In this interview we talk to Dr. Tamaz Giorgadze, who came to Germany from his native Georgia, eventually becoming a partner at the German office of McKinsey & Company. During the financial crisis, he saw a demand for retail deposits by banks and decided to jump ship to set up his own company. The company is operating as weltsparen.de in Germany and raisin.com internationally. Joern talks to Tamaz and you get a quick overview of what banks actually do, where they get their money from and how retail investors in Europe profit from this.
Payment topics we touch
– TARGET 2
– And a correspondent bank system (all money transfer used to be done this way)
Deposit insurance schemes (how saver’s money is insured)
– Harmonized scheme in Europe
Joern: Hello and welcome everybody to another interview at Startuprad.io your number 1 podcast source for news, interviews, and events from the German Startup world. Today would not come as a surprise to you that I have another guest here, hello would you like to tell our listeners who you are and what you do.
Tamaz Georgadze: Sure, happy to. My name is Tamaz, Tamaz Georgadze, I’m of the C.E.O. and one of the founders of Raisin. Raisin is a Europe wide marketplace for deposits and savings. I, myself am a Georgian national live in Germany since 1995 and married have one small kid and happy to be here today with you.
Joern: That’s great. Too just get a little bit in the story before Raisin, can you tell us a little bit what you did actually before I may tell the listeners that you’re not in your 20’s anymore.
Tamaz Georgadze: So I am– full disclosure, I’m 39, a so turning 40 next year. In my professional career before I was a consultant and served a lot of banking clients especially a bit of insurance and government agencies at McKinsey and Company. Stayed there for almost 10 years, the last 3 years I was the principal in Belling Office.
Joern: And the join McKinsey straight out from University?
Tamaz Georgadze: Yes that’s true, so my university time was quite long, so I started at the beginning Macroeconomics, International Economics, made my Ph D. in Agri-culture economics and Quantitative Macro studies and then studied also, Law so that’s I joined a right after my Law degree.
Joern: Oh so I got to be careful what I’m saying when you’re a lawyer. Just out of curiosity what made you leave McKinsey? Why did you actually decide to just hop off at if I’m so free to say?
Tamaz Georgadze: I was 34 back then when the decision was taken and for me, the question was do I want to stay on the same track for the next 10 years? So to become a senior partner inside McKinsey to continue advising my clients or do I want a change and back then I was, first of all not married, still able and willing to take high-risk so that the decision then went clearly for more excitement, more versatility, more risk, because in my own perception that was the perfect timing for one exit and for taking this additional risk. I think at a later age, surround my age at 40 people gets more settled. Families there so the risk-taking appetite recedes and back then I was really open for new challenges, new opportunities, and also the last thing is McKinsey is a great learning place but as everywhere after a 3 to 5 years, the learning curve flattens. And although it’s exciting International and functionally very diverse, but one of the things I find particularly interesting is to also see own development continuing.
Joern: I get, which many consultancies are a good place to actually do a lot of learning and learn a lot of useful tools. And I would be very curious how he actually settled for the Business model for the business area of Raisin because I just imagine you have been tilted a little bit to what’s finite, so Fintek would be the most probable, but why Raisin? What did you see? Did you have some magic insights that you use some analytic tools? How did you approach that?
Tamaz Georgadze: So back then at McKinsey since 2007, I was actually responsible on the functional side for the knowledge and client development specifically for deposit and investment products, for the immediate region meaning that both knowledge development but also new client development was something I was doing inside McKinsey. What happened back then was first of all what I could see also from my clients which sometimes were banks, regional banks covering several countries that the savings and deposit rates and markets were very, very different, country by country.
The second thing is around 2008, of course, the economic financial crisis happened and liquidity in the interbank market and the wholesale market dried up. So a lot of banks rushed into getting quickly clients liquidity and excess to retail deposits. And the long thing is with the continued volatility and with intervention central banks. Of course, the client rates went down so that the area became very interesting as on the client side a record low-interest rates lead to the fact that alternative offers became a relevant and interesting. And on the bank side, this became a focus area in terms of creating additional channels and diversification on the refinancing of the bank side. So, couple of observations from inside McKinsey but not only lead to the particular interest for the deposits for the depository.
