Ken Villum Klausen on the growth of Lunar Way and the future of banking

Thank you very much for the invitation. I think I'm going to stay here behind the screen so I can skip the slides. So LunarWay is a new fintech startup here in Aarhus. We came to the idea in around May, presented it for an adventure capital company in June. And closed the deal in July, moved into our offices here in Aarhus in August at the harbor side in Tølkammar. And the company consists of around 16 people today. So it's been an amazing journey in just three months' time. And LunarWay is building a banking application. So we're actually building a new bank. It's for a niche target audience. So the target audience is the millennials. And the millennial target audience is around 18 to 30 years old. And we target more or less the lower parts of the millennial target audience. I'm just going to speak a bit about fintech in general and then going to show you some slides about what we actually do at LunarWay and how we see banking in the future. So fintech is kind of a buzzword right now in technology. Everybody's talking about fintech. There's massive investments going on in fintech and there's a ton of businesses growing in the fintech. But actually fintech is divided into a lot of different sectors. You have peer-to-peer payments. You have transfer services, lending, infrastructure, Bitcoin, banking and so on. So this is just something I pulled from the Internet that shows some of the players here in Scandinavia. So this is Scandinavian fintech players. And what's really cool here is that there's a few companies actually here from Aarhus. From ViaBill, Clearhouse, Paylike, SPI also. So that's a lot happening with fintech here in Aarhus. It's interesting to see how we divide it into different categories. A lot of stuff is going on with payments. Everybody, as Jakob said, are using mobile pay, are using Swip and so on. So payments has been a huge part of fintech. And right now we see a transition to a lot of other services that are competing with banks. And some are saying that banks are dying by a thousand cuts right now. So you can see that payments are trying to take away a small part of business from the banks. And we have infrastructure, we have investments, we have lending. So suddenly the banks are losing a lot of products from their shelves. This is investments in fintech. And as you can see, investments in fintech has exploded since 12 and 13 until 14. You see the orange field is investments here in Europe. And as I said, initially we had investments from a Danish venture company called Seed Capital that invested in our company in July alongside a couple of angel investors. So there's really a lot going on with fintech investments right now. If you want to start a company, then you should definitely go into the fintech space right now. So me and my co-founders, we read Brett King's books with some other books also here in the summertime. And Brett King made a book in 2010 with a pay-off that is how customer behavior and technology will change the future financial services. So there's a rather broad perspective on financial technology. Then with the exponential growth that we experience with data, with devices and so on, he edited the book and made a revised version called Bank 3.0 with a new pay-off called Why Banking is No Longer Somewhere You Go, But Something You Do. And we talked with a lot of friends and family and asked them, when did you last go to the bank? How much time are you spending with your bank? Do you visit? Do you call them? And it was funny for us that even people with businesses had very little interaction with their bank. And many of our friends and past colleagues hadn't been in the bank for years. So we thought to ourselves, okay, there's massive opportunity in building on top of what we already saw with the payment space, with mobile payments, with and so on, going toward a full banking solution also. So the problem that we are trying to solve is that you don't go to the bank anymore. It's an unnecessary hassle and you have to take time off to go there. It's too complex to set up new accounts and credit cards. Since we started our company, we waited nine weeks to get new credit cards. So it's amazing that it takes so long, a long time. Customers don't have a relationship with their banks and they open to place their business elsewhere. And it's really interesting because the classical banker, when he or she is being challenged with what's going on with digital, the digital world is coming, the bank will be obsolete. And their typical answer is, no, it's about relationships. It's about sitting down with your banker and have a relationship. But actually within millennials, the average banker needs to carry around a thousand accounts in the millennial segment. So each banker needs to have a personal relation with a minimum of a thousand people. And that's not that strong a relation. Banks are rather rigid, old fashioned and lack product innovation and service. You actually need to be in private banking to experience proper service. And they don't understand millennials as a target audience. They, the typical bank, put a millennial in the youth segment where you can have a debit card and a budget tool and then you just need to get your finances together. So what we want to build is a pure mobile first digital bank. So everything is native applications. We don't have a