a degree, a bit of a dethrone of the existing emperors. Maybe of course, in the end it’s exactly right what you said. It’s about integrating the right pieces and that is actually the more important work to choose the right players and then by connected them, then build a solution where the total sum is bigger than the sum of the individual parts. That’s the, what I would say is the job with the right amount of effort and work should be spent by IT departments not trying to build themselves because it’s a bit of a futile effort. But to your other point, what’s interesting is of course the stage of development of a market. Here in the UK and Western Europe, we have quite established of course, banking and financial services markets. Very established, obviously. Here, the UK trading nation, some of the banks, you’re a hundreds of years old, actually not necessarily with the same name. Well as institutions at the quarter Kent they can be hundreds of years old that not only leads obviously to some cultural impact of how your work as an organization, how open you are to change for good reasons. Sometimes it doesn’t make sense to jump on always the newest fad, but especially in technological terms, it means you have a lot of buildup of layers and layers of systems and technology legacy that holds you back. Absolutely clearly there is no denying it and everybody knows it. This is no secret within any of the trenches services industries. Go to the middle East, for example. Go to the SE region, go to Africa , to the NA part or even Sub-Saharan Africa obviously, none of that is there. Especially when it comes to the technology infrastructure, you don’t have decade old systems. You have maybe a decade old systems or maybe one and a half, two decades old systems, but it makes a big difference for how you approach technological change. Then of course, a big factor as well as demographics and how that impacts what appetite there is for what kind of propositions. Again, think of some middle East, or again Africa. Young populations. The average age of Saudi Arabia is in the high twenties or something. It’s crazy. The average age of Germany is 42 years, I know it because it’s where I’m from. So huge difference in what these people think, what kind of propositions you want to build. I spoke to a German insurance executive, I come to him and I talked about, Hey, what do you can build with our tech is a Robin Hood challenger. to challenge what Robin Hood builds and he says, that’s very interesting, but what I have, my biggest problem is, I have people who are 65 to 70 years old, their life insurance matures, the policies up for maturity, they haven’t heard from me in 25 years, but some of them might not even know that they have this insurance policy. What do I do with them? It’s like a completely different mindset, obviously driven by the demographic situation of the market. So that influences a lot what is built and what appetite there is, but also from a technology perspective, what you can build on how easy or difficult it can be.
Helene Panzarino: [00:16:04] Interesting. Isn’t it? And actually, as you were talking, I was thinking there’s a need for a dashboard for the back book of all these big banks and insurance companies. So you know exactly what you have and you can say about the touch that you have with people as well. It makes perfect sense and that is a foray or stepping into this part of the world, part of more global expansion plans for Nucoro?
Nikolai Hack: [00:16:26] For us right now, Europe is where we are. Then the middle East is just because we have some connections that we can use into the region and some partners there with whom we can work, so that’s why it’s a bit more interesting than anything that’s probably a bit further away. Of course long-term the US is extremely interesting. To go to the US is expensive. To go to the US takes a lot of thought, takes a lot of planning. It’s not something that we want to entertain at this point. I can say that quite openly. What might enable it is maybe in the context of a strategic investor. Maybe somebody who comes in and then opens up that market with us and we open up the market together. Maybe that is probably more likely than us doing alone. I don’t think we will do it alone. For the foreseeable future, Europe is where we are. We have four offices now. We have here London, where I am. We have in Madrid, our engineering and product team, our CTO our CEO Lennart, he’s also in Madrid. Then we have two offices in Switzerland actually, one in Zurich, one in Geneva because of the connection to the Rothschild family. who have a good network in Switzerland if we want to tap into, which is why we’re there with two different locations, even. That’s the setup for the moment and I think you won’t stray too far for the foreseeable future, I think.
Helene Panzarino: [00:17:33] When you say Switzerland, it reminds me as well what you’re feeling is all around the hype around Bitcoin and other coins and cryptocurrencies. And whether or not we should be investing in them or is it not for the faint of heart and we should stay away? Is that’s something that we should not put in our portfolios in your opinion?