Joern: Talking about that we may at for the benefit of our listeners who are not finance geeks that actually banks have to take on a lot of money, they don’t own all the money, they’re lending out by credit so they have to take it in from somewhere and actually the money you have on a savings account, on a current account that is actually all money the bank on the other side at least partially lends out in credit and so therefore, usually the difference between the interest rate they’re paying you and the interest rate they’re getting is how they make their money in a traditional business way. And so if the banks are in need for more money, because they not only have these retail savings but also wholesale financing, talking about issuing bonds and stuff like this. So if this as you said dries up, meaning there’s less and less demand for the bonds you’re selling and actually usually you’re not bought selling bonds, because you oh surprised, I need a few 100 million but actually you have bonds that you need to pay off and therefore you have to issue new bonds. So when the banks start to see there is less and less demand for my bonds they have to turn on another way in order to avoid not being able to fulfil promises, from to bondholders. Is that right?
Tamaz Georgadze: And so that’s right on a high level. I think the regulators also recognize that on the refinancing side, banks were running to structural deficits before the crisis and many of the insolvency cases or bail-ins were actually driven by those factors. First was that liquidity duration on the taking sides on the liability side and on the asset side, we are mismatched. And that was widely mismatched, so that banks were refinancing very, very short and lending very, very long, so they were taken an interest rate risk for a long time and that led to introduction of specific pressures and criteria likely liquidity coverage ratio which leads to a better matching of [faith] different durations on the bank book, on the bank balance sheet.
The other thing which a regulator is also noticed while analysing the crisis is that wholesale money is quick in reaction and quick to dry up so that they introduced of the co-efficiency and also the minimum requirements for not stable funding ratio, meaningful for the funding quality and the funding of the bank is then structured in a way that different buckets of funding from purely wholesale or inter-bank and then towards the client funding are wait in a different way, so that the client and retail funding gets quite high and good co-efficient and long-term deposit are valued higher than short-term wholesale or inter-bank funding. So that, that led to the fact that there was also particular demand after the crisis, after the client long-term stable funding.
Joern: Without getting into too much details, I would just add that the net stable funding ratio NSFR and the liquidity cover at ratio also called L.C.R. are just a few of the numbers the banks have to submit on more and more regular basis to the overseers like BaFin, European Central Bank and who else is out there. And so it makes a big headache for those banks to actually delivered this data but on the other hand it also makes the retail investor a more promising target because actually as he said it sticks longer and that means, if you have savings account you put the money in and maybe in the year or 2 you’re planning to take a vacation on it, so that means, the money sticks with the bank all the time and you’re not actually opening an account, closing an account, opening an account, closing an account but rather you have an account and then you have on a stable basis a certain amount of money on it and that is what the banks are counting on, that is, where they get their money to work on and that led you to your idea, right?
Tamaz Georgadze: That’s correct so that was– we run a marketplace so we need the money on both sides, so that was the structural driver and justification for the demand on the bank side. So why there were Banks out there willing to join our platform and then, of course, there is the other side of the marketplace which is end clients and there the market is huge. So in Europe in total, we have around 10 trillion Euro in savings of private households and the money is right now at a record low-interest rate, so that quite naturally people are looking for better savings deals and better savings options out there. Plus quite naturally this area is also one affected by the move towards digital channels, so there are people are increasingly looking for offers online.
Joern: What I would be curious about because I try to trickle out a little bit of your personality. How is that the first people react when you told them, “Okay, I’m dropping my job as a consultant, which is usually paid pretty well, and I am going to open a company that does actually broker, retail savings.” How did the people react?
