Hi guys, welcome to the Fintech Coffee Break. I’m your host, Isabelle Castro. This week, I spoke to Chirag Shah, CEO and founder of Nucleus Commercial Finance.
Nucleus has been in the fintech space for some time, providing financing solutions for small and medium businesses with a tech-focused vision.
I caught up with him to get his views on the prospect of a Super App for SMBs. And how embedded finance, and particularly innovation in embedded finance, will make the Super App dream just that little bit closer to reality.
Isabelle Castro 0:39
Hi, Chirag. How are you today?
Chirag Shah 0:43
I’m doing great. How are you?
Isabelle Castro 0:44
I’m good. Thank you. Really great to have you on. I’m glad that we got the chance to chat. So to begin with, I want to ask you what gets you up in the morning.
Chirag Shah 0:56
It’s being it’s being able to make a difference. You’ll see I mean, the number of product ideas that we come up with the number of solutions become a bigger like always, it is always like the test that I want to kind of clear is what how is it different from everything else out there? What problem it’s solving. At the end of the day? What difference is it going to make to the SME on a day to day running? Is it going to simplify their life? Is it going to make it easier to do whatever they are doing?
Isabelle Castro 1:31
Nice. I like that that’s a good reason to get up in the morning. Tell me a bit about your career journey and what brought you to founding Nucleus Commercial Finance.
Chirag Shah 1:41
So my background is engineering, math and finance. So in a way, at that time, there was no fintech. But my whole background is very suited to fintech, I understand technology, hubbub and finance. And as fintech came about Nucleus, Nucleus was one of the first alternative lenders before the whole fintech boom. My background prior to that is actually work in banking. On the structuring and trading side, started working at a hedge fund really gained a good understanding of credit products, loan products to SMEs. And then post crisis saw an opportunity banks were kind of 99% of loans made to SMEs in the UK, which was very disproportionate to the other advanced countries like us where banks children tend to be closer to 60 65%. So we saw an opportunity that that’s the point at which we launched nucleus to be a true alternative to the banks. This was about 12 years ago, just before the fintech boom.
Isabelle Castro 2:50
Okay, so you got in at a really good time.
Chirag Shah 2:54
Guys, I mean, when we started, Tech was, obviously when we started Nucleus, it was more with the relationship angle, and tech was supporting everything we were doing. As a business, the way we evolved is, tech is central to everything we do. And people support tech, when it can’t fulfil the requirements. So it’s been a big transition over the last decade. And yeah, I’d like to think that we have been at the forefront of some of the innovations on the SME lending side.
Isabelle Castro 3:26
Okay, nice. So today, I wanted to talk to you about Super apps. What’s your kind of view on Super apps? Where are we right now? And how does nucleolus kind of approach this topic?
Chirag Shah 3:46
It’s really interesting, because when when people talk about Super apps, everybody’s focus is on consumers. We come from a very different angle, because our focus is on SMEs. So when you when people use WeChat, as a comparison of everything, a lot of the focus that should be on consumers. From SME perspective, I think supercaps is a has been a buzzword now for almost 18 months. There is no real super about that, which is there is no real app out there, which you can classify it’s super up. On the SME side. I think a lot of people are building or trying to build what they claim to be super apps, but majority of them tend to be financial apps, serving very specific requirements related to finance, rather than a Super App, which really a super app should be a one stop shop for everything and SME needs. And the reason why it’s not been achieved is it’s a challenge. SME data is very dispersed very, at very different points compared to consumer. You can’t have a single API which gives you all the data points. So the infrastructure you have to build is quite, quite different and a lot more expensive. And it’s acceptability. Also, the requirements are very, very, depending on the size of the business, the sector they are operating in, the permutation combinations are significantly higher. And that is why I think there’s still like no real super app for the SMEs.
Isabelle Castro 5:16
Okay. Yeah, it sounds like a really complicated sector to approach. I mean, how, how could one go about it? What would it? What would they need to create the Super App?
