Ahead of the eight – Michael Phillipou, Sandstone Technology ‘The Fintech Magazine’
“There’s so much work for banks to do over the next decade when it comes to having a compelling digital value proposition because digital is the battleground now for financial institutions,” says Michael Phillipou, the newly installed CEO of Australian fintech Sandstone Technology.
And that’s not just a technology vendor talking. He’s come to that conclusion from the perspective of a banker who ‘fell in love’ with the first-wave challengers that emerged after the financial crash, and as founder of a lendtech himself.
Technological advances, regulatory pressure points, and evolving consumer habits mean that to win, competitors on the financial services pitch must change their game plan, teammates and targets while playing to their strengths and addressing any weaknesses – and Phillipou knows a thing or two about adapting to the field of play. As an Australian Football League boundary rider for Oz broadcaster ABC, he turned up to deliver commentary on games from the sidelines while simultaneously building his career in financial services. Having watched premiership cup strategies over five seasons, he’s hoping to increase the digital goal score at Sandstone to which he was appointed CEO in December after occupying the role of chief customer officer for 15 months.
The mid-90s startup is now a global technology business, providing a wide range of micro services, mainly for top and mid-tier financial organisations that are upgrading or transitioning systems such as digital acquisition, loan origination, settlement management, internet banking, mobile banking and online financial management. It doesn’t provide core banking services, but works with partners that do.
Phillipou’s appointment to CEO coincided with the firm’s 25th anniversary and comes during a sea change for financial services on its home turf. Australia is currently rolling out the Consumer Data Right (CDR), its own version of open banking, allowing the permitted sharing of customer data to improve access to, and the availability of, financial services for millions of people.
Open banking also encourages competition among providers and creates opportunities for technology companies like Sandstone as existing institutions seek to maximise the use of data to achieve efficiencies, become more innovative, and improve, or even redefine, customer relationships.
July was a milestone in the phased introduction of the CDR as, by that point, every bank, not just the big four – CommBank, NAB, Westpac and ANZ – was required to have systems in place to share data.
Perhaps in keeping with its reputation as a big country with big ambitions, open access to data isn’t stopping at financial services. Under the watchful eye of the Australian Competition and Consumer Commission (ACCC), it’s going full throttle for an open data economy, giving Australians the right to access not just all their financial data but their utility, telecoms data and more.
With clients in Australia, New Zealand, Asia and the UK, Sandstone has its own views on why adoption of open banking in most other regions where it has been introduced has been relatively slow. In November it even produced a white paper on the subject, concluding that where open banking hesitancy existed, it was due to a combination of regulation, the complexity of the technology change, and fear – not just among consumers who have been told for years never to share their data, but also by banks who see the legislation as a major threat to their highly valued customer relationship. Noting how Australia could learn from, in particular, mistakes in the UK, where still less than 20 per cent of banks have signed up to open banking, it warned that ‘in the UK, the regulatory framework and cost of entry has seen significant shortcomings in the uptake’.
Despite the UK’s shortcomings – and perhaps lack of ambition – Phillipou sees it as a market that Sandstone absolutely must target, particularly when it comes to microservices for credit.
“The size of the lending and therefore the origination capability, origination opportunity, in the United Kingdom is much greater than the Australian market,” he says. “From our perspective, it looks more evolved, ready to take more bank-as-a-service capability.”
There’s one trend in the area of lending that could benefit greatly from open banking – more accurately described, says Sandstone, as ‘eve
Everything as a service’ – and that’s buy now, pay later (BNPL). New providers and business models have been reinventing the loan origination market Down Under for some time. But it’s a service that has raised issues for policymakers both there and in the UK.
“It’s under scrutiny now in terms of what the regulatory requirements should look like because BNPL is not subject to the same level of compliance obligations that lenders or banks are,” says Phillipou. “However, we’re likely to see that change and the BNPL players adjust. What we are seeing already are collaborations with major organisations, major banks, that recognise there is some extraordinary capability in this.”
Technology that provides insights around lending is one of Sandstone’s core competencies and it’s an area that Phillipou knows well.
Having worked in financial services for more than 20 years, holding general management roles across the industry including Westpac, Bendigo and Adelaide Bank, he co-founded the innovative digital financial services disruptor, Lodex, in 2017. Australia’s first loan and deposit marketplace, Lodex was way ahead of its time in using personal data, including social, to leverage power for consumers. It was a brave concept, borne out of Phillipou’s own fascination for pioneering fintechs that were challenging the distribution model.