Tamaz Georgadze: It was a mixed reaction, mixed being roughly I think half of the people whom I told that what I was planning of doing asked whether they can invest into the company so the seating investing was quite easy in that sense and half of them thought that I was really not thinking anymore, so they couldn’t like really realize why I was doing that and why isn’t McKinsey partner. I think one of the recess which we met at the very beginning and turned out to be one of our core investors really ask couple of times whether I’m [inaudible 13:17] McKinsey partner and why would I be doing this is a McKinsey partner, switching gears and going to startup company. So that there was a– to put it positively, a mixed but positive reaction.
Joern: I can’t avoid a smile when I hear this and how did you actually start out with Raisin? What were your first steps and how did it actually develop until today, where there are several my stones you actually reach because of seeing in crunch space you have raised this year’s A, B and C already? So can you tell our listeners who are out there and thinking of starting a startup, tell about getting to this point where you can actually raise repeatedly recede money, how was the way for you?
Tamaz Georgadze: So I think it’s specific and challenging to create a marketplace because you need to punch above your weight on both sides, especially on the provide a side. So what we’ve seen at the beginning is that a lot of banks we talked to like the concept but no one really wants to be the first or the second one joining. Why so? Because people perceive it, at least perceive it, as, a proven concept though this was a first of its kind so that there were a lot of questions around compliance, anti-money laundering legal setup, client identification, [inaudible 14:54] and client due diligence rules. So that it was in uncharted territory and even if you can answer all the questions and have legal opinions still being a first one joining a business model feels like a bit riskier than being a number 10 or 20th joining the same business model, which is then proven and has had its child diseases, so that, that was hard and challenging.
The second thing which challenging is that to build up a product which is at the beginning, as simple as possible, so that it was stripped out almost all complexity out of it but to make it more progressed and mature over time. So that as you could imagine what started actually was just one bank and one offer and we had the one bank and the one offer stalemate for quite some time. For 4 months in total where the bank actually asked, started to ask in question us almost every week when is the number 2 joining and whether they can talk of the number 2 and number 3. And the challenge state over the first 12 to 18 months to generate enough it will be demands, so to have the bank partners joining.
By now we’ve progressed a lot, so we have already 34 banks live on the platform from 17 different countries and are adding quite a few new partners, meaning that on that, on that dimension we are, we’re very good, we can take any type of operation set up, we can ask all legal questions, we can cover almost 30 countries from the regulatory side so that we are advanced, knowledgeable, and a reliable partner on this one and a way I think the most professional company in the market offering such type of retail excess to banks. So that was a long journey, but the journey was worth it.
The second one was building on the platform itself and the product and there we started with, with a simple product, which is a term deposit and we started with long durations. Now 3 and a half years down the road, we have overnight deposits, we have not as account, we have fixed deposits, where term deposits would short duration we have flexible deposit which can terminate any time. So we have a lot of different product variations and all of those we developed of course, over time but we try to satisfy both the client and the bank demand to a maximum possible level. And also we introducing constantly new products, we’ll be going outside of savings and deposits quite soon, so that we, for the clients we enlarge the areas of investment or areas of possible investment beyond a pure pragmatic.
So that in a, in a very short nutshell of the journey. The raising the funds always remains challenging, of course, I think it’s less challenging at the beginning because people just believe your vision and people believe the quality of the team, oh but then, later on, they just don’t only trust on their gut feeling and beliefs but they want to see hard numbers, they want to see customer acquisition cost, they want to see how fast you are getting revenues, they want to see the gross trajectory scalability of the channels. Some many, many more heart effects belong to the brown B and even more of thought to run C, so that raising funds never is a is just too simple, at the same time I think there is a saying it’s always worth raising when you can raise. So we tried also to raise even before the due time.
Joern: That is pretty interesting, can you give us a few more hints in what kind of product you’re going after savings?