Chirag Shah 5:31
Alright. As I said, it’s a challenge because of the data. I think the biggest point has to be on how they can, how they can access all the data. That if you look at, in general, for the Super App, that needs to be a clearly defined objective, right? everybody’s not going to be able to achieve everything on one goal. But what’s the park? What are the key requirements you want to meet from an SMS perspective? The user journey, SMEs and multiple touch points and like consumers. So okay, what are the touch points, which touch points you want to cover within the Super App? And how are you going to cover that and how you’re going to bring partners on board. Again, as I said, the needs are very varied. So do you want to try to focus on all the SMEs or a particular segment and then gradually expand that the ecosystems have been developed on the SME side the same way as the consumer ecosystems have? Again, as we mentioned, briefly, the data, it’s dispersed and like the consumer data, and there are too many data controllers. And all those controllers are trying to monetize the access to SME data, and are restricting access, which makes it more difficult to build a Super App. And with with the businesses, there is always a layer of advisors, that accountants big corporate finance houses that the businesses work with very closely. And that whole ecosystem from a tech perspective is still very far behind. They’re making progress, but they’re still far behind. You need to bring the whole that whole ecosystem to a level where they can actually integrate with a Supra. I’m just highlighting the challenges, because I think that’s what we wanted to cover. Yeah. Yeah. But those are, those are the key challenges I see. And SME super upside. Okay.
Isabelle Castro 7:23
Do you think it’s possible, though, are there steps being made, that makes this a reality that could be fulfilled,
Chirag Shah 7:36
I think it’s going to become more around a partnership angle from someone to achieve a full Super App for an SME is going to be very challenging, not undoable, but very challenging. And I think it will become more like a partnership thing where you might have three or four players that emerge, what each focusing on a bunch of requirements in particular areas. And then a super app is really a combination of those guys, in a partnership, rather than one single entity achieving all of it.
Isabelle Castro 8:08
Okay, so you don’t think it’s going to be something like WeChat in China, which is all coming from like the singular thing, who does partner but basically, it’s called, let’s WeChat?
Chirag Shah 8:21
It’s but I mean, it’s very different, right? When you compare the markets, I mean, in the western market, you’ve got more competition. I mean, when you look at WeChat, there was no real I mean, there are a couple, but maybe there was no real competition, because it’s a closed market. When you look at Europe, and you look at us, that is significantly more compared to competition, so the market sizing, market gets divided, nobody gets total control of the market. The downside to that is your customer acquisition cost is significantly higher. There are more choices and customer, not only the customer acquisition costs, but in terms of the whole ecosystem. Everybody wants a bigger share of the pie compared to what it is with WeChat in China being the only real player. So those are the kinds of things and then you have anti competition rules. So if somebody really does grow to that scale, then you’re going to have all the integrity competition rules kick in, in the on the western side, which will again restrict that growth. Because no, they don’t want any. And for good reasons. Nobody should have that level of power and consumers. So with all those things, that that’s why you will not really see a WeChat in the Western world.
Isabelle Castro 9:30
Okay, so it’s gonna kind of turn into something completely different. I know in the SME case, it’s obviously going to be something different, but even in the consumer space, it’s going to be something very different. Okay. Okay, that’s really interesting. Do you see embedded finance kind of fitting into this in any way?
Chirag Shah 9:51
You can really build a super app without embedded finance. I mean, embedded finance is at the core of if you look at majority of the apps which are kind of being sold as super apps, there is an element of finance already embedded in there. And many of the apps which are, which are kind of marketed as super apps are really, at the end of the day, MBA finance merchant, you can talk about the BNPL space, or whatever it is, it is all in embedded finding solution. Now, people can try to build super apps on top of it, but embedded finance was at the core of it. And it could do everything right, you’re talking about payments, you’re talking about transfers, you’re talking about lending, it’s all covered, but it is core to any app that anyone’s building right now. And there are benefits to it, you’ve got the consumers, they’ve got the convenience of accessing all the financial services on the go. And it is a very important revenue stream for that builders from the transaction fees they generate in conversion rate from insurance and loan selling. So it is a very critical part on the revenue side. But whoever is looking at you, perhaps and looking to build?
Isabelle Castro 11:04
Or do you think what do you think we are with embedded finance? In order to make these kind of like, are we ready to make a super app from the embedded finance that exists today? Or is something else gonna have to happen? Are we needing more innovation? What? What’s your opinion?
Chirag Shah 11:24
So I mean, on the SME side, we still need a lot more innovation on embedded sidelines, it’s becoming closer and it’s getting, it’s getting really close with open banking, open accounting, free access to data, it is getting significantly better. But again, the challenge is not Are there tools to make it possible, viable, and something to be in the market in a very short span of time? Yes. The challenge of the SME side is bringing the whole ecosystem to that level that embedded finance can work. And, and that is probably a, it’s get everybody is understanding, this is where it’s going to end. And they all need to build to get to that stage. But everybody’s at different points in the journey. And I think I don’t think it’s really 100% thing in the next three months, six months. But I’ll be surprised if there is not if it don’t start seeing better versions of embedded finance for SMEs over the next 12 to 18 months.
