Ep. 208. CEO Interviews Luke Johnson, Neat Capital & Mutaz Qubbaj Squirrel START OF AUDIO 00:00:00 RG: Welcome to Fintech Insider Interviews. In this very special episode of Fintech Insider, Simon Taylor interviews two CEOs and Co-founders of very different, but up-and-coming companies, breaking new ground. First up, he spoke to Luke Johnson, CEO of Neat Capital, which aims to revolutionise mortgages in the US. They are trying to reduce time, paperwork and loans for mortgages in the US. Let's hear from him now. [Break] ST: Today, I have the pleasure of speaking with Luke Johnson, who is the CEO and Co-founder of Neat Capital, a mortgage lending company from Colorado in the United States, who claim they're reinventing the format. Welcome to the show, Luke. LJ: Thanks, glad to be here. ST: Luke, thank you so much for making some time to speak to us. I'm really curious to learn about Neat Capital, we had a brief chat, I think a couple of days ago, and you really piqued my curiosity. So, why don't you tell our listeners, what is Neat Capital? LJ: Sure. Neat Capital is a fintech mortgage lender, and what we're all about is basically making the process of getting a mortgage happen in real-time. That means, rather than taking in an application from a consumer, and then pushing everything in to a back-office environment, what we're doing is all of that back-office work, in front of our clients, when receiving an application. Which just means that they can finish-, they can start and finish the process in one session, which allows them to be done with it, and move on, and make a cash offer on a home, and close very quickly. ST: So, if I were looking to buy a house, and I was your customer, I would come to your website, or mobile app, I'm guessing, and you would have a process that happens, was that, in 20 minutes, so it's really, really quickly. And what-, what does that look like, and who's typically doing this? Who is your customer? LJ: Sure. So, um, the way that that happens, kind of, from beginning to end, is someone does come to our website, they fill in an application, that application can-, is device agnostic, it can be taken over an iPhone or an iPad, or what have you, but generally, during the application, they are getting feedback, and that's a novel thing in our industry. They're hearing things like, "I do or do not have the income to qualify for this loan amount," "I do or do not have the assets required for the home I'm looking to purchase," which allows them to understand, sort of, where they stand, contextually-, ST: Yeah. LJ: In relation to the requirements, but also have a much higher confidence in our role, when they're providing all of the information, that we're actually evaluating it-, ST: Yes. LJ: And that-, and we can get to closing in their-, their situation. Um-, ST: Which is opposed to the existing system, where you'd go in to a branch, maybe you'd fill in a little, few bits of detail, and they'd say, "Oh, we think you probably fall between these parameters, so you might be okay, but let me send this to another office somewhere else in the country, and we'll-, we'll write to you in two weeks," and you might get a letter about it. So, it's kind of a different experience. LJ: Yeah. Even in-, in a modern environment, where they're not even visiting a branch in person, what's sort of happening in a pre-approval process in the United States is, the mortgage company is receiving a bunch of data, and then it's going in to a very, very manual review cycle, where they're physically underwriting the loan over a number of hours and days, and requesting a lot of follow-up documentation, to basically confirm, or better understand, a client's financial position. Whereas we do all of that, the documentation, the underwriting, the processing, all of that, kind of, live, in front of a client, uh, which allows them to gather much more instant feedback, and then, kind of like I said, when they're done with our process, in the first 24 to 48 hours, instead of getting a bland pre-approval that says, "We think you're good, but we have to go underwrite the loan next," it says instead, "You're done. Here's your loan commitment. Go make an offer, just like you have cash, you don't need to be worrying about the mortgage process anymore." ST: Which is super helpful, given that buying a house, I guess, in the US, is much like in the UK. It's-, it's a full-time job, in itself, for a lot of people. So, who are-, LJ: Yeah. ST: Your customers here? LJ: Um, our-, our customers tend to be, you know, more affluent, they tend to be jumbo-borrowers. In the United States, you know, the housing market has certainly taken off, in all the urban metropolitan areas, with super, super tight supply. And so, what we're finding is that our clients, who, you know, tend to be buying, let's say, you know, a million-dollar home, and getting a $700,000 or $800,000 mortgage, that they're finding that, if they're bidding with traditional bank financing, with all of its, you know, delays, and financing contingencies, that that entails, that they are losing their bids to cash offers. So, we help position them with a much more competitive bid, and provide, you know, our clients with certainty that they'll ever get to the closing table. You know, in the US, the timeline to close a loan is customarily around 45 days, in the purchase market, and it's actually longer for-, it's longer for higher balance loans, because they tend to be much more complicated. And so, we tend to do super, super well with that-, with highly complex loans, you know, people with restricted stock, lots of (ph 05.23) tax returns, other real estate that they own, because our technology can, kind of, cope with that level of complexity fairly easily, and then give the-, the client a pretty firm response. ST: So, that's, I guess, helping them compete in an entirely new way, which I find compelling, because