Tamaz Georgadze: So in general we will be staying on the client assets, I meaning on client savings, of just of course deposits are roughly in continental Europe, half of private wealth bought by definitely clients need also other types of investments, so that we will be, of course, offering access to equity and bond markets through digital products which are low cost and very good value for money. We will not be doing this product stand alone, we will be partnering with other large more experienced companies. The idea behind the platform, or behind the marketplaces to offer the client digital access to investment product at a very low cost in a very convenient way so that this vision which we had from the beginning on we are slowly putting in place, so that one of the [inaudible 19:57] products will that be a low-cost exposure to passive investing and then more many, many more will be–
Joern: We might add for our listeners that we conduct with this interview to what’s end of August so since we’re trying to publish on the one startup radio interview or news a week or every other week this may take some time until it becomes actual reality. Few more questions to what’s Raisin, are you actually bank or you regulated?
Tamaz Georgadze: Oh we are ourselves in we have different dimensions of our activity. And our activity is regulated differently country by country. So one of our core activities is deposited brokerage, as you rightfully said, with that activity doesn’t need a license in Germany, which is our core market and is treated differently in different countries in the European Union. So for example, in France, [inaudible 21:01] and in other countries, we are either getting a license or we have a clearing from the regulator, from the central bank that we do not need a license in the set up in which we’re operating. So that part of the activity is worth taking care of and there we follow the local licensing rules.
A bit unfortunate though because it’s very hard to build in this way a pan-European business you have to follow a licensing rules country by country and there is no comparable FinTech license or any other financial intermediation license which would be possible to pull across the European Union. So that is one of the things I just think which would enhance the common market, in the single market, very much in the future.
The second level of it of the second dimension is the activity we’re providing towards the clients and towards the banks and there we have some part of the activities which necessitates state either a payment license or bank license and in this regard we’re acting as an outsourcing provider towards the bank, so that we give this license in the name and on the behalf of one of our so-called servicing banks, which are white label banks providing together with us the services towards the clients. So that the whole package is of a custom, it’s a homogeneous package, so he’s becoming a raisin.com or a virtual the e-customer which that wore 2 brands.
In the background, there is, of course, a lot of complexity which we were managing including the licensing and regulatory part of it on which we are either ourselves fully licensed or relie as an outsourcing provider on the license of a financial institution.
Joern: And I do assume your client has only to go once through this KYC process, meaning has to put in all the passport data and stuff to make sure they are actually assisting person and that they are the person they acclaim to be. Is it true and how do you transfer this data to the banks, is there some kind of agreement there?
Tamaz Georgadze: Yes that is true. The principle of the marketplace is a one-stop shop principle so that the client has to identify himself once and he gets also just one technical access to an online banking platform where he can administer an open and close different accounts of different banks, so that the goal of the solution and of the value what is exactly the integration of various office and various providers into one market place and also maximum leverage of one Q.S.T. process at the beginning.
Know how do we operate it with the outside partners there we have different setups, meaning from full [inaudible 24:01] towards additional criteria ask for banks. Customer, in general, selects all the products and provide us individually and in this process, you also authorize our servicing bank and asked to forward data for identification reasons to the product provider. So to our local offering partner back receiving deposits, that’s, we are of course following strict rules both on data protection and we’re regularly auditing our high standards meaning we have an annual audit budget and we have also audits on many, many other areas including our internal control systems, our [inaudible 24:47] testing, so whatever you would expect from a very mature financial organization, we put it in place and are as strict as any banking providers.
Joern: And do you yourself actually transfer this client money or the banks doing it on behalf of you?
Tamaz Georgadze: So indeed it all goes through banking infrastructure, meaning that we do not touch the client funds at all, so they never lend it to a company account or at [inaudible 25:19] accounts or they always go through client accounts and the payment is executed either through [inaudible 25:26] or in the cross currency setting we go through correspondent banks so in that sense we’re using the [inaudible 25:43] infrastructure for the payments area, at the same time clients funds are always on individual accounts fully protected by the politicians agency, so that client also has any time excess on those, plus, any time the guarantee fund is a– are they subject to the guarantee fund protection.
Joern: Guarantee fund protection, means what, how is the money actually secured?
