Episode 4, Part 1 Neobanking Experience for SMBs & Entrepreneurs

On this edition of the podcast, we’re joined by the co-founder and CEO of Xpence; Saad Ansari. Xpence itself is a neobank which caters to SMBs and freelancers, in order to streamline the process of banking for business. We delve into the fintech space as a whole, what it feels like to work around myriad regulations, and how Xpence began its life as a consumer neobank, before shifting gears to cater to enterprise!

Episode Transcript

Divanshu Thakral   0:00  

Hey guys, welcome to another episode of Business & UX Story. I hope you enjoyed listening to earlier episodes. If you have any suggestions or feedback, please leave them in the comments. 

Joining me today is Mr. Saad Ansari who is a serial entrepreneur. Saad in his recent venture is solving the problem of business banking and finance management for freelancers, entrepreneurs, startups, SMEs and micro-businesses. He is doing it through a neobanking platform called as Xpence specifically for the GCC region. You know for a few of us who don’t know what neobanking is. Neobanking is a kind of a bank which is completely digital, there are no branches and it is completely managed by a digital interface. Neobanking industry as of 2020 was valued around $34 billion dollars and it is expected to grow at a rate of about 48% CAGR going forward. So this is a huge industry and I think it’s a very interesting domain to kind of be in. 

Without taking much time I would like to welcome Saad and I hope you know Saad everything is fine at your end. Things are really bad and I really wish things back home are safe for you. Over to you Saad. 

Saad Ansari  1:11  

Hey, Divanshu. Sure. Well, firstly, thanks very much for having me. I’m really honored to do this. And yeah, you know what, I think it’s been just over a year now, since our last engagement, which was, I think, one of the first parts of Xpence, the journey of the build. So you guys hold a special place in our hearts. By the grace of God, everything is good over here. We are fully vaccinated, life is returning back to normal, we have some restrictions. We’ve got the Eid holidays starting, there are still, you know, restrictions on the number of gatherings, how many people can be in a restaurant and things, but life is getting back to normal. And you know, at the same time, we are, you know, we have many Indian colleagues and friends and we pray and hope that everything is well at your end, and that you guys get through this as quickly as possible without you know, much more loss, I hope.

Divanshu  2:20  

So thank you, you know, for for wishing us that and I am really happy things are normal at your end and they are getting back to business as usual. We also end up hoping to, you know, kind of see that day, and I think it will come soon. So Saad, you know, I you know, new banking is a space. It’s a decade old space. And you know, it’s been growing quite rapidly. And one of the most fastest growing domains in the FinTech industry. How did this happen to you? You know, what was the idea behind it? Why did you pick up this audience? Is there a connect that you see, is there a story behind that?

Saad  3:03 

yeah good question? I mean, there’s a lot of stuff happening around the world and Neo banking, I think, arguably, the biggest the best proponents of Neobanking have been, has been in the UK with the likes of Revolute and Starling and, and many others that have led the way. But I think if we look at FinTech in general, the most impressive rise of FinTech really has been in China and India, where, you know, they have really, whether it’s Alipay or PayTM, that have really worked on the financial inclusion side. I think if I look at my own journey. So firstly, I think, you know, I let the audience, the listeners know, I’m not from the financial services industry. I’ve never worked in a bank. I’ve never worked in any type of financial institution. I’m an entrepreneur at heart. I started my very first company immediately out of university. And I’ve been an entrepreneur since and I think one of the kinds of Mac’s that I have is being able to find problems and think of solutions to them. If our journey with Xpence, and at the time it wasn’t Xpence, it was something completely different, started in the beginning of 2017. Yeah, and it was more more what I was looking for was a way to be able to send small amounts of money to somebody instantly. I always thought, wouldn’t it be great to be able to WhatsApp, somebody money or instant, you know, an instant messaging way of sending money between friends, I’m not talking about large overseas remittances. Just, you know, we go for a coffee and you’ve forgotten your wallet, and, excuse me, and you’re able to sort of send me you know, 15 dirhams, 20 dirhams of something as simple as that. And, and, you know, we there in the UAE, we pride ourselves with being at the cutting edge of technology and innovation, one of the hubs of technology in the world. And I thought, you know, you know, someone must have done this. And now remember, because I’m not from a financial service industry, I didn’t really know what’s going on in the world of FinTech. I mean, I knew about FinTech, heard little bits here and there, but wasn’t, you know, deep into it to know what’s happening. And my usual first port of call is going to the App Store and see if there’s something that exists in the App Store, couldn’t find anything there, did a little bit of digging online. And then I came across, you know, PayTM, I came across Venmo, in the US, Swish in Sweden. And I thought, wow, you know, why hasn’t something like this been built in Dubai yet. So that kind of kickstarted my journey. But the reason why I was looking for something was because I needed to pay someone a small amount of money, and they were on the other side of Dubai, and that person didn’t have a bank account, so I couldn’t transfer the money to them. And because of the sort of time constraints and things, I wasn’t able to go to them. And that’s where this kind of this frustration was, and then talking to people, and I think, you know, you guys being the UX agency researchers, that at the heart of what you guys do a little bit of research, you know, going and talking to friends and people and seeing, yeah, you know, what, there is nothing to do this. So that’s how the journey started in 2017. But sort of along the way, we, we started to see other problems that were even bigger that needed to be addressed. And, and we, we pivoted from what would be a peer to peer payment application into what you would call a NEO bank, but targeting consumers with a particular focus on the unbanked population, the migrant workers that the Gulf is, is filled with from, from the Indian subcontinent and, and Southeast Asia. And then that sort of, you know, through again, through research through meeting people through interviewing potential users, and other barriers that we face, we pivot to the yet. And this time, the pivot was within the, within the customer segments, and we went from a consumer to a corporate, and that’s where the idea of Xpence was born, you know, there is a whole other underserved segment, and that is the startup the freelancer, the micro business. And that sort of happened in March 2018. And then from there, we have just been sort of building our product, and this is where I, you know, where we are today.