you can lose out to cash buyers so quickly, and you can find yourself in a disadvantageous position. But also, I guess, from your perspective, the fact that, I guess, you're automating some of this, you-, you're not relying on talking to different departments, it means your cost basis, therefore the pricing you can offer, could potentially be competitive. Have I understood that right? Or is it more around just really that speed? LJ: That's right, you know, our pricing is super competitive, our cost is-, is far lower, to originate a loan, for sure. You know, we famously don't even have a-, an underwriting department at Neat Capital yet [laughter] and-, and that's partly because our technology is doing so much of that for us. So, our timeline is around 13 days, which is, you know, a lot faster, of course, than-, than the market, and we-, we currently believe we're the fastest lender in the country right now. So, there's-, ST: Fastest lender in the west. LJ: Uh, yeah [laughter]. ST: [Laughter]. LJ: Exactly. Or the east. Um, but-, but generally-, ST: Or the east, yeah, no, I just had to try and make some sort of Wild West joke. I mean, I know Colorado, uh-, LJ: With Colorado-, ST: Geographically, that doesn't work, but, um, I still wanted to make it, it just rhymed, let me have my dream, man-, LJ: [Laughter]. ST: Um, alrighty. But I think that speed is compelling. How does that speed of 13 days benchmark against some of the big banks, for instance? LJ: Uh, we know that they're-, the big banks have the-, the biggest-, you know, the largest challenge with speed. And so, even on the private wealth management side, that you'd expect to be very, very simple and fast, you know, at the big banks, because the bank generally has, you know, all of the information that they could ever conceive of, for their clientele, at the outset of the process, because they're managing that client's wealth. Even in that situation, they tend to be extraordinarily slow, in the United States. It kind of presents a couple of problems for the big banks. One is a customer experience problem, because a lot of the big banks are-, are buying jumbo loans, you know, these larger balance loans, to actually cross-sell other opportunities to these clients. They want this customer base to be fans of their bank, uh, but if they give these clients a-, a pretty punishing process at the outset, it's fairly hard to then cross-sell them on setting up a brokerage account, or insurance, you know, um, buying an insurance product, or what have you. And so, the banks struggle with that mightily, and that's why they've been often buying loans in the open market, rather than even producing them through their own retail offerings, because generally, again, they want that cross-selling opportunity. You know, I-, I sat down with a-, a bank CEO, recently, and the bank CEO said, "I personally meet with every one of my private wealth clients, to apologise to them, prior to entering in to the mortgage process-," ST: Wow. LJ: And say, "Do not-, do not judge us based on this." And we don't think that that's a problem that's, first of all, sustainable, nor, you know, a requisite to get a loan. So-, ST: It's kind of crazy that a bank CEO feels the need to personally apologise to everybody because their processes are that bad, and-, it's like, "Hey, the front door sucks, you kind of have to walk through red-hot coal, and, um, somebody came and slapped you in the face-," LJ: [Laughter]. ST: "But don't worry, it's really nice inside," is kind of an odd thing to be doing, even if the Queen of England came and said that to me, even, I'd still be like, "Yeah, but my feet hurt, and my face hurts." LJ: It's an awkward position to be in, and-, and, you know, which is where we sort of come in. You know, we want to provide that solution, so that, you know, that-, you know, that-, that customer experience, in getting a loan, should not be terrible, and it-, and it should allow you to-, if you have solid financing, you should be able to adequately compete with a cash offer. You should be able to close in 13 days-, ST: Mm. LJ: Which is all, you know, about what we're-, we're trying to do here. ST: Completely. So, there's an interesting statement here, where, you maintain transparency and, quote, "Remain clean, even in a tarnished industry." We picked up that quote, I think, from your website, in one of your blogs, and, what do you mean by remaining clean in a tarnished industry? How would you say the industry has been tarnished? LJ: Ah. Well, mortgage, in the United States, did, you know, present the downfall of the financial world, so, you know, um-, ST: Oh yeah, that. [Laughter] LJ: So, you know, we realised that. You know, I-, my background, I-, I used to go evaluate all the larger lenders, servicers and issuers in the country, you know, during the sub-prime era, so I'd go look at Deutsche Bank, and determine how its securitisation platform looked, and I'd go look at Countrywide, to determine if its operation was set up appropriately, and in that era, you know, it was easy to say that there were a lot of mistakes made. We-, the industry, itself, lost a lot of trust, not with-, just with regulators, but with the consumer-, with consumers writ large. Because there were many hidden problems with the products that we were providing to the market, there was not always-, you know, there was predatory lending, there were mortgages offered to people that should either not have that mortgage, or were being egregiously treated on rate or terms. And so, as a result, you know, mortgage, in this country, still has, you know, quite-, quite a lot of work to do, to build, you know, a better reputation, and a stronger and better transparency to the-, our consumers. And so a large part of, actually, what we're doing, when you think about it, is, when we're underwriting a loan, in front of a client, and we're