Tamaz Georgadze: So we have in Europe a home harmonize scheme of a deposit insurance guarantees which means that in the there are minimum standards which have to be fulfilled by any member country and also by the countries of the European economic area. It means that for every individual client, a hundred thousand euro in the coolant in the local currency is subject to the protection of the deposit guarantee fund of that particular member country.
Joern: Getting a little bit less technical and less finance geek. Trick from the interview that they are actually trolled out there in potential client money and you just passed the threshold of four billion euros that he actually brokered ass savings towards your partner banks, congratulation to that but seeing that there are trillions out there on the four billion just a drop in the ocean?
Tamaz Georgadze: They are indeed so we also believe that we are right at the beginning of the journey. So the market is very large and for us to make also a difference off of the client side and also on the bank side, our objectives are much higher also our ambition level is much higher than that. So that I fully agree with you, so four billion is a good starting point, but it’s really a starting point in a very large market.
Joern: I would be a little bit curious about your customers, so who are the people that actually invest the money with you or broker via you? So it would be a little bit interesting for me since you can see on your website the cooperating banks and the interest rates and all this stuff but nothing about the other side of the people, who are the people that are entrusting you to broker this money?
Tamaz Georgadze: So indeed we, of course, educate about our banks but educate less about our customers we’re subject also as mentioned to data protection rules. And we can give some glimpse on our typical customer profile. It coincides very well with the different savings life stages and as a development of a typical banking customer, so that our customers are a bit older and better educated than in an average a person because those are the people of course who have highest savings and then where the, our value proposition actually hits their demand or their dominant demand.
Our average customer is above 50, he’s a– mostly males, so our share of female customers is increasing but it’s still most of 50% are male customers and the customers are slightly better educated than the– other than the average.
Joern: Okay so 10% of customers, so slightly below that number has a Ph D. Degree [inaudible29:21] above the [inaudible 29:23]. The [inaudible 29:27] client base which has high level of savings which are typically a male and of course older than the millennial, because those customers have than already amassed savings.
How higher are your actual customer acquisition costs? How do you target those people and how much does it cost you to get them on board?
Tamaz Georgadze: So we taught we use quite different channels, we list all products, all products of all partners on [inaudible 29:58] channels on [inaudible 30:00], of course, any type of online advertising from using Google Ads, campaigns with outside partner online we are also offering the product through outside providers also financial institutions, for example, you might have noticed that N26 [inaudible 30:24] more prominent FinTec from Germany or [inaudible 30:27] is the savings which is an offer powered by Raisin, so that we integrate all of us also into outside partners, financial institutions banks because we want to be complaints in our core market Germany and trolling that I out also border in Europe or we run out of home paint so it’s a very wide mixture of different channels you see.
Joern: And I did understand you kept quiet about a customer acquisition costs?
Tamaz Georgadze: It’s a very accurate observation.
Joern: So coming to what’s the end of our interview and made just before the reason that right now the Internet appears to be very busy and our connections getting worse. What is actually the incentive for the banks? Are they actually in need of those retail deficit’s? Do they really want it? Is there like a demand from the bank side, we want to have more and more retail money? Because I could assume if they are coming through your channel there would be a little bit more likely to hop around between the banks that you have as partners because there would be, be more easy for them to operate trash the interest rates.
Tamaz Georgadze: So windy and increasing demand. Because it has to do with simple fact that we have more and more life on the platform. I think the volume because [inaudible31:59] very much in peril. We’ve more than doubled our size this year already so that we are able also to satisfy the demand of our partners, both in terms of the volume of inflows but also in terms of the stickiness of the funds. In why are they joining our platform those are many reasons. Different reasons, our reason is there isn’t because we are we giving access to the largest European markets direct platform access, so for them, it’s a separate channel. It’s a very easy to use and integrate channel, fully flexible so that it’s like software is the service so they pay only as they use, there is no setup fee or minimum fee. So that sense it’s quite a convenient faster use diversification.
