EP966: How incumbent banks can respond to the challenge of neobanks

Fernando Zandona, Chief Executive Officer, Mambu

Securing the future of your bank means securing the next generation of customers. It is a fact that once people pick a bank, they very rarely switch. But how should incumbents square up to the challenges posed by the rush of neobanks coming to the market? How best to pivot without losing sight of core compliance, trust and scale? Fernando Zandona, CEO of cloud-native, software-as-a-service (SaaS) core banking platform Mambu speaks to Robin Amlôt of IBS Intelligence.

Transcript

SPEAKER_01 0:00

I'm Robin Amler of IBS Intelligence. You're listening to the IBS IViews podcast. With me is Fernando Zandona, Chief Executive Officer of Mambu. Our particular focus is the fight for younger customers. Securing young customers isn't a niche play, it's a long game, and the stakes are potentially huge. The reason for that is that once people pick a bank, they actually very rarely switch. In the UK, for example, only about 2.5% of adults change their primary current account each year. In other words, win the customer early, and you have the potential of retaining them for years. But you've got to win the customer. And that's a fluid issue with the way technology is developing at the moment. So how do incumbents build banks that can stand toe-to-toe with neobank agility and data fluency to meet the needs of Gen Z and Alpha discuss. What is it that the incumbents need to be doing, Fernando?

SPEAKER_00 1:06

That's an excellent question, Robin. By the way, thank you so much for having me in your podcast. I really appreciate it. So we are seeing this transition, right? It's happening uh uh uh over over the years, but we are seeing more and more that the generation uh Z and the Gen Alpha are really looking for something that is fast, something that is digitally ready, and something that's purposeful for them. Like say it's a generation that is was born in the internet, was born in the in the different apps that they are using on a day-to-day. So they're looking for have that same experience that they have on their phone with their banks. Like that and and they value their community, they value what the the financial institution is offering for them in terms of data, in terms of uh the even the values of that financial institution. So, like if you were if you're in a finance institution, you are running your your business the same way they've been running the last 20, 30 years, there's a very low chance that you'll be able to capture this this more younger generation of users.

SPEAKER_01 2:12

Well, let's talk about the younger generation of users. Why is capturing the youth account or the youth accounts so essential?

SPEAKER_00 2:23

Well, I think you you mentioned like the stakes are super high, right? Like, and they will they are they will be very loyal to their banks today, right? Like at the moment that they have that experience that they are looking for, they'll be very loyal to that. As you mentioned, like very few adults today will change their bank once they have established their financial life with an institution. And that's exactly what's gonna happen with this generation that is coming to start looking at what financial looks like. They are financially savvy, they are digitally savvy, and they want to use that knowledge in the way that they interact with their bank. Uh and in some cases, they don't even want to see the bank, right? They are using an app, and that app is offering financial services for them. And if financial institutions and banks are not able to capture that now, they will lose, they will miss the boat. And there are so many new banks coming to market with that ability to provide that functionality that this generation is looking for, and they are taking over the market. So, like established finance institutions today, they need to be able to react quickly to offer those services.

SPEAKER_01 3:32

There is a stumbling block, and this is perhaps something that some institutions don't take enough account of. First of all, I'm going to, as a bank, look at the cost of acquisition. What's it going to cost me to get one customer, to get lots of customers? But they're looking at the cost of acquisition as a cost today, as a cost this year, but there is a lifetime value to that customer, isn't there? Absolutely.

SPEAKER_00 4:01

Absolutely. There is a lifetime value to that customer, and they need to not be able to think that way, right? Think long-term on how much they will be able to keep that customer in their platform. But they also need to think about how they are going to be able to do that, right? Because there needs to be an investment to be able to provide a financial product for this generation. So the cost of acquisition in itself has to take into consideration the investment that they need to make to acquire that customer. Otherwise, they're going to again miss the boat, right? Like so they need to prepare themselves and reinvent themselves to be able to capture them.

SPEAKER_01 4:42

All right. Well, let's talk about specifically an example that you've been involved in. ABN Amro's bot. That's B-U-U-T. Yeah, yeah, they pronounce it BULT. This is a project that Mambu was involved with.

SPEAKER_00 5:00

Absolutely. Here in the Netherlands, so uh ABN Row was exactly looking for that. Like, how can we capture uh Gen Z and Gen Alpha? How we can provide a more digitally savvy financial experience to the younger generation. Uh and they partner with us. We Mambu, we are a core banking provider. We provide a cloud native API-based, composable core banking, which is like really the base of what a financial institution uh is. And with us, they were able to quickly launch a new financial experience for the younger generation uh in in about 12 months, which is very fast in the world of banking, right? Like if you if your bank is based on legacy infrastructure, it might take you years to be able to launch a new financial product. Uh, and once we move to a modern core like Mambu, they were able to very quickly launch the product in 12 months. And this is the key for these financial institutions, Robin, because they don't need to change their whole infrastructure to be able to attract the new generation, right? They can do these projects like ABN ABN road boot on the side and be able to launch that new experience for these new customers without risking the the you know the large infrastructure that they have in place.