Nikolai Hack: [00:17:50] It’s interesting. I like the question, right, that we are not the fact that we talk about it NASA is a testament to how big of a wave there is at the moment. I do believe that given the current monetary policy regime globally around the world, where there’s a lot of ease around the creation of money and there’s a lot of newly printed feared currency here in Europe with the ECB, same goes of course, for the FED and the US. All of that oversupply of feared currency makes things that are harder to reproduce and to expand the supply of more interesting and that’s real estate, that’s gold and commodities as well, which still increased, but both of them can be increased, but not as easily. And then Bitcoin as well is also rare. For Bitcoin, especially compared to the two we have totally fixed supply. So I think that’s what makes it very interesting. I don’t think there will be a turnaround in the monetary policy. I think cryptocurrencies are here to stay, not all of them, but Bitcoin definitely. I think it will be a very interesting asset over the coming years. I am quite bullish on it. But then, like I said, if you have high degrees of inflation, which I expect, then you should be bullish about everything that can achieve be printed in, that kind of produce in a printing machine.
Helene Panzarino: [00:18:59] There was some question in the market, it’s like the $64,000 question, isn’t it? Why is all of the money and more money being printed, but it’s not in circulation. Okay. I’m voting for the fact that it’s under people’s mattresses because when people are frightened, they revert to what they think is safer, which is why gold is obviously also having a moment. It’s being hidden somewhere in case they need to get to it.
Nikolai Hack: [00:19:22] Yeah. And quite clearly, you know, the restrictions around COVID, it plays a huge role in the development of asset markets. You don’t go out, you don’t go to the pub, you don’t go to the bar, you don’t go to the cinema, but if you have kept your job, all of a sudden. Probably your disposable income is up by a lot of people by a hundred percent potentially because a lot of things just have fallen away and if not, it’s by maybe 50%, 30%, whatever 20% . You have more money per month, what do you do with that money? You just save it, you put it away and the deposit, you leave it on the bank or you throw it into your Robin Hood account and start trading, what was a Game stop shares. I don’t know if you’ve heard that story, but now Game Stop, the very likely defunct like retail outlet for computer games, the stock shot up, but from 10 to 100, I think over the last week or so, because someone had the idea to force a short squeeze on some hedge funds in a Reddit forum. I mean, it’s an insane story, but that kind of stuff is possible at the moment. So there’s a lot of money going around that doesn’t find a lot of very productive uses, but instead finds its way into the exchanges finds its way in the UK, always into property where prices everybody thought it would collapse they have not, they’re still going up. So yeah, that’s what a lot of money does it’s get a bit more expensive.
Helene Panzarino: [00:20:31] And I think there’s been a surge in e-commerce spending as well, spinning up something like 400%, which was making a heyday for the payments industry and who knows where we’ll be when we come out of this as well. I just wanted to touch also a little bit on the founder story, because you mentioned Lennart and the two of you go way back, don’t you in terms of your meeting and then your journeys as entrepreneurs. It’s always interesting to see where people came from.
Nikolai Hack: [00:20:54] Yes, we do go back when we met in high school, actually, and yeah, just stayed in touch when different ways. He went straight into the world of financial services, worked in Venture capital for awhile, then went into quantitative asset management and I went into the policy realm for a while. I worked in some international institutions. I spent some time at the EU actually in Brussels and then went into consulting. And then, so especially the conversation started when he talked about what they do at his current employer at ETS, what kind of technology they work with and what it is used for and what the audience is. At that time this was the initial wave of robo-advice right? The first time, the wealthy FI’s and scalable capital and here in the UK, the not max, cause they were around for two, three, four years maybe. And we looked at that and said, look, that works quite well, but then you can do a lot more. Actually, if you looked under the hood of what was called robo, there wasn’t that much robo there. It was still quiet. There were a lot of people in, and you looked at the job offers and you saw, they hired people in operations and like portfolio managers, and they have a chief investment officer. And I’m not saying that all of these things are wrong. I think they’re there for very good reasons sometimes, but we thought it’s robo why is it not really a robot? And that’s what we wanted to do. Then we got together with obviously we needed funding and we found them in the the partners I mentioned and the Rothschild family and members of the Rothschild family. And that’s the funny bit, right, you think this as a family, as a dynasty that has been around for hundreds of years, why would they be interested in something that disrupts in all industries, but you only stay relevant for hundreds of years if you make good decisions. And if you place some well-placed bets from time to time, obviously, that’s how it works. We found them and very trusted, very lucky to have them as partners. The other parties is ETS who brought the initial tech of the actual portfolio management, because that’s what they were doing before the stock of high net worth individuals or institutional clients actually. Some people say, I always wanted to be an entrepreneur and I had this idea for so long and then, but there’s not really a story. We saw what was happening, how others were doing things and that gave us an idea to maybe look at different ways of doing it. And this was the origin, I think, for what was the effect on XO and now it’s, of course we spent X, so out X investing, we spun it out and now actual thing.