saying, "This is how we're treating your income, and this is the income that's required," there's a piece of that that's-, that's almost subtle, but it's training. And that-, and it's education, to say to a client, you know, "You should have income of X, in order to reasonably-," ST: "To afford my-," yeah, "In order to have the big house, you need-, you need this sort of income, and actually, if somebody's saying you can have that, well, we're not going to pretend that you do," and there's an outreach and a financial literacy piece there, because we kind of blindly trust, "Hey, if somebody says I can lend this much, then yay, great, I can lend that much," but if I don't know how people have gotten to that number, or even if they haven't put in any work getting to that number, they're just chasing a bonus, then that's challenging. LJ: There's a reluctance, still, in this industry, to be that clear. Because when you can qualify someone, even if it's just barely, you want to just close the deal, you know? [Laughter]. We want to show clients, if they're-, if they're qualifying, but just barely, we want to show them that, so that they-, they can iteratively see that, to say, "Hm. Am I taking on the right risk for me? Does this make sense?" It doesn't have to beat people over the head with it, but it can be subtle, it can be much more, just, educational, to say, "This is where you stand. Are you comfortable with this?" Um-, ST: Yeah, I understand that. So, I think that educational piece is really powerful. I guess what I'm-, I'm curious about is, in the broader market context, how do you see yourselves evolving? Because, obviously, 13 days is-, is actually way better than the rest of the market, but it's still a long time. 20-minute application process is way better than market, but it's still a long time. Do you have aspirations for, one, where that's going to go, and two, what your business starts to look like in two, three, four years' time, in terms of mission? LJ: Of course. So, yeah, you know, 13 days is still too long, 20 minutes is still too long, so there's a lot more automation that we can do, to more seamlessly take in, uh, a client's financial information. Even Fannie Mae is beginning to experiment, and-, and Fannie Mae is our-, our large, kind of, governmentally sponsored, you know, mortgage conduit, in the United States, and they're beginning to experiment with technology that, for example, instantly determines someone's income from looking at a bank statement. Rather than having to triangulate income between three different sources, you know, how do we get to-, to the same answer, but faster and cleaner? And-, ST: And I think, from a bank's perspective, what might be interesting is, could they see that opportunity of providing, like, account data-level access to the lending market, as a way of potentially acquiring mortgage customers in the future? So, there's-, there's the carrot and stick side, right? Because, actually, if-, if I give out this data, and-, maybe it's Neat Capital, maybe it's me, maybe it's somebody else, but actually, one, I'm paying, possibly, the credit rating agencies like Equifax, a bit less. Two, they got hacked, so how much do we trust the companies that we're paying to get our own data back from, as a bank? And three, if we started to package this data in different ways, can we do it? And-, and I think there are a few places to get that income data. Interesting that you look at the-, the different sources of data, and interesting that such a large lender is looking that way, as well. I mean, this is not a small, agile-, well, it's not a small organisation, and-, and it's probably not the fastest animal that's out there, they're certainly not nimble. But, sign of the times, that, I think, they're looking this. LJ: They play a really important role, because nothing that an individual lender does matters, unless the secondary market, you know, the folks buying the loans, including Fannie Mae, actually agree to it. So, if we have a perfect way to underwrite a loan, but it's not accepted by the folks that are purchasing our loans, it doesn't mean anything. And so, generally speaking, they-, they play a very important role in accepting the technological progress that's being made. You also said something that I-, I kind of want to point out, which is, you know, these banks-, the banks, they do believe that they have ownership over this data. The reality of the situation, though, is that they've always provided this data, just in the form of bank statements, in-, in paper copy. For a bank to-, and-, and you could argue whether this is a bank's data, or is it a consumer's data, in terms of ownership? And if you see it in a broader view, contextually, of allowing a client to shop for a-, a loan, um, and allowing them access to the financial market, if, um, a bank like Chase, or any-, any of the larger banks, were to completely tamp down on their clients' access to their own data, and limited their clients' ability to gain access to financial products in the open market, that could mean some pretty bad things for their clientele, and some pretty bad things for the client-, for, you know, the competitiveness of-, of a free market economy. Because, you know, uh, it does matter what you pay for financial products, and it does matter if you enable consumers to shop for loans. ST: Completely. So, really interesting story and background. I'm curious to know what drove you to founding Neat Capital. So, what's-, what's your background, and what was the, like, "Ah ha!" moment for, this is needed? LJ: So, actually, you know, um, I was at Berkeley, taking an entrepreneurship course, looking at all of what had happened in personal finance, and crowdfunding, and the like, and-, and I had seen so much progress there. Now, to get a student loan is a fairly simple process, but when I went through it myself, it was egregiously