TCV's John Doran on the fintech revolution
With monolithic stacks "everybody has these sub-optimal appendages"
Growth equity firm TCV has invested over $15 billion in technology companies since its inception in 1995; taken 70 companies public; made 66 M&A exits. Fintech has been one of its strongest categories and one of most enduring interest: TCV has made substantial investments in digital bank Revolut; in mobile payments/remittances specialist WorldRemit (which rebranded as “Zepz” after a bumper $292 million Series E this week that TCV participated in); in API-based payments integration firm Mollie, and many others.
Yet to TCV General Partner John Doran, a combination of digital disruption driving down cost-to-serve and lively ongoing innovation means there’s still a whole lot to play for in fintech globally.
Speaking with The Stack’s founder Ed Targett, Doran – a straight-talking Dublin native who cut his teeth in investment banking – describes a world of “incredibly data driven businesses out there that are challenging incumbents. They’re democratising fintech in a way that is very similar to what happened in the airline industry in the 90s; and they’re breaking down barriers to product access – like insurance -- for new demographics.”
Fintech goes mainstream
The blistering growth of the UK’s challenger banks put this world firmly on the broader public radar, but it’s increasingly visible outside of retail banking too: from embedded finance (e.g., buy now and pay later programmes from fintechs like Klarna – another TCV investment) and embedded insurance options, through to banking-as-a-service businesses and AI-optimised trading platforms for retail investors. A growing ecosystem of fintech startups and scaleups continues to thrive, in short, while established High Street banks and payments providers also double-down on new applications and work to leapfrog their own inflexible platforms.
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As Doran puts it: “Most big banks typically only really cared about high-net-worth customers. SMEs and the mass market were just chronically underserved. A lot of the guys coming through are really taking advantage of the scale of the market, offering services that previously were only available to people that had significantly more resources. Revolut is tapping into that trend. Zepz has been an early mover in democratising global payments, because for a long time if you were an immigrant in the UK, or France, or Germany transferring money was incredibly opaque, the fees were exorbitant, and it took a long time. By making it cheap and efficient, you have much higher engagement. And across the market, as it gets easier to do KYC, as you can provide additional services: utility payments on the back-end – the addressable market is just huge globally.”
He adds: “We’re playing in the picks-and-shovels space here too.
"One of our big bets in Europe is a company called Mambu, which is a German-Dutch provider of the core technology powering many of these digital banks. They're not a consumer brand, you wouldn't hear of them. But what they are doing is the next generation of core banking technology, replacing the likes of Temenos and those type of guys, with a highly modular, SaaS-driven system. So you do the deposits with Mambu and maybe the interest calculation; but you want to take the KYC from Onfido or from Trulioo, you just plug it in; you want to offer loans from someone else? You just plug it in. Rather than working with a monolithic stack where everybody has these sub-optimal appendages – whether that’s the loan functionality or whatever – here, you get the core piece and you can choose from a marketplace of the best payment technology, loans, insurance providers. It’s such an interesting category and really kind of begs the question ‘what’s a bank?’
Serving the mass market
During the pandemic in the UK the vast majority of High Street banks stopped opening new business bank accounts – already a startlingly difficult thing to do for many startups and SMEs. Indeed even prior to the pandemic, The Stack knows of one award-winning startup that graduated from a High Street bank’s fintech incubator and was then turned down for a bank account by that very same bank that had recently bestowed it with an award. This, conversations suggest, is not as rare or as much of an oddity as you would think.
“We are firm believers in tackling that” says Doran. “Not just across Fintech. Because people have just not been built to serve SMEs. Part of that reason is that it’s more expensive typically on a marginal basis; because SMEs don’t always survive, and they don’t pay as much. And the cost-to-serve has traditionally been high because it hasn’t been truly technology-enabled. But people like Revolut are able to service this market.
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“Or you look at companies like Toast, a payments company that started out focussing on the hospitality sector; on restaurants. Payments was their way in, and now they’re doing all these different services for restaurants – a classic example of the SME space that was poorly served.
"You see the same thing with Mollie – its entire customer base is pretty much self-serve payment guys, 120,000+ customers that you couldn’t service the traditional way with the old WorldPay model, which was ‘let’s go play some golf and get some big enterprise accounts’. It just doesn’t work that way and that means SMEs are still one of the most underserved markets so there’s a tonne of interesting stuff coming through, like enterprise-grade HR software that doesn’t cost enterprise sums or come with serious lock-in. SMEs don’t want lock-in: because in three years they may not be there, or they may have grown so fast they need that flexibility…”
TCV has invested nearly $3 billion out of its London office since 2012 and Doran points to the “deep expertise here” as well as a deep market that means by the time fintechs have reached the kind of scale at which TCV typically invests, they’re “very fit; battle-tested in a very competitive marketplace”. The regulator’s been forward-thinking, he adds, and London’s ability to attract talent has proved enduring.
“But fintech is a global thing,” he notes. "There's waves of change happening in Africa, in Asia. There's enormous macro tailwinds happening everywhere, including in payments and the tech chops that these firms have are just very different to those of the old processing/acquiring guys."
Doran, a former professional tennis player who played in 12 Davis Cup ties for Ireland between 1996 and 2004, and then for Morgan Stanley in London and New York, looks to have found his spiritual home at TCV: “I love working with entrepreneurs; it’s exhilarating. They want to democratise access to services a lot of people traditionally might not have been able to have. They’re really idealistic and they want to build great businesses."