Helene Panzarino: [00:23:05] I wanted to ask, if you go back in this conversation we had about the bank, say, As we wrap up, if you could say to a large financial institution, Hey, you have unmet demand and we have a solution and we can get that integrated really easily, what would be the one to three things that you would want to say to them to get them into the conversation?
Nikolai Hack: [00:23:25] I could go throu our pitch deck and the USP’s, but I really think thats not that complicated. I mean, at least for me, you know, it’s not that complicated. But you look at your balance sheet and talk to your CFO, a lot of CFOs, especially European banks are worried about this. We have a balance sheet it’s too large. We have too much money sitting there doing nothing. On the other hand, talk to your retail guys. They say we have clients who have kids, but one, we don’t know their kids and if we look at our onboarding numbers of 18 to 25 year olds in a market like the UK, it’s not looking too good. They go somewhere else. A lot of them go to the challenges. And then go to your tech guys and talk to them and ask them about any kind of product that you’ve built. Did it come in under budget and did it come in within the specified timeline of the things that you were building yourself over the last couple of years, whatever that was? And if you’ve talked to these three different people, then if you’re lucky we catch you right at that moment, and then we can talk to you about, Hey, there’s a huge opportunity. You can build stuff that can rival the challenges, if you have the right technology and you can do it on time and on budget, and it will cost you a fraction of what it will cost you if you do it yourself and we’ll take a fraction of the amount of time as it would, if you would try it yourself. It’s quite a logical deduction, logically deducted way of selling what we have, but all of these things are true. And I think over time, the platform approach has already starting to become the method of choice for a lot of technology projects. Because it just it makes more sense to not try to do something somebody else’s clearly better positioned than you to do. So there’s less and less convincing or whatever we need to do. But the biggest blocker for us, the biggest competition for us, it’s not some other player. It’s the internal mindset of thinking that you could do this yourself. That’s the lever we need to pull and we need to push any to work on.Helene Panzarino: [00:25:12] I would a hundred percent agree with you and I think just stay with us as we move forward into other parts of Vacuumlabs, we’re going to be talking about partnerships. What successful, what happened? How do you go from a strategy for example, to an implementation and who can you work with along the way? I imagined for some people, they something gets landed on the table or on the desk and they say, we need this to happen or look into this. And they just don’t know who to turn to. It’s great when we have partnerships that work together in the same way that our two organizations work together. But I think with just the cloud was always the thing that was in the background as well. Putting people off working externally and looking at platforms. And now over the last three years, we see much more acceptance of that. And maybe that’ll be the thing that unlocks the door and opens it up for everyone to get on board because you’re right. It’s cheaper, it’s faster and it’s going to be a better product fit because you’re going to get the best in class of everything that you need plugging in for the purpose. So it’s logical that should happen in that way. I would say thank you very much to Nikolai Hack from Nucoro for joining us today. I always learn a lot when I speak with you and I imagine all of our listeners will as well. And please everybody subscribe and tell your friends, families, and colleagues all about Banking on Air. We’ll see you in the next episode. Thank you very much.