“Back in the early 2010s, I realised that technology was changing the landscape of how financial services products would be distributed and fell in love with the likes of Revolut, TransferWise [now Wise], Monzo, N26, and all of the neos – Curve and the likes of LendingClub, Credit Karma, and some of the US fintechs that were making waves then. So, then I was fortunate enough to found a company with a group of people, and we built some pretty cool stuff. I exited that business in 2019.”
“I probably didn’t realise the gravity of the opportunity,” he admits. “I think, certainly now, sitting on the vendor side, the tech side, and seeing the way we’ve built out some of the capability of banking-as-a-service, particularly in the UK, that is certainly our strategy – to be able to support banks to have the latest and greatest overall core. We’re not a core banking player ourselves but we partner with core players, and provide all the front-end capability.”
Last year, for example, recognising the post-COVID shift towards consumer self-service, as banking customers became less enthusiastic about face-to-face meetings, it released a new suite of digital tools. These gave homeowners more autonomy in managing their loans; a kind of self-service lending, centred around the removal of the mortgage broker as middleman, to simplify the process.
This year it has developed Tranche Management, a back-office feature, which is a component of Sandstone’s digital origination product BankFast Apply. The new feature allows financial institutions to easily and quickly manage the flow of retail and business deposits. It’s designed to take the guess work out of predicting when a savings product tranche is full, which supports a company’s risk management.
“We partner where it counts,” explains Phillipou. “Banks need to have optionality, and they’ll have preferences when it comes to credit decisioning, so, for example, we’ve done all the integrations with major bureaus here in Australia – Equifax, Experian, and Illion. Partnerships exist when it comes to desktop property valuation capability or KYC/AML requirements. We’re out there, benchmarking the ecosystem in terms of those real speciality areas of the value chain.”
Now that open banking and the banking-as-a-service concept is gathering speed, Phillipou finds himself at the helm of a company that can influence the way that banks maximise those opportunities by creating the self-same ‘beautiful UI and UX’ used by the pioneering fintechs he so admired.
“As a technology partner, we’re an enabler and can support them to provide a frictionless experience and complement their overall offering. What we’re seeing from the market and what they’re focussing on is being able to enhance their overall digital value proposition to support their objectives. Every board is saying to every CEO, ‘we need you to do three things. Firstly, we need you to increase the return on equity, so grow your assets and liabilities book. Number two, we need you to reduce the cost-to-income ratio, so do more with less and become more efficient. And number three, make sure you comply with all your regulatory obligations, so don’t breach’.
“We see this across every single bank and every single board. And what we can do is provide technology as an enabler through all those three key points by providing straight-through capability when it comes to the origination of products. Efficiency is really about trying to replace low-value human tasks with AI and machine learning, and digitise and automate processes. Then your systems need to be regulatory compliant, they need to comply with data obligations – data sovereignty, GDPR, over in the UK and European market.”
Phillipou nevertheless makes time to combine his unique skillset – that of banker, innovator and broadcaster – in co-hosting the regular podcast Digital First: A Banking Transformation Series. A collaboration between Sandstone and Financial Executive Women (FEW), a career advocacy programme for women within financial services, it’s seen him interview thought leaders of both sexes from banks and fintechs who have run transformation programmes themselves.
“They’ll talk about all the different pillars that are involved in running a successful transformation and some of the pitfalls that invariably organisations will have to navigate through. We’ve been getting really good feedback from the FEW members and they’re pushing us to bring many of the guests back on to the programme – the likes of Joseph Healy, one of the co-founders of Judo Bank [an SME challenger bank in Australia], who’s a remarkably impressive gentleman.”
He hopes it will give decision makers moral support when they run on to the digital pitch. As for Sandstone, it’s heading for the top of the league table, building on its track record of 100 per cent successful implementation.
“The biggest risk with any transformation programme is execution risk. You hear horror stories of banks going through transformation programmes, spending hundreds of millions, quite often, and then not ending up with a functional product, and obviously a few years behind the eight ball,” says Phillipou. “Proudly, we’ve never not delivered.
“Banking executives are thinking, ‘how do we futureproof our business overall?’ The answer is that unless they innovate, they’re going to find it very difficult. So, our major investments over the next few years are going to be very much around straight-through processing capability, from origination to our data strategy, and making sure we capitalise on all the opportunities when it comes to open banking – SME banking, in particular. Then you’ll see the evolution of our banking-as-a-service offering, as we push to take more positions and win more customers.”
Article published on 26 August, 2021
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