Almost unnoticed, the Estonian Fintech Modularbank opened its office in Berlin at the beginning of this year. The company is managed by Vilve Vene. She has been working in the industry for 25 years and developed financial technology long before Fintech became a household name. For example, she led the IT department of the Baltic Hansabank and almost ten years later founded Icefire, a kind of Fintech agency that helped develop Estonia’s tax portal. She also developed the banking app Pocopay. The 120 employees generate a turnover of around ten million euros per year.
The Fintech, based in Tallinn, is part of FinTech Power 50 2020, an annual list of the most influential and innovative people and companies in the FinTech industry. For the Berlin office the Estonians were able to win Lukas Huth, formerly working for RatePay, as Director of Business Development. By the end of this year, the Berlin office is expected to employ around 30 people.
The company intends to grow more strongly on the German market in the coming years and is therefore currently talking with potential German customers, while at the same time expanding the product even further.
How flexible is your schedule, especially in the respect of the Covid-19 infection, for the launch in Germany?
After all, we have already started in Germany and the current circumstances do not change anything about our involvement in the market. The COVID 19 pandemic places enormous challenges for companies and people. The current situation makes painfully clear how important fully digitalized processes are today.
This is now becoming clear to all companies that have so far doubted that changes were necessary. And this new understanding will survive the crisis. The companies must now take the steps towards digitalization quickly.
Companies that are digital enough to let their employees work from anywhere, will not only survive but also grow. Those others will face a tough battle against it. This is also true for companies whose business model and profits depend entirely on consumer spending – which is probably what the Corona crisis affects most. As a provider of flexible and innovative financial services, we can help them quickly adapt their services to the new reality – and thus have the chance to emerge from the crisis stronger.
Ms. Vene, what makes the Modularbank stand out?
Although Modularbank is a young company, we are an experienced team: Modularbank was created as a spin-off from Fintech Icefire. With Icefire, we have been developing financial technology for banks and Fintechs for 17 years and now have over 110 employees. In total, we have successfully helped build over 15 banks and financial institutions and we are responsible for the infrastructure of Estonia’s tax system.
Already today we are offering a mature product that can easily be integrated into existing systems. However, we do not see ourselves as a pure platform provider, but rather as a partner for our customers on their transformation path. We have experience with this, that is our strength. Technology helps us to solve our customers’ problems, but it is not our top priority.
You have many years of experience in banking: How would you describe the German banking landscape?
The German banks have recognized that they need to digitalize themselves. But they have great respect for tackling their entire infrastructure. Their technology is often based on a system that has grown over the years but is essentially old. This is not agile and does not allow for a strong digital offering or the ability to offer tailored services, such as variable interest rates based on personal circumstances. Our banking platform can be seamlessly integrated into existing business infrastructures and enables us to offer such services in the shortest possible time.
“The German banks have recognized that they need to digitalize themselves, but they have great respect for tackling their entire infrastructure.”
German customers, on the other hand, are ready for modern technology in banking, as the success of Challenger Bank N26 shows, but also a recent study we conducted: We asked German consumers which criteria are decisive for them when choosing their bank. We found out that modern technology is an important criterion for more than 85 percent.
What is so interesting about the German market in general … and especially for Modularbank?
We see a lot of potential, especially in the German market. After all, there are many established companies here – whether banks, retailers or automobile manufacturers. Many of these companies are currently just starting their digital transformation: The necessity has been recognized, but often clear processes and the next steps are missing.
We also see a trend among non-banks (e.g. retailers, utilities) who are beginning to introduce their own financial services such as various credit lines or more flexible payment options. And this is where Modularbank fits perfectly in the picture. It is very easy to integrate our platform into existing infrastructure. This allows companies to offer their customers fast and seamless financial services.
My feeling is that building trust in Germany is very important, and this is the approach we pursue: We want to develop long-term relationships with our customers.
Who are your customers and to whom is the offer directed?
In the first step we address three different groups in particular:
- Established financial institutions wishing to expand their current offering with new digital services.
- Up-and-coming Fintechs who want to develop their products on the basis of a flexible and low-maintenance platform. This will reduce their time to launch to a fraction of the time required for in-house development.
- Retailers, telecom operators and utilities who want to increase customer loyalty and differentiate themselves by offering their customers tailor-made financial services (e.g. financing models and more flexible payment options) and at the same time create new sources of income through their own investments.
With Mambu and Solarisbank there are already competitors on the German market. What makes Modularbank better?
The product design makes the platform extremely flexible and the open interface allows Modularbank’s modules to be integrated into any existing system and technology of a company. The team is experienced in transforming large organizations and Modularbank can promise an extremely short time to launch – integration usually takes place within a few weeks.
Our product is also available not only as a pure SaaS solution, but other models are also offered. This allows us to respond very flexibly to customer needs. Furthermore, Modularbank is not tied to the platform of a specific cloud provider but is also independent in this respect. This is particularly important for large financial institutions if their internal guidelines prohibit the operation of their business-critical processes on a public cloud. Modularbank also works in a private cloud.
By the way, Solarisbank is not a competitor: our goal was never to be a banker or to build a bank. Our strength is our decades of experience in banking and our related technical background. That is why we have never considered acquiring a banking license, instead we concentrate on our core business as a technology-provider. Whereby we do not want to rule this out, we are always open for partnerships.
Germany is lagging far behind Estonia and all other Baltic States in terms of digitization. This is also noticeable in the banking sector: When will Germany have caught up?
On the one hand, Germany still has a long way to go in terms of digitization, but on the other hand, the country has many resources at its disposal – not only financially, but above all, well educated people. But what I have learned from experience, both in working with the Estonian state sector and with various established traditional banks: the core of transformation is corporate culture and the willingness to rethink.
By this I mean that technology is not just seen as a department or a project in the company, but that it is integrated into every level and department. An understanding must be developed that technology is a tool, but not the solution itself. Only then can we start to talk about real digital transformation. But let’s not fool ourselves: In Estonia, too, there have been countless unsuccessful initiatives in the field of digitalization.
Would it not have been more attractive for Modularbank to start in the USA or the UK first?
In many respects, this would have been easier for us, as we believe that the two markets are less traditional and potentially more open to digitization. We are actually launching in the UK in April. But what we see in Germany is the enormous potential of the market: the demand and the number and size of companies.
Why do you think the Baltic Fintechs are so successful in Europe and worldwide?
I think it has a lot to do with our past. The Baltic countries have only been independent since 1991. We were able to develop digitally directly, with a blank sheet of paper, without any legacy – and that is the key here. It is the same principle that makes the Challenger banks so successful today with their Mobile First strategy.
At the same time, it must be remembered that the new companies had very little money in the early 1990s. This meant that we were unable to look for internationally available solutions. We were forced to develop our own products. This led to a very fertile environment. Anyone who had an idea could implement it. The start-up scene has basically existed in Estonia and other Baltic states since the 90s. This has developed into an environment that encourages entrepreneurship. Ideas are simply tried out on the market. It is extremely easy to start your own business in Estonia. The compactness of the country also makes it very easy to find like-minded people. This is the attitude that has made us successful.
