Hi Gaurav, could you please start us off with an introduction?
I’m Gaurav Kaytal and I’m the Chief Product Officer here at Fractal Labs. I started my career as a developer about 15 years ago and then moved into Product.
I’ve been managing products and directing product vision for over a decade now and I started with big companies like Nokia and Siemens.
For the last 5 years, I’ve been working in start-ups. I’m personally very passionate about taking the product in an early-stage company from an idea to a product-market fit. I get really excited by using concepts from consumer psychology, motivation theories, gamification and behavioural science to solve real-world problems.
I’m also publishing a book on that topic!
What inspired you to join Fractal Labs?
I met Nick, our CEO, two years ago and I really inspired by his mission of empowering SME’s. It was really interesting for me to learn, with SME’s being the backbone of the economy, having really poor service from the banks. If you speak to SME’s they are really passionate business owners; they love what they do and they make a big impact but where they really suffer is managing their finances.
82% of business actually fail because they can manage their cash flow which is a huge problem. I got really inspired by the mission of how we can empower these SME’s and how they can get better service for the banks to help them succeed.
It’s not just a financial problem but also a larger problem for the economy. If you help SME’s succeed then you help the overall state of the economy it will create better jobs, improve the GDP of the country, and improve the quality of life for the business owners as well. More and more people will start businesses rather than thinking about what they do next in their career.
Sound like a great mission. Could you tell us about Fractal Labs’ product suite?
Sure. We started with aggregating SME’s accounting, because that what was available at the time and we used to use to do that from their cloud accounting, analyse that data and give them insights on how they can better manage their finance.
A couple of years ago, with Open Banking, we were really at the forefront of Open Banking and we integrated it with some of the top banks to get real-time data, this allowed us to provide better financial insights to SME’s.
In the product suite, what we have is an API platform, so developers or financial institutions can sign up to the API platform and start building applications for their customers.
Firstly, we have a banking API and on this API, we can connect to multiple banks, fetch data on multiple accounts, transactions & balances, and help SME’s really build a complete picture of their finances – which is missing today because SME’s have multiple bank accounts, for example, they would access their HSBC account for their outgoings and then go into their Barclay’s account to check the payments in their international accounts and so forth. We can really bring all that together using our Open Banking API’s.
Secondly, we have our accounting API which collects data from their current accounting software and then we make a match between the banking and the accounting API’s.
Thirdly, we have the categorisation API which is where we are really unique. Most competitors who we see they categorise transactions on a retail level, so they categorise into food, entertainment & so forth. But, when we come to business transactions it’s very different; we categorise revenue, marketing costs, IT, rents etc.
What this means is that SME owners their spending in an easy-to-read snapshot.
Could your platform create an entire P&L for small companies?
Yes, it almost creates a P&L, but we simplify it for them as well by breaking it down in what the revenues, overall costs, marketing costs, IT costs and so forth. Any busy SME owner can get a snapshot of their finances in a second.
Fourthly, we have our forecasting API and we’ve set a high standard of forecasting for SME’s.
We look at trends in their banking data so we can predict what their cash flow is going to be over time, we look at their accounting systems and begin to see invoices and bills coming up & calibrate our forecast based on invoicing and bills, and we also help SME’s add their own transactions to it as well as there are costs that we will never be able to predict immediately like if they are going to buy a new floor of a new building or hiring a new member of staff – they are things that we simply can’t get from historical data and those are only going to be known by the SME’s.
Using these three levels of forecasting we can build a really good cash flow forecasting tool for SME’s.
Finally, the fifth key product that we have is our payments API which we are really excited about because we think that a huge opportunity. Today, the biggest pain point that we see for SME’s is that there are many particular payments that they make like paying rent, salaries, invoice payments but that that’s such a manual process. We speak to SME owners and they have to pay salaries monthly by logging into their bank account and pay salaries one by one.
It’s shocking that this still happens in 2019. It should all be automated and we’ll be able to automate that using our payments API.
These SME owners who work really hard to launch their products but they end up paying a huge amount of transaction fees to people like VISA & Mastercard. The way we see, using Open Banking, they can simply transfer from one account to another.