Divanshu  8:05  

That’s great. I mean, you know, somebody kind of grew on you as a personal experience, and then you moved it pivoted it into a larger kind of space. That that’s, that’s wonderful. That’s wonderful. So Saad, you know, there are coming, we understand there are a few types of an neobanks in one R. One, the ones which are which have the license, the other one, you know, which operate on a partner bank, right. So which ones are you, you know, how are you playing this?

Saad  8:34  

Alright, thats a That’s a good question. And I think, Divanshu, that is probably the crux of the problem for everyone, right? So we can have a great idea, we can build a great product. But when you deal with financial services, probably one of the most regulated business industries in the world, particularly to protect consumers so that people don’t do you know, companies that don’t take financial institutions don’t take advantage of the consumers. So one of the biggest challenges was getting the right licenses to be able to perform these business services. And at the time in our region. Our central banks and regulators were still exploring the idea of Neo banks and Money services, and the idea of non non traditional financial institutions. And I would say we’re a non traditional FI. Work coming in asking the central bank, hey, look, this is what I want to do, but there’s no license for this. We, you know, the regulator’s then came up with licenses that we could use, but you still, you know, to, for us to launch a neobank. In this region, we still require to work with a traditional bank, our the funds, the customer funds need to be held somewhere, the you need access to the payment rails, the infrastructure, so you need to work with a bank. And so the second problem after the regulator’s was finding partner banks, and partner banks are, you know, it’s, it’s not like there’s a directory, which says, Oh, these banks work with fintechs. And, and these don’t, you know, there’s many reasons why, you know, that could be the bank is not set up technology, from a technological perspective, it might not like the risk involved in it, you know, the mindset of the cultural, there’s many reasons why banks didn’t jump to the sort of, to help the fintechs launch these products, and, and also bank soars as an immediate threat to them. Which, when you look at the model, you’re actually not a threat, because you are working well, at least with your partner bank, you are not a threat to your partner bank. And this, this model has been, has been successfully implemented within the telco industry for many, many years, with what we call mobile virtual network operators where I can build my own brand and sit upon an existing mobile network, and create a whole new brand. And we see it here in the UAE today, and in many parts of the world. So as a business model, it’s nothing new for our banks, here, it was. And so, to long story short, we are the type of new bank that requires sponsorship by a bank.

Divanshu  11:43  

Right. Got it. Got it. So, if you could throw some light on the business model, and also how it helps the end consumer in a certain manner, that would be great for us to understand the new bank as a domain in a better way. 