painful and long. To get a personal loan in this country is a very, very simple thing to do on line. To get an auto loan in this country is-, is super, super fast and simple. But what had always been lagging is the much bigger market, of mortgage, and mortgage is more complex, there is actually more going in to underwriting these loans than underwriting a student loan, for example, and documenting them appropriately, and making sure that they meet regulatory standards, and all the rest, and I understand that, but all of those complexities are actually tech opportunities. And so, my thought process was, given how much progress I've seen in these other areas of the market, why can't-, like, given what I know about mortgage, why can't we do that well? Why can't we actually produce a loan, real-time, in front of a client? Why can't we underwrite a loan in real-time, document a loan in real-time, and get to certainty right away? Especially since you can validate data directly from a source, especially since you now have, kind of, instant access to financial information, why can't that happen? So, I launched Neat Capital to make that real, um, and so we've been around since 2015, but really only launched as a lender in 2017. As you can imagine, in a market like this, it takes a while to make sure that you're not only licenced, (? 18.01), and all that, but that your tech works, and that it is actually a discernible advantage. So, we-, you know, as soon as we launched, in 2017 though, we realised that we were the fastest in the country, we realised that we could even back people's earnest money, because we were so certain, when a client went through this process, that we would get to closing, that we would back their-, you know, their earnest money that they make in a purchase offer. Uh-, ST: It's the power of starting again, isn't it? I think a lot of larger organisations have tried to make their mortgage process just go faster, by putting some digital on it, versus rethinking their mortgage processes, as a digital, end-to-end process. And people look at digital as, like-, almost like Russian dolls. It's the-, like, the large one was-, this was the branch experience was really, really great, and then we put it on the desktop, and it kind of shrunk a little bit, or on a telephone, and then, when it got to the mobile phone, the experience shrunk a little bit more. Instead of looking at, "Well, digital gives me more sources of data, it gives me more real-time data," it's intelligent and it's contextual, so, "What are those things I can do?" and if you build from new, even if it's under the same brand, even if it's the same product offerings, you can do some interesting things with different segments of society. LJ: And just one-, I want to point out one thing that you've just said that's really interesting. That is, though, why, that, even in fintech, we are at a place where-, where most of fintech, to date, has been addressing, sort of, the front end. You know, the front-end layer of customer acquisition, the front-end layer in the mortgage market, of taking in an application, which is really the first step. But it's not addressing all of what comes behind it, within a mortgage bank, and actually rethinking that process of how processing and underwriting interact, of how-, how you use the data you're receiving, to actually change, fundamentally, how you make a loan. ST: Completely. So-, LJ: And that's-, ST: At 11FS, we talk about being truly digital, and so when 11FS says truly digital, what we mean is, it's not lipstick on the pig, it's not the front end, it's-, it's the workflow, and it's the back office, and it's the-, all of that sort of stuff, that has been designed to work with the virtues of digital. LJ: Yeah, and-, and those are-, are deeply unsexy, you know, but they're more important. ST: I agree. LJ: And so, if-, like, you know, it's interesting, when we-, when we talk to capital providers about the power of this process, a lot of it is making sure the loan is fully documented, and-, you know, immediately, while our borrower's in our application, and that doesn't sound exciting, but it's actually-, ST: [Laughter]. LJ: Super, super important, for making, you know, a-, ST: And-, and it can be such a competitive differentiation, as well, and I think this is something that gets lost, is middle and back office, in large financial services organisations, get seen as a cost centre that I need to outsource, rather than something that could be a competitive advantage, because I can go faster, that allows somebody to buy the property that they couldn't buy before, and means that I don't have to apologise to every wealth private banking customer that comes through the door anymore. And if they saw it as that, maybe the back and-, middle and back office would be something where, actually, maybe we go try and acquire this generation of customers under a sub-brand, or this type of mass-affluent customer, under a sub-brand, or maybe we-, and I think that's, um-, LJ: Yeah. ST: A perspective that fintech has to have, by default, because you don't have the advantages of having several thousand people, so you're constrained by default, and you have to build digitally, in order to compete, and in order to make a name for yourself. So, it's going to be interesting to watch and see if large organisations start to-, to get that lesson, or if-, if the fintechs come and, uh, keep-, keep eating those bits that they can't get to. LJ: Yeah, no, back office-, ST: So-, LJ: Should be your strategic advantage, and that's where tech is most important. ST: Completely agree, and I think-, um, there's a lot of people I know that look at customer journeys, and they know a mortgage is an end-to-end journey in large banks, and they know that-, they don't-, I've heard in so many conferences, for the last decade, people don't want a mortgage, they want to buy a