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The Connector Podcast - From Estonian Startup to European Banking Pioneer: InBank's Journey
Ever wonder how a small Estonian startup transformed into a multi-country European bank during one of the most challenging periods in modern financial history? InBank's remarkable journey proves that crisis creates opportunity for those innovative enough to seize it.
After the 2008 financial crisis, when traditional banks pulled back from consumer finance and technology investment, InBank recognized a critical market gap. Their "killer feature" in 2011 was remarkably simple yet revolutionary: fully automated credit decisions and contracts for in-store purchases completed in minutes. This singular focus on seamless customer experiences at the point of sale became their competitive advantage.
What makes InBank's story particularly fascinating is their strategic approach to expansion. Rather than competing directly with traditional banks, they secured a European banking license primarily to access retail deposits as a stable funding source. This enabled their passport across borders, though CEO Priit candidly reveals the challenges of scaling across Europe: "It's not the single market as it is on paper." Despite regulatory harmonization efforts, each country requires significant localization of processes, from identification methods to credit bureau integrations.
Today, InBank exemplifies the evolution of embedded finance, creating tailored experiences for specific verticals—from Apple device rentals to solar panel financing with synthetic securitization. Their focus on medium-ticket purchases (€1,000-25,000) where speed and convenience matter most has attracted 6,000+ partners across multiple countries. As they describe themselves, they're "a fintech with a banking license," bridging traditional banking capabilities with technological innovation.
Curious about partnering with this European embedded finance pioneer? Connect directly with InBank's CEO at priit@inbank.ee to explore opportunities for collaboration in this rapidly evolving financial landscape.
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Koen Vanderhoydonk
koen.vanderhoydonk@jointheconnector.com
#FinTech #RegTech #Scaleup #WealthTech
Welcome to the Connector podcast, an ongoing conversation connecting fintechs, banks and regulators worldwide. Join CEO and founder Cohen van der Hooydonk as you learn more about the latest available trends and solutions in the markets.
Speaker 2:Welcome to another podcast from the Connector, and today I've got a bank with me, inbank, all the way from Estonia. Preet, can you introduce yourself and tell us a bit more about the bank that you founded and you're currently the CEO of?
Speaker 3:Well, first of all, thanks for inviting me and InBank Cohen, I have actually been about 30 years in banking. How to say I have actually been about 30 years in banking? How to say Maybe? I would like to say that first 15 years I was in banking and now last 15 years I've been more in fintech. I got my first job after I graduated the United States. At that time I think it was the largest bank in the world, which was a Japanese bank. They were very big at the time Daiichi Kangyo Bank in San Francisco Worked there for a couple of years and then in 1998, moved back to Estonia Actually in 1996, and things were really happening and in 1998, I moved to the largest bank in Estonia, which was a startup at the time Hansa Bank, which was a startup at the time. Hansa Bank and worked my way up until 2008, was a CEO of Hansa Bank, basically the largest universal bank in Estonia, but then it was taken over by Swedbank, one of the larger retail banks in Sweden.
Speaker 3:Kind of felt like need to do something else and obviously then the kind of financial crisis hit and it was really tough time, especially in our part of the world. We had over leverage real estate crisis. But you know, the crisis actually presented its opportunities and me and Michael, like always, yes in the Baltics and we found kind of consumer finance a major opportunity. Many large banks have kind of taken a risk off and they really were not investing into technology nor the product and we were basically looking this kind of higher purchase as a big opportunity, financing kind of purchase of durable goods through merchants. And our kind of killer feature in 2011 was was basically a simple application in a shop, automated credit decision and contract completion right there, you know, in a couple of minutes, and no other bank was fully automated at the time. So that's how we got going.
Speaker 2:And that then became InBank, as it is today.
Speaker 3:Yes, basically, you know, we grew, you know, four years with offering basically consumer finance through merchants, kind of launched our car financing product together with one of the largest car classifieds platforms in Estonia, and today we work with many car classifieds platforms. We also first do a fully online end-to-end digital process already in 2012 and taking market share. And the key element for us which was missing was funding. You know, baltics was not like big capital markets. At the time. There was no debt funding available, so we actually lending money or borrowing money from other banks, and so we were also, at the same time, competing with them. So eventually, you know, kind of the best solution for ourselves was to apply for a banking license itself, and today, in 2015, april, we received a European banking license. Basically, the main focus is to gather deposits. Actually, that's the only reason we have a banking license To manage your balance, if you want, yeah we have a funding need and basically retail deposits is how we fund ourselves.
Speaker 2:Yeah, and it's good that you mentioned it's a European banking license. Obviously, you can passport out of Estonia and this is something that you have already done. So which countries are you and, and, if I may ask, what have been sort of the lessons learned from scaling your bank across Europe?