If I transfer money to your account, Jake, I don’t pay any fees and it’s made possible with Open Banking.
We’re going to expose that using our payments API.
What have been your key highlights working at Fractal Labs?
There have been many achievements since I’ve been here.
I’m particularly proud of how we’ve made an enterprise-grade, scalable platform with such a small team.
Then there are a lot of other achievements, we’ve won many awards like Fintech awards, competitions like Nesta’s Open Up challenge, OP Financial Open Banking Challenge & EBA day, and a lot of other awards as well. We’ve also had the opportunity to work with Tier 1 banks.
I’m also proud of the diversity of the team as well. The team is around 25 people at the moment and in that team, we have so many different nationalities, ages, types of backgrounds. We know that we need lots of different types of people to get that wide breadth of experience.
How have you done that?
It goes back to what you asked me earlier about why I joined Fractal and said I was inspired by the mission of empowering SME’s.
The second, and equally important reason, was the team; it was a very inspiring and diverse team.
Nick, our CEO, is great. He’s Canadian, he worked for Google for many years and brings a lot of energy with the marketing and advertising for Fractal. On the technical side we have Jerry, our CTO, who’s working in big financial institutions like JP Morgan and Fintech companies like iwoca & Growth Street and really know how to build technical scalable teams. We then have Peter, our COO, who is Swedish who has worked for large banks like Deutsche Bank who brings in a wealth of financial expertise.
Both our board and founding team is 50/50 male & female and who all come different backgrounds.
What we wanted to do was to build a company which is culturally diverse but also have diverse skillsets. In a start-up it’s unheard of that you have behavioural scientist, but we have one in our team who looks at how to message SME’s so you know it’s “not what you tell you, people, it how you tell people” and that’s what behavioural scientists look at.
At this stage of the company, we are very much a family. We celebrate events, birthdays and achievements. If something goes down, we all get together and brainstorm on how we solve this problem.
Anything else that you would add?
One thing we’ve really focused on is having fun! People always talk about how hard it is working in a start-up, and it can easily fall by the wayside.
What does 2020 look like?
2020 is exciting.
We have a few product launches lined up, one will be the launch of a mature payment product in the market.
Specifically, we are launching a product called ‘Smart Invoices’ that’s going to solve a big problem in the economy. One of the main problems is that most of the payments of invoices are late and because the payments are late it disrupts the workflow & cashflow of SME’s meaning that, eventually, the SME may fail due to cash flow issues.
We’re really excited about how Smart Invoices is going to solve that problem. We’re using gamification and behavioural science to motivate the customers of SME’s to pay on time by offering discounts of penalising them if they pay late.
Then in 2020, we’re going to build out our commercial organisation to claim a bigger market share by talking to more banks, expanding into different markets and opening in new countries as we have in Australia & Finland.
Mainly because of Open Banking, they are releasing their first-ever Open Banking platform in early 2020. We see that as a huge opportunity as the banking culture is so similar to the UK; they operate very similarly to here and the banking stack is the same.
Sounds like it’s a solution that serves the underserved!
Could you tell us a bit about your current customers in the UK?
We are only working with Tier 1 banks at the moment. A good example of that is Santander who is one of our clients.
We also have an amazing partnership with Deloitte, who are a partner, client and investor. They are using our API platform and they building a product that will solve a real SME need and then taking that product to big banks so they can distribute to their SME customers as well.
We were also the first company on their new Fintech portfolio as well that they saw potential which a great achievement is and validates what we’re doing as well.
Why did they say that they picked you? I can imagine it was quite competitive.
They had a close relationship with Nick for a few years, they saw how we were growing and recognised that we had a great product-market fit.
We’re also in their innovation lab on the 4th floor here, so they’ve been able to watch us quite closely. You should see how excited the Tier 1 banks get when they come and see us because we do a lot of showcases in their beautiful labs and Deloitte can see that from the Innovation Leads and Heads of in the banks.
I can imagine it’s amazing from a networking perspective as well, with a huge name like Deloitte backing you so openly.