house, but it's also like, "Yes, but you've thought about the customer journey, but you haven't thought about your middle and back-office process, so you've assumed that has to stay static, and now you're putting a really nice journey around the bits that were static. What do you improve in that?" and then, kind of, the process improvement stuff, and the journey stuff, is kind of disconnected, because the organisations tend to be so big. To conclude, I'm going to ask you a few questions we ask a-, a lot of our guests on the show. I guess it's really for advice, for people looking to get in to fintech, um, but also people that are looking to maybe join a startup, or just have busy lives, right? So, the first one is going to be, what is your number one productivity tip? You've just started a company, in the last couple of years, you've got a lot going on, you're looking to acquire customers. How do you-, how do you stay productive? LJ: You know, most founders I know are hardworking, and, uh, most founders I know, you know, work late nights, and-, and are very passionate about what they're up to, so that's never, kind of, the key element of productivity. For me, the key-, when we look back at our journey, of what has made us more productive or less, it's all about the people we surround ourselves with. And that-, that extends, kind of, you know, from the founder level, all the way through the organisation. And so, you know, if you surround yourself with-, with folks that are, you know, bringing you further, that are helping you grow, that are-, that you're learning from, that are making you more productive, it's-, your life is just a lot more wholesome, and, uh-, and enjoyable, and productive, if-, if you surround-, but if-, you know, the moment that you have folks that are not part of-, are a challenge, as far as you doing great work, and as far as can't get deliverables out, or what have you, that's when founders, I think, you know, entrepreneurs struggle. They struggle to move-, to transition their passion beyond that founding team, to that next layer, and the next layer. And so, to me, it's all about the-, the people you surround yourself with, the talent that you surround yourself with. ST: So, I-, I was going to ask you the next two questions, but I think you just answered them in that one, which is, how do you motivate a team, and what's the best career advice you-, you've ever gotten, but actually, it seems like, surround yourself with a great team, and have a great team, appear to be the answers to both of those two questions, right? LJ: It's true, you know-, ST: I mean-, LJ: I think you need-, you need a strong team, and-, and you also need-, you know, and as far as motivation, you know, everybody likes to think that motivation is extrinsic, but it's really intrinsic, and so-, in my view. And so, if you find folks that latch on to, kind of, some of the-, the same, kind of, core principles that a-, a solid founding team would have, intrinsically motivated by, you can still grow your organisation very, very successfully. You know, from-, and if you surround those by good people, that they are learning from, and that they're inspired by, and want to work with, then you have the key to-, to growth, you have the key to a solid company. ST: I remember once asking an old boss, "What's the key to leadership?" and he said, um, "Don't lead. Be somebody that people want to follow." And I think the-, the growth of a founding team, it-, it has a-, has a lot to do with that, and I think that's a super interesting point. LJ: From a cultural perspective, we-, we also think a lot about learning from each other. We think a lot about, you know, "Can I learn from this person that I'm bringing on to the team? Can I-, do we all have, kind of, our egos in check, in order to learn from each other, and listen to each other?" ST: Yeah. LJ: Uh, and so, you know, a big part of this is setting up a culture that actually takes advantage, or capitalises, on the talent you've brought in, to, you know, no matter what that employee is, rank and file, learn from. ST: Absolutely. I think if you've set up the culture, then you bring in the talent, the two should, kind of, create a-, a virtuous figure-of-eight, and it's not easy, but it-, it's hopefully something we can all keep working towards, on a day-to-day basis. LJ: It's way easier said than done. ST: Yeah, absolutely. Alright. So, where can people find out more about you, and Neat Capital, especially if they're in the US, and they're curious, and they want to learn more? LJ: Send us a fax. No-, ST: [Laughter]. LJ: No, we're-, we're-, you know, you can look at our website online, www.neatcapital.com. My email address is listed there, and many of our phone numbers are on the site. Feel free to reach out to us, at any time, we love to hear from folks, um, whether they're in fintech, whether they're other entrepreneurs, of course, clients, we like clients. Um. But-, but generally, we'd love to-, to hear from you, because we always learn from it. ST: Luke, thank you so much for joining us on Fintech Insider. LJ: Appreciate it. Thanks so much. [Advert start] We wanted to let you know that if you love this show, how about seeing it live? We're going to be at Money20/20 Europe in Amsterdam this June, and we're bringing Fintech Insider Live with us. We'll be bringing the podcast to the main stage, right before the drinks reception, and you can be there. Sign up for tickets now. Go to Europe.money2020.com/register and use discount code 1811FS, that's 1811FS, to get €200 off the ticket price. [Advert end] RG: Great stuff from Neat Capital. Next up, Simon spoke to Mutaz Qubbaj, CEO and Co-founder of Squirrel, the budgeting and savings app that keeps your savings safe, and pays out your spending and bill money as you need it. Let's hear from him now. [Break] ST: Welcome to Fintech Insider Interviews, Mutaz. Mutaz, from