SPEAKER_01 6:26

Well, what are the issues? Because if if I'm an incumbent bank, do I have to launch something that's got a different name? Is it is it not uh an admission, perhaps, and I'm being mischievous here, is it not an admission of failure to say I can't launch it under my own brand? I've got to launch a new brand.

SPEAKER_00 6:47

I don't think it's uh I don't think it is uh how do you mention like uh uh uh that that you are acknowledging uh a failure. I think what you are doing the opposite, you are showing how speedy you can be uh by launching a new financial product. Like it's still called A B and Row, right? It's still A B and Row boot. And and and the bit the the point here is that they saw the need, they realized that their core infrastructure today is not enabled, it doesn't enable them to launch a new financial product that quickly. So they built this this project uh on the side, right? We call it a sidecar core with the ability to launch new financial products, iterate very quickly on it. Uh, and we are seeing this across the world. Like, this is a way to very quickly respond to the demand of this new generation, but also respond if you are incumbent bank to the new banks that are coming to your market. They are coming, they're coming strong, and they are acquiring a lot of the incumbent bank customers. So this is a response to that. It's not a failure, it's actually an acknowledgement that we uh we need to do something and we are able to move fast uh with Mumble.

SPEAKER_01 7:57

So this is a way for traditional banks to pivot without throwing out core compliance, trust, or scale.

SPEAKER_00 8:05

Absolutely, absolutely. And and and more than that, we we bring all of that, the compliance, the scale, uh uh, the reliability, we bring all of that into this new proposition that they are building. Uh so they can run both infrastructures side by side without risking uh a major core migration or major core transformation.

SPEAKER_01 8:27

Now you you said without risking a major core translation or or migration. Migration. What are the specific headwinds that you've got to look out for, both in terms of technology and in operation?

SPEAKER_00 8:45

I think the major headwinds that those financial institutions are facing today is exactly that, that inability to with the infrastructure that they have today to be able to innovate on behalf of their customers. So I think this is the first headwind that they are facing. The second one, when they do decide to engage with uh with uh uh Mamboo, for example, and we start to build the products with them and decide to deploy uh a new core banking with them. I think the second thing is they need to innovate themselves as well. Like they need to think differently, right? They need to have the people in the organization who they have the ambition to launch a new financial product and to target that that new generation, for example. So it's really their ability to transform themselves and the way that they run the business, right? And we partner so close to the organizations that we walk the walk with them to be able to show to them how to do that, right?

SPEAKER_01 9:44

Well, let's talk a little bit more about Mamboo itself and what your response to your customers is. First of all, what are they telling you they want at the moment? What do your customers want you to do for them?

SPEAKER_00 10:00

Our mission is to make more possible in people's lives uh uh by enabling easy and simple financial services. So, like, we really are working very close to these financial institutions to allow them to innovate uh on behalf of their customers, right? Like, and provide those new financial experiences to their customers. They are looking for that partnership, right? They look, they need both the technology and the partnership with us to make sure that they can innovate. So, like we are providing this to them, not only the stack, the scalability, reliability, security, compliance, but also the knowledge that we bring of working with financial institutions across the globe and that partnership that we we we work with them, both in implementation, go to market, and the business.

SPEAKER_01 10:48

You used the word partnership several times there. This is not, or you do not offer people something off the shelf.

SPEAKER_00 10:57

We are a SaaS company, right? Like a SAS as a software as a service company. So we do have our core is uh is a uh single code-based core provider. Sorry, I'm getting a little technical here, that allows us to offer this as is across the globe. When I talk about partnership, it's not necessarily that we're gonna build custom software, we don't build custom software to our customers. We talk about how we can together go through the implementation of their financial products, how we can advise them on the implementation of the financial products or how to approach the problems that they are facing, and how we can together implement and go to market with that software. So it's more about on the business partnership and more and more so on the relationship with our customers than necessarily on the tech stack of that partnership.

SPEAKER_01 11:49

So this is what makes Mamboo stand out from the crowd. This is what makes Mamboo special is that partnership, that relationship.

SPEAKER_00 11:57

The relationship, yeah. We we we proud ourselves to be very customer obsessed and more and more wanting to work and working closer to our customers. Like so we have contacts across, as I mentioned, like the you learn so much by working with these financial institutions across the globe. Uh, and it's such a uh such a humbling experience as well to be able to support so many end users across the globe and be part of their most important part of their lives, right? Like their financial aspects of their life. And I think that is both a uh a responsibility that we have, but also it's super exciting to have that impact. And that allows us or or brings us to this wanting to have this close relationship with our customers.

SPEAKER_01 12:40

Fernando Zandona, Chief Executive Officer of Mambu, thank you very much. Thank you so much, Robin. Thanks for the opportunity. Appreciate it.