Veteran fintech entrepreneur Greg Krasnov is boldly going where no bank has gone before in the Philippines Fintech entrepreneur Greg Krasnov knows a thing or two about spotting market opportunities.
By the age of 46 he had already founded and then sold a consumer bank in Ukraine before moving to Singapore where he has co-founded four market-leading and award-winning fintech startups, CredoLab, AsiaCollect, AsiaKredit Bank and SolarHome, as well as creating the venture builder Forum.
Now he has put his name – and his reputation – behind creating Tonik, the first digital bank in the Philippines, which was granted a banking licence by Bangko Sentral ng Pilipinas (the Philippines’ Central Bank) in early 2020.
And the opportunity he has spotted? Quite simply, it’s this: Filipinos lead the world in terms of internet and social media usage but, astonishingly, 70 per cent of the 100 million-strong population remains unbanked.
And with a growing middle class enjoying more disposable income in a country that has an average age of just 24, Krasnov’s number-crunching tells him there is an untapped potential of US$140billion in retail deposits and US$100billion in unsecured retail lending out there.
Explaining Tonik’s genesis, Krasnov says: “We see that there is massive demand from consumers in the Philippines who are very young, very digitally native, and they’re not being serviced with appropriate savings and term deposit propositions in the digital sphere by the incumbent banks.”
He also believes the payment sector is overcrowded and sees much more potential in the lending space. But he is a fierce critic of the models used by any number of digital neobanks whose headlong rush to attract as many customers as they can before putting themselves on a solid financial footing puts their profitability, and even their futures, in peril.
With an extensive background in private equity banking before becoming a fintech investor, Krasnov is a firm believer in marrying the basic tenets of banking with the very latest tech. And so enters Tonik.
“The speed of scaling for Tonik will be determined by how quickly we can bring our core consumer lending proposition to profitability,” says Krasnov.
Elaborating on his methodology, he says: “I’m a little old school. I spent the first 10 years of my career in private equity, thinking about EBITDA and leveraged buyouts, and now I look at the neobanks that only have the liability side of the balance sheet and are scaling up and then posting ‘hey, I got all these users. Please value me based on user numbers’.
“Evaluations based on user numbers on the liability side of the balance sheet, where the more users you have, the more money you lose, just makes no sense to me.” And so, no, Tonik is ‘not rushing into scaling’, he says.
“What we’re going to really focus on is establishing our lending proposition, getting the cost, and especially the cost of risk, under control, which takes time. You need to train the risk models and that’s when you can really step up the scaling.
“Our business model is not predicated on payments, as with a lot of neobanks; we’re very much an asset liability play, like Nubank in Brazil or Tinkoff in Russia.”
Tonik has been more than two years in the making and, after initially being seed funded by Krasnov’s own venture builder Forum, it announced in June 2020 that it had secured US$21million in a Series A funding round, with a plan to launch in the third quarter of 2020/21.
As you would expect from someone with Krasnov’s background and experience, much thought has been put into selecting the bank’s technology partners, with Finastra’s Fusion Essence Cloud, powered by Microsoft Azure, chosen for its end-to-end core banking, and BPC selected for its payment processing activities, in both cases supplied as software-as-a-service (SaaS).
Krasnov says the ability to use SaaS was a key part of the strategy in developing Tonik, both to reduce costs and to future-proof its operating system.
“We’re the first bank startup in the Philippines to go for digital with its own banking licence. So, together with a Filipino regulator, we’re going into uncharted waters and defining what that digital banking licence needs to look like,” he says. “That’s why we needed very reliable partners, not just very cost-effective partners.”
For its part, Finastra has been evolving itself into building platforms for banking over the past two-and-a-half years. Anand Subbaraman, Finastra’s general manager for Cloud, core and digital banking products, describes its move to offer SaaS for banking as a ‘win, win’ for his company and customers like Tonik.
“I see our whole approach being in that sweet spot between traditional, with experience, and highly modern technology and SaaS,” he says. “We try to get the best of both worlds, and we want to be a solid partner with Tonik and make it successful. Because, at the end of the day, the technology is only as successful as the bank is.”
Emphasising the flexibility offered by SaaS, Krasnov says: “We’re able to work as part of an ecosystem, rather than just one solid vertical, by partnering with a company like Finastra through a very robust set of application programming interfaces (APIs) that they have developed and that we have integrated into our middle layer, which also enables us to connect to multiple other third parties very rapidly and offer their services on our platform – or, indeed, provide our resource to their lending books, or enable them in some other ways.
“I’m not a big fan of talking about the whole open banking thing because, to me, it’s more about channel partnerships. Either we are a channel for somebody else or they are a channel for us, but there’s always somebody who is making a product, and somebody who is helping to bring that product to the market, and having a very robust set of APIs enables you to do that in a very cost-effective way, within the timescales today’s customers want.
“You know, in the Philippines, for example, the average consumer loan from a bank still takes two weeks for a TTY (time to yes). Then it might take another few days for a TTM (time to money). In the digital lending space, you’re talking about TTY in seconds. So, it’s kind of a step function.
“If I am partnering, as a bank, with somebody who is doing digital lending, and I would like to provide my book as a resource for their lending, for example, then I need to be able to support those types of rapid bookings, and rapid transactions, between me and the partner.
“Having a robust layer of APIs is critical to that and I think Finastra has done a very good job at putting that together. That’s a strong part of its proposition. We’re looking forward to capitalising on that.”
With its use of Cloud-based technology, Tonik is also breaking the mould by not creating a head office for its key people who are scattered across countries and time zones.
Krasnov concedes that has created some difficulties, for instance in developing strong relationships among his staff, but reckons that, overall, the pros far outweigh the cons.
“I think, in the next couple years, we’re going to see completely new models of recruiting, onboarding and sourcing human talent,” he says. “COVID is going to push forward the gig economy concept where everybody’s a face on the screen and, at the end of the day, it doesn’t matter where that face is actually sitting.
“So, interesting challenges that we’re learning to cope with, as I’m sure everybody else is. Let’s see how it pans out.”