Squirrel, Mutaz Qubbaj, in fact, from Squirrel, um, long time friend, and-, going-, going back to the Barclays Accelerator days, you're here now talking about Squirrel, you've been on quite a journey, welcome to Fintech Insider Interviews. MQ: No, thank you for having me on, it's an amazing opportunity, and just-, for me, it's good to catch up, and, like you said, I can't believe it's been about-, what is it, more than three years, since we first started talking? ST: So, tell me your story. Tell me why Squirrel appealed to you, and why you wanted to build this? What motivates you, as an individual? MQ: So, from my standpoint, I was born in Kuwait, I lived there through the Gulf War. We were actually smuggled out, during the Gulf War, so we had to go through some bad times, we had to go through a whole recalibration period. And, having gone through that as a kid, you realise the need for certainty, you realise the need for stability. You realise how valuable, and how much of a luxury, control is. And, just seeing how-, ST: People are now taking control of their lives a bit, right? That must feel pretty good. MQ: It's amazing. As in-, seeing how we're able to bring that to people's lives, it's-, the number of reviews, the number of testimonials we've seen, the number of people we've had call us up and say, "You've changed my life," for-, for me, that's a reason to get up early every morning, and a reason to sit there and say, "How can I make this even better? How can I make this even more effective?" And, from my standpoint, it's sitting there and saying, "This is what the banks have missed." The banks are fully focused on providing a product, and putting it out there, because it ties to their bottom line in a very direct fashion. We're about providing value that is tied to making the individual better off, tied to giving the individual control, tied to giving the individual more choice about how they want to live their life, and tying that to intent, is what we're looking at. So, what we do at Squirrel is, we give people the ability to align their intent, in terms of how they want to spend their money, with a simple structure that keeps them in control of how they spend their money. So, if they tell us what their commitments are, we-, their money won't be accessed until their commitments are due, so there's no temptation to misspend. Their savings are taken out automatically, from their income, even before they get access to them, so that they're set aside, they're out of sight, they're out of mind, and they can track them and celebrate their achievements in terms of savings. And from a savings standpoint, if they want to take money away from a savings goal they've set, there's that accountability that's in place. If somebody's saving for their kid's birthday, they're taking money away from their kid. ST: And they can see that, and you make them feel it. MQ: And that's why we've hit a 20% savings rate using Squirrel, which is ten times the national average. ST: Explain for me what a 20% savings rate is. MQ: So, for us, we've got people depositing their entire incomes in to Squirrel. ST: Yes. MQ: A 20% saving rate is, of the-, ST: Oh, so they're saving 20% of their income-, MQ: 20%. ST: Which is how much more than the national average? MQ: The national average is 1.7%, so we're more than ten times better than the national average, from a savings standpoint. ST: Well, and I-, and I guess we're not the only country with a-, a savings issue, in the UK. There are many other countries, around the world, that-, that have that challenge. Alright, so what did you think's going to be better than payday loans? MQ: So, we actually started with wanting to provide ethical, affordable loans to people that were paid back through salary, but the more we got in front of people, we realised that we were trying to solve credit with credit, and it wasn't really the best way to go about it. We weren't solving the fundamental problem. And the fundamental problem turned out to be: people are bad with money. ST: [Laughter]. And so, what did-, what did you do? Did you go speak to people? How did you-, how did you find out what the customer problem was? MQ: So, what we did is, we had to get out of the building. We had to talk to everybody and anybody, and we asked the question, "What keeps you up at night, about your finances?" It was as simple as that. And the three things that came back were, "I can't save for the life of me-," ST: Mm-hm. MQ: "And if I do start saving, there's no way I'm not dipping in to it." The second was, "I can't make it from payday to payday." People are in their overdrafts, and the scary stat in the UK is that more than 20% of people are in their overdraft by the end of that first week. ST: Wow. MQ: And it's-, uh, it's shocking. The third one is, people just don't know where their money's going. So, no idea how their money's being broken down between commitments, expenses, savings, subscriptions. So, it's-, there was nothing that could actually provide the right structure, in a simple way, to make sure that they were on top of how their own money was being spent, whether they could save, whether they could actually keep up with their essentials. ST: So, what is Squirrel? MQ: So, Squirrel is the solution to take control of your finances. What we've developed is a combination of a bank account and an app, that helps people manage their money even before they get access to it. So, what that means is that, when somebody signs up to Squirrel, they get a bank account at Barclays, it's held in their name, with a sort code and account number. Then-, and that is-, that sits alongside their current account. And-, ST: So, I have-, so, I'm effectively applying for a new bank account, but that new bank account, I have to do a bit more with, and it helps me manage my money? How do I set that up, so that it can help me manage my money? MQ: So, it's a bank account where your money gets-, where your income gets deposited, and then you use the app to manage that income, before you get it in an account that you can access, which is your current account. ST: Right, okay, so it's almost like a staging account. It goes in to this-, I-, I get my salary paid in to this new account, this new account has a bunch of rules, and a bunch of controls set within it, that force me to save, or force me to pay something, before I can even spend it. MQ: I don't like using the word "force", but they give you control to-, to make those things a lot easier to do. So, what we've found is that-, ST: So-, so they happen with-, before the money's even hit my account, it just makes sure it all happens. MQ: All of it's done out of sight and out of mind, and automatically. So, they idea is-, the problem that people have is, the second they have access to money that they don't need, there's a temptation to misspend it. ST: Mm-hm. Or that they do need, but that they don't have allocated to that need. MQ: Yes. So, the first thing we do is make sure that they've got a budget in place, for everything from their essentials, so we're talking about rent, insurance, subscriptions, credit card repayments, to, you know, money for the kids'-, for kids' allowances, on a weekly basis, and, say somebody says their rent is due on the 15th of the month, we're going to push money from their Squirrel account in to their current account by the 14th at the latest, so that money is in their current account right before it's due. So, the idea there is they get access to the money for their commitments right before they need it. ST: Mm. So, how does Squirrel then go and get customers for this? Because it feels to me like, uh, there's been a lot of PFM solutions, you know, personal finance management, there's a lot-, I mean, Monzo did really well off being a day-to-day spend management, um, sort of, prepaid card. Why wouldn't I use that? What does Squirrel give me, that that doesn't? MQ: So, for us, it's about control. As opposed to substituting your current account. As opposed to just providing a different type of engagement for, you know, how you interact with your bank. What we're doing is providing value around, number one, not running out of money. Number two, making your savings goals, or your financial goals, in general, more achievable. So, for us, it's-, the major difference is, number one, a bank is going to give you access to your money, whether you do or don't have it in your account, and they'll charge you for money that they give you, if you don't have access to your account, in the case of an overdraft, they're giving you credit, as an example. From our side, we're actually setting up a barrier, so we're setting up the positive friction that you need, between you and your money, until you need it, so that, number one, you've set a plan, so you're being held accountable to that plan, and, number two, if you want to break that plan, you actually have to get in touch with Squirrel, either through support, or a chat, in-app, to ask for that-, to ask for access-, to ask for access to those funds-, ST: So, you've made it that little bit harder, so I can make it that little bit harder for myself to get access to those funds, and in so doing, I limit the temptation a little bit, because it's-, it's in this staging account that's away from my everyday spend, and it's something that I've had to set up. So, how do you think about acquiring these customers? What does your marketing look like? What does your-, can you give me some stats on amount of customers you've got, how they're doing, what they're feeling about using the platform, that sort of stuff? MQ: So, right now, we have more than 15,000 people using Squirrel, and for us, they tell us that they either want to save regularly, they don't want to run out of money, and then they tell us they also want to clear their debt, and potentially buy a house. So, in terms of how we brought them on the platform, we tap in to their needs from a life event standpoint, typically. ST: Ah, interesting. MQ: So, we go to people through social media. So, using Facebook and Google as an example, we look at people who are typically looking to recalibrate their finances, under a particular event, like buying a house, buying a car, entering the workforce for the first time, or having a baby. And for us, it's very easy to tap in to the urge to make-, to recalibrate your finances, to make sure that you're ready to take on that responsibility, you're ready to take on that financial goal. ST: If a person's about to start a family, and they're really thinking about saving for-, for that future, to have that positive friction might be something they want, and targeting that moment is-, is how you go about doing that. So, because there's a bank account underneath it, I guess everything's protected by, um, the Financial Services Compensation Scheme, right? MQ: Yes. ST: This is a proper, real bank account. It's not a-, it's not something less than that. MQ: So, it's an e-money account, that's held in the individual's name, at Barclays, and since it's held in their name at Barclays, it benefits from the FSCS protection. ST: Fantastic. Well-, I've got to ask, though. Why are we so bad at budgeting? I mean, it should be easy. We get paid monthly, we've got this much to spend a week, and yet we go over. Where are we going wrong? MQ: We're going wrong because [laughter] willpower is not exactly abundant, when it comes to money. There's such things as, well, what people call YOLO spend, or binge spending. So, you see something, and you're attracted by the immediate benefit. ST: It's that compulsion, that desire to have that immediate bit of, uh, temptation, I guess. So, how will existing bank account providers react, if you successfully get customers to put their paycheques in a Squirrel