As part of my series about the “How to Navigate and Succeed in the Modern World of Finance,” I had the pleasure of interviewing Rolands Mester.
Rolands Mesters is the Co-Founder and CEO of Nordigen, a data-analytics Fintech that is helping to make lending inclusive and accessible by making it easier and faster for banks, lenders and Fintechs to use open banking data to assess creditworthiness.
Rolands has been an entrepreneur since the age of 20 and has spent the last 10 years creating innovative solutions in the areas of Finance, Banking and FMCG.
Rolands graduated with a degree in Finance from the Stockholm School of Economics in Riga. After gaining experience at one of the world’s largest consumer goods companies and successfully founding his own design agency, Rolands switched his focus to innovation in the financial sector.
He is a graduate of the 2017 Google Demo Day in London and the Accelerator at Nordea, the largest financial group in the Nordic region and has been featured in the 30 Under 30 list from Forbes Latvia. Rolands regularly shares his insights and opinions on Fintech and open banking at top international Fintech events and is considered a leading thinker on open banking in Europe.
Thank you for joining us! Can you tell us a bit about your ‘backstory’ and how you got started?
Growing up with entrepreneur parents I always knew I would end up starting a business related to the internet or technology in one way or another. I studied Finance at the Stockholm School of Economics in Riga and although I began my professional career by collecting experience in the consumer goods industry, I always kept my finance hat on.
I also started a design agency before circling back to the world of finance and co-founding Nordigen with Roberts Bernans. Although we went to school and the university together, it wasn’t until we teamed up at a hackathon that we realized we could use our complementary skills to build something great together. At first, we actually came up with a solution to help the airlines’ industry make better use of data, but realized the space was quite crowded. It wasn’t long before we pivoted to banks, and within a year of having worked on the idea, we found our first investor.
Although we had a great idea, we took off thanks to a good amount of perseverance and grit. We knocked on a lot of doors and talked to a lot of prospective customers to understand their needs and give more final shape to our offering. This is key when it comes to establishing a business working with financial institutions.
Can you share a story about the funniest mistake you made when you were first starting? Can you tell us what lessons or ‘take aways’ you learned from that?
I once did a company pitch over Google Hangouts. After switching from camera to screen-sharing, I stood up and talked about our company while walking around the conference table with headphones on — it’s my preferred way of doing phone calls, walking.
What I didn’t know was that by default Google Hangouts shows my screen AND my camera. For the camera part what viewers saw was an empty chair and me occasionally passing the camera, which was pretty funny.
I quickly learned to switch off my camera before embarrassing myself thereon.
Is there a particular book that you read, or podcast you listened to that really helped you in your career? Can you explain?
Acquired podcast by Ben Gilbert and David Rosenthal. It covers the history of world-class tech companies from how they were founded to acquisitions or IPOs. My favorite episodes have been about Netflix, Beats by Dre and Paypal.
Are you working on any exciting new projects now at Nordigen? How do you think that will help people?
We’re working on a few projects related to mitigating COVID19 impact on financial services. The world has gone from “digital is a nice to have” to “digital is the only way” basically overnight. Many financial services are unprepared and people still can’t get the financial services they need. We’ve accelerated all our projects on simplifying how open banking can be adopted by financial institutions to digitize customer onboarding and credit risk assessment processes. We’re focusing on the small financial institutions first — credit unions, regional banks — those have seen the biggest hit.
Thank you for that. Let’s now shift to the central focus of our discussion. Extensive research suggests that “purpose driven businesses” are more successful in many areas. When you started your company what was your vision, your purpose?
When we started our company, our purpose was quite narrow — to facilitate financial inclusion by building a better credit score. This is an awesome data problem to solve, but over time we realized that credit scores have limited impact. Quite often for financial institutions just having a fully digital customer onboarding process is more inclusive than using the best credit score. We understood over time that the more powerful thing to do with our open banking technology stack is to help financial institutions to become more digital through the adoption of open banking. To do this we’re building tools that facilitate bank connectivity and provide enriched data that helps banking developers to launch new products faster to the market. We’ve seen this already as being the catalyst to significantly accelerate the adoption of open banking.
Do you have a “number one principle” that guides you through the ups and downs of running a business?
Yes. It’s “solve the most expensive problem”. This applies to solve the most expensive problems a client has as well as prioritizing our own internal projects. In dynamic environments, new problems appear constantly and there are many problems to solve, but typically only a few are expensive enough to be considered high-impact. By focusing on solving the most expensive problems, we’re able to cut through the noise and get to the bottom of what brings value.
This principle has also shaped our product roadmap. By understanding client pain-points, we’re able to foresee what data solutions they will need in the future.
Lead generation is one of the most important aspects of any business. Can you share some of the strategies you use to generate good, qualified leads?
One of the lead generation strategies that work particularly well for us is content creation and in particular — content about the value chain that we were operating in.
The open banking industry is still developing and we saw that many potential users were struggling to understand the differences between technologies and the use-cases for which the technologies are used. Our most successful content pieces are around listing different technology providers in one place, which helps our users to navigate the open banking space much better.
If a fellow CEO would ask you for advice about whether to bootstrap or to look for VC capital, how would you help them weigh the pros and cons of that decision?
I would suggest using a simple decision framework depending on the stage the company is in. If a company is in a pre-revenue stage, the question to ask is: “can I get to a revenue-generating business without VC capital?” If the answer is yes, the company most likely doesn’t need VC capital just yet. Staying bootstrapped longer is a virtue and allows the company to continue being lean.