Speaker 3:yeah, we have a branch in Lithuania. We have a branch in Poland. We have a branch in Poland. We have a branch in Czechia and we also have passported our license to Germany, netherlands and Austria in order to gather deposits through the raising platform. We were probably one of the first banks to actually jump into the raising I think already in 2016. So all of that has worked well.
Speaker 3:However, I think what you know, what is the challenge? In Latvia we don't have a branch. We have a daughter company, 100% owned limited liability company. But what you know, what's the challenge challenges? You know lending product actually is 100% similar in all the countries. What is different is a little bit difference in regulation, in identification, different KYC, aml rules you have to always attach to a different credit bureaus, or basically the data you need for making the credit decision, the data you need for the making the credit decision and open banking.
Speaker 3:Although it's helping, it's still actually not like fully scalable across the whole europe and and you need to kind of find different solutions. So learning is yes, you can take your business model from country to country. We are taking market share, we are winning, but it's not scaling as seamlessly as you would like because each and every country you need to do some kind of localization, so you need to integrate into local databases. So there is still this kind of a missing piece. I would say in this kind of unified europe, european financial services market it's not as smooth as you would love to be no, it's not.
Speaker 2:It's not the single market as it is on paper, right, it's not difficult in reality.
Speaker 3:I would say raising and has done a great job and it's a very simple product, basically unifying, and maybe payments companies have been able to kind of, where there is like a very, very standardized rails, but lending is is kind of a little bit kind of different rules and and these rules matter and this basically make it more challenging to to scale yeah, you need to adhere to compliance and regulations.
Speaker 2:That that's obvious. I think what is less obvious and what I really admire about in-bank is that you also Do not scare away from different innovative products. I'm taking two examples here. It's a rental of electronic devices, apple products, and another one is synthetic securitization of solar panels, and I think the solar panels if I understood well, that's something that's only available in Poland.
Speaker 3:Well, we actually have available in all the markets, to be honest. But Poland has scaled and I think maybe I go with a couple of generic strategy kind of points. First, I think what we do is we help merchants to sell their products and goods and services and we also try to make kind of financing as seamless, as simple for private individuals who want to borrow for different needs. So we are less about just lending money, we are helping the purchases. So our business is to kind of build a kind of a smooth and tailor-made process for a specific product.
Speaker 3:So Apple is actually growing in United States, in UK with the rental product. We felt it's a logical product which has a residual value, similar to the car. So if you don't have to finance the full price of the phone, you're able to actually reduce the price. You're also able to bundle insurance in there, which some of the customers want, or they want to buy the phone for their children and have an insurance. So it's just another kind of a flexible way of owning a device over time and then returning and getting a new one and it's yeah, yeah, both of them actually sustainable, like the solar panels and the solar panel was a little bit different because there, you know, there is a huge push in Poland to get it more green energy and and there is a lot of kind of a motivation and subsidies to to have individuals to buy solar panels into their kind of house roof and it's a pretty large country, it's a lot of kind of houses and again the challenge is, you know, in terms of distribution of the product.
Speaker 3:There are installers who go to put those kind of panels on a roof, but they also need financing and I guess you know our product again kind of integrated into the process, while the merchant goes and installer goes into the house, we are able to offer the financing basically at the point of sale and the customer can make a deal immediately. So that is basically where we come in. Synthetic securitization is basically a product we used from European Investment Bank and European Investment Fund. It has two goals. One is, yes, to kind of help Polish society to become more green and private individuals to buy kind of invest into solar panels. Secondly, it actually helps in-bank to reduce our capital engaged in this, basically assets, so we are able to kind of grow more and issue more loans with this credit kind of a synthetic securitization. So that is basically the goal.
Speaker 2:The product itself is still, uh, actually a kind of a installment loan for the solar panels to private individuals well, a few times I was in my mind thinking well, you're the embodiment of embedded finance, but I think there's so much more in the example that you give. It's almost embedded banking because you touch on financing, you touch on renting, leasing and even investments. If you look at all these areas, what do you see is the cohesion between these different products, and where do you see potentially different growths?
Speaker 3:Well, what we have always fought since 2011 is that technology, digitization, especially open banking, is basically allowing to move financing or any finance related products kind of, outside traditional banks. Banks operate very kind of a closed, vertically closed business model and want to have basically, you know, their customer cross-sell to them within their own environment. And I would say regulation is also pushing a lot, you know, to have it that way. But technology is allowing basically to make automated credit decisions. Technology is allowing automated online identification, onboarding of customers and obviously, you know you can innovate to think, okay, what is the best journey for the customer? And if you want to buy a used car, how do you behave?
Speaker 3:You normally go to the marketplace, online marketplace, you compare different cars and make a couple of choices and if you're there with financing and you can make sure that you get the money, it's good to have an offer there, right there at the bottom of the kind of a car picture, easy application, and then you go and actually go out and go to the plot to see the car.