Isabelle Castro 12:29
Okay, and what kind of areas do you see being the kind of next, the kind of originators of the next wave?
Chirag Shah 12:41
I think you’re gonna see a lot from the lenders from the fintech lenders, I mean, we, I can tell you our experience, where we started working on a, what we call a one click lending model about five years ago. And the objective was a business should just enter the The moment someone enters the name of the business, we should be able to tell how much they can borrow, at what price and what what period. So that is what we consider as like the that is like critical grammar, that finance, being able to turn things around that quickly. And to build the infrastructure to be able to do that. And I think we will see a lot more of that come out, because that will if somebody achieves that, and is able to provide responses and results in such a short span of time, that will kick start all the other innovation around the SME space.
Isabelle Castro 13:33
Okay, do you see kind of I mean, we’re in a kind of difficult position in the economy. I know, the UK, I think I saw is getting slightly better. But the US, for example, is still pretty bad. Is this going to affect that? Or do you still think that this kind of innovation is going to happen, regardless of what happens around it?
Chirag Shah 14:05
I don’t know it’s going to happen. Regardless, I have a different take on this. I don’t think this will necessarily have a negative impact. There are two parts, right? We’re building the ecosystem. The biggest part is getting the consumers on board to using the technology. And we saw during COVID and we were big proponents of open banking, open accounting we’ve been for half a decade and getting the consumer buy was significantly more challenging. If you look at our completion rates on open banking journeys, three COVID. They were in mid 20%, mid 20s, low 30s. Post COVID. We got the 90s. So people embrace technology when the need was there. If there are challenging times, of course, it’s more challenging for the SMEs, but also it makes people more open to try out new things.
Isabelle Castro 15:00
Okay, well, it’s
Chirag Shah 15:02
just, I’m just trying to make it the glass half full. Of course, it’s challenging environment overall. But also there are benefits in terms of the customer uptake.
Isabelle Castro 15:11
Okay. Yeah, no, I see that. People are looking for alternatives and trying out new things. So yeah, I can definitely see that happening. Do you think there’s kind of any roadblocks roadblocks to kind of realising that reality at the moment? I know you guys are based in just the are you just in the UK at the moment? Have you expanded to Europe or the US?
Chirag Shah 15:38
Now we are focusing on the UK market.
Isabelle Castro 15:41
Okay. So I mean, you can speak for the UK, do you? What do you see as being some of the potential roadblocks to having that innovation happening?
Chirag Shah 15:54
I briefly touched on this guarantee, especially in the SME space, there are too many data controllers. If you want backing data, you got a load of different banks out there. If you want accounting data, you’ve got a load of accounting packages, including the likes, from Xero, Sage 10, something, right? Everybody is, when everyone started, everybody was kind of advocate for free data sharing, make it easier to share the data, of course, with consent at all times. Now we are in a position where all of them are innovate, right to monetize the data they have, rather than just sharing. As people have got access to more and more data, they’re trying to put more and more roadblocks in place, so that they can monetize it better. And I think that is one of the threats. I think from a regulation perspective, you’ve seen a lot of things around open banking, a lot of changes, a lot of advances. But there’s still a long way to go. And I think the biggest threat is that the regulatory support doesn’t keep pace with the innovation. It is going to start stifling innovation, if it doesn’t keep pace.
Isabelle Castro 17:06
Okay. I mean, the there’s been some things about kind of open banking, I know this is well known that it does affect the SMEs as well. But there’s been some concerns in the UK that open banking is kind of reaching its full potential. What’s your opinion on this? And is it going to affect embedded finance and the innovation within it? If they don’t, if regulators don’t do something to kind of kickstart that foray into open finance?
Chirag Shah 17:46
I agree open back is not reaching its full potential. With open banking, we can clearly see the benefits of open banking. The issue we have is you’ve still got banks in the UK who can’t provide open banking access. And this is they were they’ve had a decade to do it. Now. I have I’ve said this before, and unless the regulation changes and makes it compulsory, and there are penalties for not being for not doing this in the correct way. It won’t realise its full potential. The bank should be penalised for every failed open banking journey. That’s the only way we’re going to get them on board fully to get this make it really useful.