web bank. We don't have branches. And we're trying to build products and services that are tailored to the target audience. And then we want to build a second to none customer service. Because what we see is, you know, since everybody needs a bank account, most of the millennial audience are following into the steps of their parents and are getting a bank account at the same place where the parents are. And we have heard amazing stories there from how they mistreat millennials as a target audience. So I know my colleagues are on the live feed. So I'm not going to put out some names, but one of my colleagues, his girlfriend, she's 22 years old. He lives in Copenhagen and she lives by blocking. So she can actually maintain a life by just blocking. And it's amazing. She came to the bank where her parents was also. She's 22 years old. And still today, her bank calls her parents and let them know when she overdraws her account. And so that's just the way that some banks still run their businesses today. This is a part of what's going on with banking on a global scale. First of all, we had Symbol from the United States that started with building new banking solutions within applications. We have Moven. This is actually Brett King, the author of the two books. I couldn't understand why nobody was listening. So he built a concept on his own. And then we have some guys in Germany called Number 26, building their own mobile banking system. So I'm going to just talk about what the term Neobank is, because we are actually building our platform as a Neobank. A Neobank is a bank that utilizes existing infrastructure. So in some ways, we combine what is regulated. We combine knowledge within legislation and partner up with partner banks from country to country. So we take the best from the existing world, but then build on top of that new applications and new experiences for the target audience. So this is the legacy competition here in Denmark. And I think some of you know, but if you don't know, then almost all of the Danish banks operate on three central data centrals. So besides Danske Bank and Nordea, whom are changing their entire backend systems also these years, all of the Danish banks are building their services on top of those backend systems. And they're even getting the applications from the same provider. So if you go to App Store and then search for banks, you will see that the applications within the App Store is being published within the App Store from the same provider from bank to bank. So it's the same service that you get coming from a Spark asset to a different bank. It's the same application. So building the service as a Neobank, it's almost similar as the MBNO strategy that you know from Telco. Because if you think back when Telmo came to Denmark and everybody was fleeing into Telmo because you could subscribe to your new telephone number online, you could just put your credit card in and then you're good to go. And then we had players like OnPhone and so on building on top of that. And they were running on existing infrastructure. So Telmo was running on TDC infrastructure and OnPhone was running on Telmo. And it's actually what we're doing also. So we are working on top of an existing mainframe system with a partner banking license and then using our APIs to call our application. This is from an American analyst called Millennium Destruction Index that showed what Millennium thinks about banks. And it's really interesting to see facts like Millennium would rather go to the dentist than listen to the notorious banker. Nearly half are counting on tech startups to overhaul the way bank works. And a third of all think they don't need a bank at all. So this is really interesting looking to the future, what will happen in the next three, five years time. So the products that we are building is first of all the core banking system. So we're building accounts, we're building notifications, payments, loans and credit cards, but everything within the application. So notifications could be to tell you that you will overdraw in two weeks time and that you can borrow money from us within the application and then save interest rate. So have it on a loan interest rate instead of an overdraw interest rate. So intelligent notifications that can help you with finances. Also a budgeting tool so you can see how you spend your money and everything is within the application. It's cross platform but it's only a native application. So obviously we have phone applications, we have tablet applications and we have watch applications. I just skipped the past image rather fast. And then we have credit cards. And debit and credit cards is actually a really, really important thing for this target audience. So we did a structured analysis on 100 persons within the target audience and 95% replied credit card as a key factor for changing banks. And the typically credit card that you get in the millennial audience is like a debit card that is stated Youth Club or something. Or if you're lucky you can get a Dan card that is actually worse because it's almost an unlimited credit you're giving. So in some cases it would be much better to actually issue a gold master card but with a limited credit rate for millennials that want to have credit card that they can connect with. Customer service is like-minded sitting here in Aarhus. So we have this idea to hire one banker per every 40 employees we are