Speaker 3:So the journey is changing. Same with the solar panels. You have a process where basically, installer is coming to your house talking about what kind of solar panels, what kind of package to take, offering kind of financing right there, and technology is allowing it. So our view basically is that in, especially in a kind of a medium ticket size, what is like 1000 to maybe 25 000 euro bracket, speed and convenience are very, very important and basically tailor-made to the specific vertical you're offering. Either it's just a process or it's the product. That's a big advantage and that's what we do and basically we think if we're successful, those financing volumes will move out of traditional bank channels and they will come to us.
Speaker 2:Makes sense. What I hear is a lot Makes sense. What I hear is a lot, and you used examples that you were already doing automatic credit decisions way back in time and things obviously work well if you have good workflows. But nowadays there's an additional element to this mix it's AI. So how are you looking at new technologies and are you already experimenting or even implementing AI?
Speaker 3:We are not yet implementing maybe to that extent. Obviously, we are using AI for our engineers in terms of helping them in coding and all of those things, and we have our marketing and legal teams. We use AI to simplify their work, but I think AI is not there really to kind of evolutionize anything what we do. We have been basically doing machine learning, I don't know last 15 years, because basically the way we make credit decision is one step short of AI. It's basically our data is analyzed, decision is made by a machine, data is analyzed, decision is made by a machine, data is analyzed by machine, but eventually still there is a human kind of reviewing it and making the final decision to change algorithm. You know ai would be the, the final step. Actually, the machine would learn itself and would continue to improve a credit decision and you give them a prompt. I don't know I want to maximize positive decisions or I want to maximize profitability, or I want to maximize or minimize credit costs. So currently that piece is still for us. You know we have a machine learning capability.
Speaker 3:I think the next step there is is is possibly um, you know, adding then that the machine itself can improve and you just give it the prompt um, obviously, if you look forward like this agentic world, it is basically almost fully embedded. So I guess I'm looking forward to this kind of a change in kind of internet infrastructure where basically you will, you know, write in, I want to buy a, a trip to a, a a southern italy, and, uh, you know, trip is offered and immediately financing is offered on top of that and that you know well, integrated into into the infrastructure. But I think we are not there yet. So I think that's where the big change probably will happen. So I think we we are kind of uh, obviously monitoring this, uh, new developments in ai, but I think still, the use cases currently are kind of relatively simple ones.
Speaker 2:No, and I think, if you find the time is there, I think you're well placed with a very good fundamental structure of your bank, because it seems to be very technical. First, I also was wondering, because you're a relatively young bank, how do you see collaborating with the fintech ecosystems, and you already mentioned Raisin. I think that's a good example, but are there any other examples?
Speaker 3:Yeah, I think we are in a way seeing ourselves as a fintech with a banking license. So we are looking to cooperate actually both ways with fintechs. We're also looking to cooperate with banks and you know, I cannot announce anything, but very, very soon we have one of the corporations with one of the larger retail banks where we provide a product and they will provide the distribution. We provide a product and they will provide the distribution. So there is basically also different discussions with other players ongoing, some of which basically where we have our license and that would be a benefit. In other cases we have a product or technology which is a benefit.
Speaker 3:So we can actually move both ways. We can move to work with FinTechs and we have been like a long time working with different like payment service providers who are integrating our products towards their merchants. Actually, we even started one of the leading payment service providers in the Baltics. We sold that company. So we have been kind of not only doing in-bank, we have been trying to look for ways to basically improve the infrastructure available for financial services.
Speaker 2:Great. Thank you very much for all this input and a nice story. I was just wondering if would like to come contact you. Who should that somebody be and how can they contact you?
Speaker 3:Well, we are looking for corporations all over Europe. I think we have made out an ambition to become a European player in embedded finance and that means we look to cooperate with large merchants. We look to cooperate with other financial institutions. They can contact me at britinbankee and you know we have been doing different joint ventures and working with numerous partners. We have 6,000 different partners. So that's what we do, and always looking forward to a fruitful cooperation. And thanks for inviting me.
Speaker 2:Oh, you're very welcome. It's a pleasure having you. It's a pity that we couldn't do it in. I think it was Bergen right that you were there as well in the FinTech event. That was in Helsinki, helsinki.
Speaker 3:Oh, sorry yeah, that was in helsinki, helsinki, oh sorry, yeah, that was helsinki, that's true, that's true. So many nice boat ride across the. Yeah for you, for you, from dylan yeah, I was.
Speaker 2:I was saying that my colleague, sean once lives in vilnius, so he took the the boat up to estonia for the weekend and then he moved on to vilnius. Reid, thank you so much for having you in this podcast. Thank you also to the listeners and please stay tuned as we will discover more news from our interesting financial industry. Thank you very much.
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