If a company is already generating revenue, the question to ask is: “how much more revenue can I generate with VC capital vs. without?”. If the answer is “a lot more”, it’s good to consider VC capital. VC capital is great for unlocking expensive, but high-value growth strategies. If the answer is “not a lot more” or “unclear”, it’s a hard no for VC capital. Again, staying bootstrapped longer is often better than rushing into VC capital. You can always take VC capital. You can never go back to being bootstrapped.
Timing is also important. Due to the effects of COVID19, the capital markets are in a volatile state, which also affects the VC capital. For any founders planning to take VC capital, I’d suggest waiting until the markets return to normal if you can.
What measure do you use to determine the value of a company? What advice would you give to other leaders about how to get an optimal evaluation of their business?
The company’s value on the private markets is most often defined by the market. Some companies are valued by the discounted future value of dividends, while others are revenue multiples. Strategic buyers typically pay higher premiums than traditional investors. To find the optimal value of a company, it’s a good idea to look at historic deals on the market and benchmark against those.
What would you advise to a founder who initially went through years of successive growth, but has now reached a standstill. From your experience do you have any general advice about how to boost growth and “restart their engines”?
Talk to customers and ask open-ended questions. Most standstills happen because some local market maximum is reached. Talking to customers reveals what other challenges they have and what expensive problems they’d like you to solve next.
We went through a similar challenge 12 months ago. Our outbound sales initiatives started to become increasingly inefficient and the customer acquisition costs were rising. Both founders decided to spend significantly more time talking to potential customers. This resulted in us launching a self-service platform backed by a new inbound sales strategy that had significantly better customer acquisition costs.
What are the most common finance mistakes you have seen other businesses make? What should one keep in mind to avoid that?
Taking too much VC capital too soon is a common mistake I’ve seen. This leads to companies having to scale much faster than they should. The number of employees grows, but the revenues don’t follow.To avoid that, stay lean until the point where you see that the only thing you’re missing to achieve your revenue goals is more capital. Staying lean with VC capital is harder than without.
Ok, here is the main question of our discussion. Based on your experience and success, what are the five most important things one should know in order to succeed in the modern finance industry? Please share a story or an example for each.
My top five:
1. Talk to your customers regularly.12 months ago our management noticed that our sales initiatives were becoming increasingly inefficient — the sales team activity level was at an all-time high, however, the customer acquisition costs (CAC) and sales cycles were growing. We had reached a local maximum, a plateau for the market we were serving and we needed to look for a new edge.
To do this, the founders engaged significantly more with existing and potential customers to understand their pains and needs. From the customer interviews, we realized that many new customers don’t like to be directly sold to — they would prefer to test our products with no interaction or commitment and engage only when they felt the time was right. To cater to this need we launched a new self-service platform in November 2019. Since then we have seen the CAC decrease significantly while seeing a rapid increase in new customer registrations (80% growth in March vs February 2020).
2. Collaborate with people across different levels and functions.A few years ago a banking client of ours asked us to help with the automation of the loan applicant evaluation process. We arranged a deep-dive session with our project champion to understand the evaluation process and the technical needs of the client.
During this session, our champion revealed that the automation project is management’s priority, but the risk specialists are not entirely happy with it — they do not fully trust that an automated process would perform as well as a manual one and this created a lot of friction internally to implement the project on time.
The solution we built together with our champion was to build a process that allowed credit specialists to intervene in the automation processes and transparently see the results. Over time the credit specialists started to trust the system more, which gradually increased the automation level.
3. Use regulation as a reason to innovate.Our first 10 clients were excited to use our solutions in the cloud. Once we started our conversation with a larger retail bank, a cloud solution was met with skepticism. We realized that we have two options: (1) convince the client to use our cloud solution and extend our project by three months to ensure the client’s Compliance department signs off or (2) to build an on-premise solution in two weeks and deploy it in another two weeks.
We chose the latter and this significantly accelerated the project. The outcome of this was that we learned to deploy our solution to client infrastructure, which meant more flexibility in future projects.
4. Focus on building value, not following technology trendsThe financial industry is filled with buzzwords, from “blockchain”, to “artificial intelligence”. Two years ago we did several customer interviews to understand what they think about the term “artificial intelligence” and does it help to communicate the value of our product.
For the most part, the answers were that it does not answer key customer questions. Based on this feedback, we simplified the terminology to use words like “rules”, “econometrics” and “statistics”, where we previously would have used “AI”.
5. Take breaks. It’s not a sprint, but a marathon.The financial industry is moving at break-neck speed, with new innovations and announcements happening every hour. Mental health is a critical component of success. Both founders of Nordigen used to work at large corporations where people were expected to put in 60 hours a week to succeed. Because of this reason, Nordigen has a strict 40 hours a week policy with 4 weeks of paid mandatory vacation time per year.
Which tips would you recommend to your colleagues in your industry to help them to thrive and not “burn out”?
Take long vacations at least once per year. The finance industry is very fast-paced and people often have a fear of missing out. However, mental health is an absolutely critical component and long vacations help to balance the effects.
If you could start a movement that would bring the most amount of good to the most amount of people, what would that be? (You never know what your idea can trigger!)
People everywhere should demand that their banks use open banking to allow free movement of banking data. People should be able to do with their data what they want, including — sharing it with other banks or third parties. This will accelerate the creation of new and better financial services offerings to everyone.Open Banking initiative and PSD2 solves that to a large extent, but there is a big number of banks globally that have no intentions to develop or use open APIs. In these cases the banks almost have a monopoly over people’s data, which creates a lock-in for the people. Open banking solves this and gives more power to the people.
How can our readers follow you online?
Linkedin: https://lv.linkedin.com/in/rolandsmesters
Twitter: https://twitter.com/RolandsMesters
Medium: https://medium.com/@rolandsmesters
