Your banker could soon look very different

Miguel Santos, German Pugliese, and Adrian Iglesias, pictured above clockwise from top, started Technisys in 1995 in Buenos Aires with a vision of bringing cutting-edge technology into a sector so staid that former Federal Reserve Chairman Paul Volcker once quipped that the last useful thing banks invented was the ATM. A $14 million funding round in 2014 and another one of $50 million in 2019 allowed them to create the software that got them 50 banking clients and $70 million in revenue in 2021. Earlier this week, lending company SoFi announced a plan to buy them out for $1.1 billion, or more than 15 times revenue, in an all-stock transaction. It’s an impressive valuation that must have paid a substantial premium to the founders and their backers, especially early ones like Kaszek Ventures, a Latin America-focused venture capital firm based in Brazil.  

SoFi wants Technisys to become the “AWS of Fintech.” AWS is Amazon Web Services, the world’s cloud computing leader and the e-commerce giant’s most profitable business. This means SoFi intends to use Technisys’ software to serve not just their own customers, but also to help “a broader array” of companies offer financial services of their own. SoFi already owns Galileo, the financial technology behind Wise, a money transfer service connecting international bank accounts at much lower fees than banks. Technisys’ software would let Galileo offer the creation of bank accounts.

 

Source: SoFi

Who needs to create bank accounts other than banks? Well, imagine that you own a furniture chain in India, for example, and you want to offer your customers some financing to buy your best crafted and designed sofas and bunk beds. Instead of sharing your most valuable customer information with a bank, why not set them up with bank accounts yourself? This is not a new idea. E-commerce companies have created their own financing arms in many countries, like Ebay did with PayPal in the US, or Mercado Libre with Mercado Pago in Latin America. SoFi’s bet is that technology will make that process a lot more efficient. They expect their technology platform to reach at least $500 million by 2025, well over double the annual run rate they had last quarter, when the technology platform had $50 million in revenue or about 18% of the company’s total and 30% net profit.  

Stores of every kind have partnered with banks to offer financing for decades. The need goes beyond retail. SoFi itself started providing student loans. This doesn’t mean that mom and pop shops in every corner are going to start running banks all of a sudden, but companies of a certain size are already creating customer accounts to deal with payments, e-commerce, subscriptions, and so on, so it’s not that big of a stretch to turn that information into bank accounts when financing is critical. Mariano Amartino, Americas Managing Director for Startups at Microsoft calls this approach “embedded fintech,” and he believes it’s one of the trends behind the giant chunk of venture capital dedicated to fintech in 2021.  

Banks were nervous when tech giants like Apple got into financial services and, true enough, the business could become harder if embedded fintech takes off. Banks are spending so much on their digital transformation that only the largest ones can afford it. For all the rest, the advice is to focus on the segment they know best and serve it better than anyone else. That sounds a lot like what companies in other industries are doing when offering financing to buy their products and services. The good news is that Technisys will continue to serve banks, as will Verb Company’s client TODO1 Services. Perhaps smaller financial institutions should still hire them to take their accounts to the cloud.