account, instead of their own account? Like, are you a bad thing for the banks? MQ: We're actually a good thing for the banks, and we're looking to partner with banks right now. So, for us, it's more about looking to them as partners, from a fulfilment standpoint, where they can play the role of, potentially, pipes in the background-, ST: Because they're holding the deposits, ultimately, so you're a front end to an account on their balance sheet-, MQ: Of course. ST: So they are still benefiting from having a customer, it's just that customer has some new tools to manage that account. MQ: And the main benefit to them is, banks are not focused on the demographic that we're working with. So, we're working on the demographic-, or, they're not focused on them in the context of adding value outside of providing security and immediate access to funds that they may or may not have in their accounts. ST: Yeah, so, they're probably not going as deep, solving a problem, for a less-than-profitable section of society. MQ: Definitely. ST: And so, you guys are focused there, but by providing value to that society, you're also-, that segment of society, should I say, then you are also then able to build a business on it. So, what-, what is your core business model? MQ: So, the core business model is subscriptions. ST: Yes. MQ: So, everybody who uses Squirrel pays £3.99 a month for the account, and what we're also looking at is also expanding that in to commissions that are made by utilising some amazing data that we pick up, on each of the users on the platform. ST: So, I want to get in to data a little bit, because we've obviously got a whole bunch of data stuff coming at us, with Open Banking, CMA 9, we've got the General Data Protection Regulation, coming out of the-, out of the EU. In Europe, data is-, is a thorny subject, it's one that consumers have given away a lot of, but some people are very concerned about. Uh. It's something in-, around the world, that we're seeing, gradually, through social networks, and others, people's data can be easier to access, but there's never been a time, with some of the mass hacks, that we've needed to be more secure about it. Tell me two things. One, what do you think are your opportunities with more data, and how do you think about protecting data? MQ: So, for us, it's-, in terms of the opportunities, it's being able to build a robust user profile, around which we can bring more value to our community. ST: Mm-hm. MQ: So, to date, we pick up between 15 to 25 data points on individuals, tied to every one of their commitments, tied to every one of their savings goals, tied to how they spend their money. And we have a remit, at Squirrel, to provide value, in the context of optimising each of those commitments, optimising each of those savings, and how they spend their money, to make sure that they hit their financial goals in the most effective way possible. ST: Alright. So, now I'm going to ask you a couple of questions that we ask all of our interviewees, for the benefit to people who might be getting in to fintech, people who are early in their careers. So, I've got to ask, how do you maintain some level of productivity in startup-land, without getting just overwhelmed by emails, or whatever else? MQ: So, it's having a system in place, where-, and this is the glory of [laughter]-, that beautiful vision of a zero inbox, which never, never seems to materialise, but you do what you can to organise as much of the clutter, as soon as you get in every morning. For me, it's coming in and actually having a to-do list, and I actually like falling back on paper and pen-, ST: Mm. MQ: Because it's in front of me, 24/7, and I can actually check pieces-, there's something comforting about having a to-do list that you're crossing items off of, on a daily basis. But the other one is just making sure that you've got people in your life that you've already primed to keep you sane-, ST: Mm. MQ: And to just make sure that there's that nice balance that's brought in to your life, whether it's making sure that you get out every once in a while, making sure that you get a good dinner, making sure that you get with your friends, every once in a while. And reading, also, tends to come in to play. So, it's just making sure I've got a good read. It doesn't necessarily have to be the life hack type stuff, it's-, I like a lot of science fiction, I was the first guy to pick up the Bourne books, when they came out, and The Girl with the Dragon Tattoo, so I'll fess up to those-, ST: Uh, Producer Laura, in the background, is smiling, a big word nerd, over there-, [Laughter] ST: Um. Alright, so, what's the best career advice you've ever been given, or received? MQ: Ah. The biggest one is, embrace the heck out of failure, because it's one of the best learning opportunities you're going to get in your life. ST: Love that. And, lastly, where can people find out more about Squirrel? MQ: You can find out more about Squirrel at www.squirrel.me, and you can get in touch with us directly, the chat'll probably come up. You can get-, I'll probably be talking to you, if you're picking up on support, because I love getting in touch with people who come through. So, we'd love to hear from you, we'd love to hear your feedback, and, hey, just come on board and share our vision. ST: Beautiful. Mutaz Qubbaj, thank you very much. [Break] RG: And that concludes our CEOs and Co-founders interviews for today. Thanks to our guests, Luke Johnson, and Mutaz Qubbaj, and thank you for listening. If you like what you heard, don't forget to subscribe to our podcast, so you never miss an episode, and if you really love us, please do give us a review on iTunes, we love reading them. Get in touch on Facebook, Twitter, YouTube, or Instagram, just search for Fintech Insider, or email podcasts@11FS.com. That's all for now. Goodbye. END OF AUDIO 00:42:38 END OF TRANSCRIPT