It’s very simple on the other side [inaudible 32:47] currency, so for example, we have a couple of banks from Sweden, Poland, from U.K. which have on their balance euro assets, so they want to refinance in the same currency and this is the service we’re offering. We have also on the other side offers in U.S. dollar [inaudible 33:05] so that we offer our clients possibility to invest in deposit in the foreign currencies.
Also in that sense, the access to a Euro fund is a valuable criterion and value proposition for the banks outside of the Eurozone. Then we have banks which have fully wholesale funded until now and for them having a leg in retail area without a lot of effort and building retail infrastructure, like on call centres, online banking software and so on is an invaluable feature. And then we have also, of course, startup banks who want to build up other funds quickly and that our platform because it’s quite large by now. So that, there are different individuals [inaudible 33:52], different individual backgrounds. I think the common denominator is that the banks like our speed, flexibility, and quality of delivery and no bank which has ever joined us have left the platform.
Joern: We now that a lot of investors are listening to our podcast, they have been numerous occasions when startups have been contacted to by people listening to our interview who happen to be business angels overseas, are you currently looking for a Series D?
Tamaz Georgadze: We have full [inaudible 34:25] roughly 60 million euro and the last funding grown [inaudible 34:30] made was just the beginning of the year, so [inaudible 34:33] funding we’re not up to the market for the moment I would say, we’re actively looking for [inaudible 34:41] you should raise when opportunity to raise so that we’re not actively looking but [inaudible 34:51].
Joern: Before I ask my last question, do you think we forgot something important something you would like to talk about?
Tamaz Georgadze: I think you covered almost all areas, I think one of the topics and one of the areas which we see as a true and which we are really pushing through is creating for a core area for the client. This is the largest single product of there in the banking but we are creating an open access for the customs and the marketplace environment. I think if you think about it, it’s a really huge value and it mirrors a bit what happened in the fund industry in the ’80s and the ’90s, until then all major players had they kept to their funds which were offering only homemade products to their clients or very protected environment and out of the sudden, the whole architecture and architecture became much more open-ended and much more accessible through one channel you could buy funds of any providers progress came up which we’re giving it to very low cost.
So I think the same thing is happening on the selling and deposit side until now some banks have privileged access, like with the fund world, the were [inaudible36:13] which have huge bridge that walks and all savings books, those banks are overfunded anyway across Europe and there are a lot of midsize players who are actually increasing the competition and also going for client deposits and we are a market instrument tool a level out, the level of funding across the banking industry and to give the clients the best product available and the best product which fits their needs. So I think this whole marketplace environment is very much in line with what happened in the banking industry before all the fund side would happen also counting peril on the credit side with credit brokers and marketplaces like [inaudible 37:00] but also with banks opening up their infrastructure and offering. So I think fame and obviously and hope successfully as in the other areas with the savings and deposits.
Joern: What for example, like to mention fin tool based in Frankfurt and there would be the last question, if you would describe your life, either as a book title, movie title or a combination of both, what would it be and why?
Tamaz Georgadze: I would say my for the last this have been like a nice and exciting rollercoaster ride where you don’t know which direction you are going. But why it is feels this way is that I think every founder [inaudible 37:52] and [inaudible 37:53] is an exciting journey and you go through all the emotional faces in [inaudible 37:59] and in one month you might feel yourself as being on the top of it and winning all deals and just one week later it feels completely devastated you want to confess to your wife, your parents, and your child that the company is going bankrupt and any, any feeling of shader feelings between those are possible. So truly it was like about it, a lot of volatility and a lot of emotions in between and that’s also fun it.
Joern: Thank you very much, I’m very sorry for all the interruptions we had and both the site, unfortunately, the internet is outside of our control so there’s nothing we could do about that, maybe, I have to edit the interview to point where some of the sentences of Tamaz actually out and that maybe just for the reason that they have been so disturbed that he could not recognize it. Nonetheless, thank you very much for staying on, thank you very much for the interview and hope to hear from you again.
Tamaz Georgadze: Thanks Joern and thanks to everyone.