hiring. So customer service should be something that understands the lives that you're living as a millennial and not a typical banker. And so actually right now we are still pre-product. We are launching the product in January. We are in beta test right now. And pre-product we did a lot of effort in social marketing. So we only spend effort on Facebook, on Instagram, on Snapchat to get pre-signups, to get the word around that we are building something new. And it's been really amazing to see because I think just with Snapchat, the day we started the Snapchat account we got around 150 just signing on instant to follow us on Snapchat. We are boosting Facebook posts to get signups and we're spending a lot of time on the Instagram account. And it's really great to see that we can connect with the target audience in a place where the normal bank does not appear. We're using influencers also, influencer marketing. So we have a variety of influencers posting about the new way of banking. That they can change the way they use banks. And most of the millennials have their own story in regards to not being able to have a great relation with the bank. So it's been really cool to see how much traction we have received on the influencer part. So six weeks pre-launch performance we received 5,000 pre-signups. So this is the signups that we're trying to convert on intellectual clients. We have 15 influencers today. And right now we're going to do the same in Norway and Sweden. So as we speak we're just negotiating with our Norwegian and Swedish partner banks. And are trying to go to market with the same approach on a marketing level in Norway and Sweden as we did in Denmark. The actual launch is in January 2016. We're building a product right now. We have been through the alpha test. We are launching beta test within next week. So we're signing the first client into the actual application and have them test the core banking features. Transferring money, checking deposits, going into notifications and so on. So the launch is just around the corner. The target for us as a company is within two years time to board around 150,000 clients. And we can see now with the signup rate that we're getting right now, which is around 100 signups a day per day within the influencer marketing. That if we can distribute that also to Norway and Sweden then we're actually on a rather good path to achieving the goals. So within two years time is to secure around 150,000 monthly active users. So this is a famous quote from Bill Gates in 1994. I think he was a bit ahead of his time at that time with the statement that banking is necessary, banks are not. But what we see right now is that banking is necessary. You need an account to get your salary. You need to be able to send money to your friends to check out your account to see what you're spending, to issue credit cards. Because even though so much is going on within mobile payments also right now, most of the services are powered by the credit card. And the credit card is issued by the bank. So even looking to services like MobilePay, services like Uber, Netflix and iTunes, everything is running on credit cards still. So that's why we see that banking as a core platform and building credit cards is the great way to go forward. So just wrapping up from our side. So we are three months into building the product. It's rather rapid since we started the company just in August, launching in January. Hopefully we're staffing the team to around 25 people who will come this February. And then rolling out the service in the second quarter of 2016 in Norway and Sweden. So that's just to give you just a light introduction to what we're doing with Lunaway here in August. Thanks. Thank you very much, Ken. Any questions or comments from the audience? Hang on, we'll just pass the microphone down so our people watching online can follow along. Hi Ken, thanks. I was just wondering how can we also use an event like Internet Week to reinforce the whole fintech sector in the central Denmark region or in Aarhus? What would your suggestions be? Why did you settle up in Aarhus? I think the main reason we set up was the access to talent. Because we had the past businesses also in other cities in Denmark. We have a small branch in Copenhagen, but we can see that there's an amazing pool of talent here in Aarhus. And I know that there's a lot of initiatives going on from Copenhagen with fintech also to create Copenhagen as a fintech hub. But there's so much talent here in Aarhus. And I think it's perhaps Internet Week could also boost startups working more together here in Aarhus. Because there's really a handful of really great startups that don't relate that much to each other and work together that much. So I think we could bring the startups a bit closer here also and then try to boost motivation for building fintech companies also. Because there's also access to a lot of information, to a lot of knowledge from the existing fintech players like Weeble and Clairehouse and so on. So I think there's a lot of opportunities going on in Aarhus. Any other questions or comments? Well, I was thinking it would be fun to see amongst this audience how many have visited their bank within the last, let's say, month or two. So raise your hand if you have visited your bank within the last month or two. I think your point was made just a couple of hands there out of an audience of 60 or 70.