Definitely. And from a product perspective, they can see how our products can genuinely solve so many problems that SME’s face mainly by unifying their accounting and banking data.
For an auditor like Deloitte, that’s super beneficial!
Fractal Labs was recently included on Tech Nations latest Fintech cohort, how do you think it will help?
The reason why we chose to apply to Tech Nation is that it’s one of the most prestigious scale up accelerators out there. We’re a small team so we need to really careful with our team and we’ve seen how other cohort members have scaled since last years.
We’re pre-Series A and speaking to investors, we believe that Tech Nations will help us get to the next stage very quickly. We’re at 25 now and want to triple that number in 2020 knowing that we can get the right investment, but we want to know the very best way of scaling up.
Have you seen a difference in attitude from the banks in terms of wanting to change, especially in the last few years?
Yes, definitely. If you see in big banks, most are now focusing on the SME sector and I can give you examples like HSBC launching a product called Kinetic which is focused solely on SME’s, and Natwest/RBS launched Mettle which is also specific for SME’s.
The way they view partnership is also very different. Bank used to think they could build everything in house, but slowly they are realising that they are really good at managing money but not really good at being a tech company. They are seeing the potential of tech companies like Fractal around how they can help them to get to the market quicker and solve the problem more efficiently.
Open Banking, despite their hesitation at first, they are seriously embracing and seeing the potential of it now and we were one of, if not the first company, to be regulated under Open Banking when it launched.
PSD2 happened recently as well which has pushed the regulation as well, hopefully pushing towards wider adoption.
Absolutely, but it’s still early days I’d say as it was two years ago when PSD2 launched their specification.
In the UK you have Open Banking that has manifested as PSD2 so you can either pull data from banks or you can initiate payments. It has been growing up I’d still say it’s early days because although banks have embraced and launched Open Banking implementations, every bank is different so there a long way until it’ll get standardised as I’m sure it will.
This is where we come in, we’re really focused on the quality here. We have competitors and what they do is that they pull in data from Open Banking and pass it as it is but what we do is that we really take pride in having the responsibility in owning that data so we clean up that data, standardise it and normalise it before we pass it on. We know that data is so important for SME’s and they make critical decisions on that data, so we really feel that it’s our responsibility to clean up that data rather than just passing it on.
On a personal note, you’ve been working in start-ups for the last 5 years. What advice can you give to somebody who wants to join a start-up?
If you’re looking to join an early start-up then be really passionate about the cause that the start-up is focusing on. As I said, things can get a little stressful in a start-up and that’s when you really need that passion and the belief in the cause to carry on.
Secondly, I’d say focus. There are so many problems to solve but as a small, early stage start-up you have to pick your battle. Really focus on the right problem.
Thirdly, be open minded and be open to experimentation. A lot of people get very emotionally involved with their ideas and in a start-up you need to be open to new ideas and embrace changes as you move along
Finally, what’s the ultimate goal for Fractal Labs and if you we’re to look back on the company in 10 years, what would it look like in a perfect world?
The ultimate goal is to make SME’s as successful and as efficient with their finances as possible.
If you look at the figures from the World Bank or the UK government, there’s a $5.2 trillion funding gap for SME’s and there’s a £38 billion funding gap in the UK which leads to SME’s failure.
In 10 years from now and Fractal Labs does its job well we would have almost given removed that funding gap. How we see it is that SME’s shouldn’t rely on funding unless it’s for growth, the shouldn’t fail because of cash flow problems and then we will also make banks more efficient in their jobs by helping relationship managers & banks target the right products for the right SME’s at the right time.
There’s another huge gap in the market today is that the banks make their money today either via lending products or by securitising the loans into capital markets. That securitising works really well for corporate & retail sectors but when it comes down for SME’s, there’s a big gap and that happens because the data for SME’s is very fragmented; if we do our job well, we’ll be able to agilify and structure all the data for all SME’s and creating huge revenue streams for the banks.
Banks don’t serve their SME customers well because they don’t see them as profitable. If we can structure that data and create another revenue stream for them then it will change the perception of SME’s to bank and hopefully, they will invest more into serving SME’s!