Isabelle Castro 18:34
No, I agree. Do you see kind of any technology? I mean, everyone’s going on about AI, generative AI, is this going to feed into addressing the needs of SMEs with these super outs with this kind of embedded finance,
Chirag Shah 18:54
it’s going to make a lot of things possible. We are using it to fill in certain gaps somewhere. And in many places, actually. As we get more and more data, you will see that being like the leading force to achieving better and better finance, add stump amatsu perhaps.
Isabelle Castro 19:16
Okay, nice. What’s a piece of advice? We’re coming to your closing questions? Now? What’s a piece of advice that you have been given that you would give to someone else? This can be anything this can be focused on fintech and the subject that we were discussing or personal or professional, anything?
Chirag Shah 19:43
Okay, I have two things I’d like to say. Someone told me and this was very early on in my career. When I said you got to realise that we always aim for perfection. But always keep in mind that sometimes perfection can be the enemy of good Okay, and it’s true. I mean, every time, I can always say with our products and stuff, at some point you get, you have to get to the market. That’s when you get the real feedback. Because every time what we, we do a lot of work on identifying what the gaps are in what the market needs, but there will still be some gap in that analysis. And it’s good to have a product, which is a great product, launch it in the market, learn, and then make it absolute best in class, instead of aiming to make it absolute best in class then launch, because there will still be changes you have to make at bringing it earlier in the cycle makes it a lot simpler, and a lot less expensive.
Isabelle Castro 20:48
Really, okay, that’s really interesting, I wouldn’t expect it to be less expensive. But I guess if you are striving for perfection initially, and then you’re still going to have to make changes, that makes a lot of sense.
Chirag Shah 21:02
It is. And also, it’s very difficult, right? If we are talking to a very diverse market, how much of the research we do, there are going to be certain practical constraints, which you only realise when you actually launch the product. And we are not replicating a product, most of our products we are launching, we want to be the first to the market, we are first to the market and what we do. So it’s not like you’re relying on data on how the ads are performed. If you want to be at the cutting edge, you want to you’d need to do a lot of work on what the water what your customers need. But at the same time when you go live, you are still going to find the gaps and be ready for that and plan around that. And the second thing, always, I’d say is unit economics. Okay, whatever we do, there has to be clear, you have to clearly define the unit economics. If you can’t define unit economics, it’s not something you should do.
Isabelle Castro 21:59
Okay, that’s so that’s like the, the key the kind of would you call this the silver bullet? Yeah. The kind of diamond to everything.
Chirag Shah 22:12
Yes. And it’s, it’s taking it’s coming more to the forefront now in the last 1215 months as capital raising becomes more challenging. But that is core if you’re launching a product, whatever it is, that has to be a route to making money.
Isabelle Castro 22:29
No, yeah, you’re completely right. I completely agree. Your curveball question. I just picked this at random. What would your superpower be and why
Unknown Speaker 22:44
I have to think about this. There are so many. Got me out on this one now. Sorry. Two minutes. I had to book pick one power. I want to travel time.
Isabelle Castro 23:02
Oh, nice. Okay, nice. We shouldn’t be travelling time. Okay. Would you not be scared about? Would you travel forward or backwards?
Chirag Shah 23:14
That’s the beauty. I could.
Isabelle Castro 23:18
Yeah. Okay. I like that time travel. Perfect. Okay, we’ve come to the end of our session. How can people get a hold of you follow? You? Follow? Nucleus?
Chirag Shah 23:34
I mean, do you want me to send you links?
Isabelle Castro 23:38
No. Tell our listeners.
Chirag Shah 23:43
Oh, sorry. If you want updates on us, all social media. Instagram, LinkedIn, Facebook. I’ve got a fantastic website.
Isabelle Castro 23:58
Okay. Cool. All right. Well, thank you so much. Chirag. I really enjoyed our conversation. Have a great rest of your day.
Chirag Shah 24:09
You too. Thank you Isabelle Thank you.
Isabelle Castro 24:13
As always, you can reach out and chat with me or my personal LinkedIn or Twitter @IZYcastrowrites. But for access to great daily content, check out Fintech Nexus on LinkedIn, Twitter, Facebook or Instagram. You can also sign up for our daily newsletter brand new structure inbox. For more fintech podcast fun, check out the website, where you can find more fascinating conversations hosted by Peter Robinson and Todd Anderson. That’s it from me. Until next time, enjoy your downtime.
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