Saad  12:00  

Sure. So depending on the type of near bank, you have the consumer neobank, and you have the corporate one other retail, which deals with you and I as regular customers, and then you have the corporate or the SME neobanks that deal with companies. My own after our sort of research investigation and looking at the business models, making money on the consumer side is a little bit difficult. People don’t like to be charged for banking. They believe I mean, you know, banking should be a right not a not a privilege. But on the on the SME side, the area for monetization is much, much bigger. And if you actually take away all the big all the, if you look at the venture capital funding, in neobank, sort of over the last five, eight years, in the beginning, there was a lot of money being thrown at consumer banks. But in the last few years, there’s a lot more being done on the SME side, purely because the consumer near banks hasn’t really turned a profit yet, the revenue only went into profit. Last year, or earlier this year, or last year, I forgot when it was staling went into profit last year, it takes a long time to be able to do that. But whereas on the SME side, first of all, it’s a subscription base as SMEs and startups we’re all used to paying subscriptions, right? So whether you’re going to get your your your figma subscription, your Microsoft 365, or Google works or as your AWS as as, as startups, we’re used to paying for subscriptions, and we like it that way. And so why not approach banking as a subscription. But you have to go beyond just holding someone’s money and sending and receiving money. There has to be more to it than that. And this is where you can really bring in you can you can start to monetize within the application. So things like giving them the ability to collect funds online. There are many occasions when we want to issue an invoice in collector payment by credit card or debit card, it just makes it so much easier what. So what we’re doing is we’re aggregates a lot of services, that usually an SME, or a startup or Freelancer would go to five different organizations to get these. And then there’s no sort of, unless, unless they’re going with services that have open API’s and connections, these services don’t speak to one another. And so you’re having to reconcile and update all these things, what we’ve done is we’ve brought them all together into one place. And, you know, that’s a service worth paying for, and what we see is that our customers are willing to pay for it. And that’s certainly part one of revenue generation, right? Then right? down the line, there’s going to be others eventually, you you want to be at a point where you can actually finance these startups and, and give them working capital and capital to be able to buy equipment and things. I mean, all of those, I mean, I’m sure you are high, we would love if, you know, we can finance our MacBooks and and iPhones when that we use everyday work, and be so helpful to startups if that were the case.

Divanshu  15:42 

Right, Right. No, I think I, because I’ve known the product closely. So I definitely know that there is value proposition and I see a lot of experiences get integrated into one single platform to talk to each other. And you don’t have to kind of you know, as you said, Go look for five platform manage them separately. And exactly. And you know, a lot of time gets saved in terms of pulling information from one platform, putting in the other and then analyzing it in that. So, I mean, it definitely has a edge over any other product that

Saad  16:015  

Correct. Yep. I mean, we hope so I mean, with the team is doing its best and, and what we’ve what we’re fortunate, I guess to see is that around the world, similar products have have launched and are doing very well. And you know, I can you can name a country, and I can probably tell you, I mean in your own in your own in your own country, you’ve got who could have been very successful, did a I believe that they’re probably the leading SME neobanking, in India, they doing banking as a platform. And there’s been a couple of, I believe one of the English ones now is moving into India. So I heard an announcement from thai bank, which is a pure SME play in the UK, their first foray out of their market has been to India. But whether you look at the United States, Canada, Australia, you you there are examples of SME Neo banks everywhere. And, and you know, there is a real requirement, because at the end of the day, large banks, you know, are not really geared towards a serving startups properly, we have a whole, we’re very different breed of customer to the traditional business, I have reports. And some of the tools that we require, are typically reserved for large companies only. And so I believe that it is perhaps one of the most underserved customer segments when it comes to banking. I think they’re even more underserved than that even the lowest underserved consumer is so definitely the opportunities there.

Divanshu  18:01  

Right, right. No I mean, there’s definitely scope here. And, as we know, been a customer to a couple of banks, and, you know, and being, you know, part facing business banking on a daily basis, I know that there is a lot of scope in the improvement of service and changing the way the banks treat a small enterprise or medium sized. Right. So yeah, and I think Neo bank can definitely bridge that gap in terms of experience in terms of services that will be provided for, you know, for a small organization.


Yup so, you know Saad, the the territory, the geography that you are in, it’s, you know, it’s the financial sector is quite regulated, the banking is not regulated there. Right. So, everywhere, but you know, as a region, it’s quite regulated in Dubai. And area around, so how you, if you could enlighten us with some of the challenges that you are facing, or you’re faced and, you know, kind of overcome them, you know, to get licenses or to any of the challenges that you would kind of help us understand more about the space?

Saad  19:12  

Sure. So look, I mean, I think one of the examples and this is no, it’s not a disrespect to anybody else’s work and what people do. The example I always give to my team is that, you know, if we were building a food delivery application, and we got an order wrong, so you order, you know, burger fries and coke and instead of coke I delivered sprite to you, you as a customer would be a little bit annoyed, you know, we, you know, might give you a refund, we might, you know, give you some kind of credit for your next order, you’ll forgive us and you’ll continue using it, I mean, the amount of times that so much, I’ve got my order wrong, I still use them today. So it’s not an issue. But if you get something wrong in banking, right, if you get someone’s balanced one, and I’m talking, even if it’s out by $1, if you get a transaction wrong, there is no forgiveness, people will not forgive you. So we have a very peculiar attachment to our money, right? So when we can be generous with many things, but when it comes to money, you know, it’s it’s a much, it’s a much more people take it a lot more personally. And so I think, you know, the regulator’s you know, ensure that, you know, these kinds of things don’t happen. Now, what we saw in the last sort of four or five years in our region is a real shift where the regulators have been working towards enabling FinTech. Within our region. The most important, I think the the, the catalyst to making things happen, were when the regulator set up sandboxes, so the sandbox allows fintechs, like ours to test and, and see our services, working under limitations with certain restrictions so that, you know, losses won’t be huge damage won’t be huge, we won’t damage the national infrastructure or anything like that. And that was, I think, a key turning point. So when we got into the sandbox at Abu Dhabi global market, so the financial service services, regulatory authority of atgm, that was in 2000, end of 2018. And we were the third cohort. So their sandbox, I believe, if I’m not mistaken, was the first sandbox in our region. And it was in its third year. So you can imagine that, you know, the day, it’s a very young sandbox, and that really accelerated our, you know, it got investors interested in ours, it got banking partners interested, because now you actually have a regulator behind you. And I think that made a huge difference. Getting the licenses is not easy. I mean, even if it’s a sandbox application, you know, they still want to know what kinds of policies and procedures you have, particularly when it comes to money laundering, and, and facilitating financial crimes. How do you how do you stop the wrong people getting onto your platform? How do you ensure that, you know, none of the transactions are taking place for nefarious reasons or, or, you know, drug trafficking, human trafficking, you know, financing terrorism, these are, these are things that are wrong, and quite rightly, should be at the top of everyone’s agenda, we don’t want to meet even as forget about financial institutions, none of us want human trafficking.

Divanshu-  Right.

We need to ensure that we don’t facilitate any of these. And we have to demonstrate to the regulator, that we have robust systems in place to prevent this from happening, policies and procedures. And then on top of that, our tech is built in a way that can manage this. And so it’s not a it’s not an easy thing to go in, and start up. And, again, particularly in our region, because a lot of the technology wasn’t available, we had to build things from scratch, it requires a high amount of capital, it requires really patient and understanding angel investors. And we’ve got some fantastic investors. In fact, you know, one of our investors was also the very first investment resolute, and he was our first institutional investor. So we’ve got, you know, we’ve got a good bunch of investors behind this and some great stakeholders that are supporting us in our journey and are patient. And I think that’s a really important thing, because this does take time, we don’t have you know, when we apply to the regulators, it can take anything between six and 12 months to get through to the license. So it’s not it’s not a short game. 

Divanshu  24:03  

Right. Yes. I mean, those are the use cases or the kind of edge cases that you’re talking about. I mean, these are really thought through. And, you know, it’s a zero error game. You can’t have errors, as you rightly said, I mean, it’s not that I would come back to or I would go back to bank if I lose my money or anything happens. To my bank account or anything you know very regulated, and I now understand why it is so regulated. Great. Yeah.

Saad  24:34  

Yeah. I mean, if you’re, if you if you Sorry to interrupt you Divanshu, but in the in the job that we did together, yeah, that onboarding was such a such a big piece of the puzzle. And the funny thing is, is that a customer will only go through it once. But it has to that, that onboarding is capturing one of its one of its its primary uses is to assess the risk of a customer before you allow them into the platform. That’s why we’re asking for so much information. And each piece of information gets risk assessed. So you know, how old your company is, where it’s registered, what your nationality is, these are all things that we are constantly assessing about a customer to determine what risks they pose on what risks they can possibly pose. So it it that in its own right, that onboarding is a is a huge, huge module of what we are what we are doing.

Divanshu  25:40 

That’s right. I mean, I remember, I think, entire product that the part that we designed was actually just onboarding. It was so you know, complex in its nature that I remember how the team kind of went iterative, and how they thought through and build complex information architecture just to get it right. 

Saad  26:00 

Exactly, exactly. And it’s it’s a massive challenge. But we did I think we did a good job in the end.

DIVANSHU  26:08  

I am I’m happy to hear that Saad. 

With that nice feedback, I will wrap up this part of the episode. In the next episode, I’ll talk to Saad about what lies ahead for Xpence, his challenges in taking it live and more. Till then stay safe. Keep listening. Thank you.

Expand Full Transcript