Q&A, Scaling Enterprise FinTech

Scaling Enterprise FinTech: with Michael Mueller of Form3 Financial Cloud

This interview is part of Scaling Enterprise FinTech | The Handbook, launched in Mar. 2021 in partnership with SixThirty Ventures and Finovate Europe. The Handbook includes proprietary research on ca. 65 Enterprise FinTech scaleups in Europe, Q&As with 16 founders on their journey to scale, as well as insights from 10 leading investors and financial institutions. Whether you are a founder with an idea, an early stage startup looking for inspiration and learnings, or an investor or financial institution looking to understand the difficult but rewarding journey to building a world-class Enterprise FinTech firm – download the Handbook here http://www.fintechforum.de/sef/

1.​ Tell us a bit about yourself and your company.

I grew up in Germany and started working for Deutsche Bank after finishing school in 1988. Soon after I joined banking, I developed an interest in transaction banking and payments when I helped the bank build its international cash management business. After more than 20 years with Deutsche Bank in Germany, Singapore, Sidney and London I moved to Barclays where I joined the Corporate Banking Executive Committee in charge of their cash management and payments business. In 2016, I left banking and founded together with some colleagues Form3, a UK-based payment technology company. Over the past 4.5 years, we have completed several funding rounds and the business has grown to about 200 colleagues. We employ staff in more than 40 countries in Europe with about 19 different nationalities. We have two offices in London and Amsterdam, but most of my colleagues have been operating on a fully remote basis from day 1.

Form3 provides cloud-native payment technology to regulated financial institutions, we are processing millions of payments every month for payment service providers, challengers and large Tier 1 banks in the UK and in Europe.

2.​ Give us the backstory- how did you get the founding idea, and how did the first sale come about?

As a former banker I was a customer of many of the legacy providers of payment technology– and often a very frustrated one. Systems that we bought and implemented at Deutsche Bank and Barclays were typically deployed in data-centres, highly customized, expensive to implement and operate and not able to support rapid transformation and innovation in the front-end of the business. As a result, most of the bank’s budget went into regulatory and mandatory upgrades, typically related to security, market or compliance changes, leaving very little capacity for true innovation and creating value for the end-customers. At the same time, cloud computing reached a level of maturity that allowed the transfer of mission-critical business processes to platform-based technology. So, the idea was born to develop a platform for payment back-office processing that would shield our customers for the need of having to make expensive upgrades (effectively future-proving their technology stack) whilst providing a 24/7/365 processing service in real time, highly secure and resilient and at very low costs. This could only be achieved through the use of platform/component technology, fully automated deployment and testing, infrastructure as code and a very efficient DevOpsSec model. The platform went live about 12 months later with the first UK real-time payment processed for Ebury, a UK fintech.

3.​ Could you summarize your journey to scale from a sales, go-to-market and business development perspective, perhaps split into 2-3 key phases?

Selling enterprise technology that performs mission-critical tasks like payment processing and sits very much at the core of a regulated financial institutions is never easy – but can be even more challenging for a small start-up with very little trading history. We are therefore extremely grateful to our very early, mostly UK-based customers, many of them in the fintech and challenger bank space for having given us the benefit of the doubt. To support them, we built a small, but experienced sales and most of the founding team was involved in the processes. Following these early successes, two things happened pretty much in parallel. We expanded our product offering and sales efforts internationally by developing a full range of SEPA products and establishing a commercial team in Amsterdam. Also, we started to engage with some very large tier 1 banks, initially for their digital propositions, later for their core payments volume, requiring us to invest in high-end program management and enterprise sales resources. Today, we are running two successful businesses, High Growth and Enterprise, in the UK and in Europe and we are looking to expand this model internationally.

4.​ Which was the most challenging phase, and what would you have done differently?

Both, the start-up and the scale-up phase of the business came with their own, distinct challenges. In the early days, product/market fit and finding those first few customers were the key challenges, today scaling the business in a responsible and coordinated way, finding the best talent and adjusting our operating model to support the business growth have become the key topics for myself and the management team.

In terms of things we should have done differently, I would say that we tried to rely on third party technology too much in the early days to gain time to market. Today, we are developing almost everything in-house, ie our engineering and product team have designed, built and we manage pretty the entire stack ourselves – with much better results from a performance and resilience perspective.

5.​ When did you decide to expand to the international/ US market, and how?

We made the decision to expand from the UK into Europe about 2 years ago and we are currently finalizing our expansion plans beyond that. One of the key drivers for decision making is the arrival of real-time clearing and settlement systems globally, eg TCH Real-time in the US, SEPA RT in Europe or GPP in Australia. Each of the market changes require financial institutions to upgrade the processing and gateway technology and run their systems 24/7.

6.​ When did you first decide to raise venture capital, and what has been your approach to financing growth over the years?

We first engaged with financial investors in our Series A round when Barclays and the AngelCoFund came in as shareholders in 2017 – together with some individual investors. The first VC money was raised when Draper Esprit invested in 2018 as part of our Series B. In 2020, we completed a strategic investment round with Lloyds Banking Group, Nationwide Building, Society and Mastercard – all of these investments were made on the back of significant commercial transactions. Also, we brought in 83North as a second VC to complete the cap table. Overall, we found the combination of strategic and financial investors a very viable approach to creating and financing growth over the years.

7.​ How is building an Enterprise FinTech firm different from a “regular” SaaS / Enterprise Tech company, and what three things should founders get right?

At Form3, we are not a regulated business ourselves and we would therefore describe ourselves as a very modern version of a ‘regular’ SaaS / Enterprise Tech company – rather than a Fintech in a narrow sense. In my view, there are a number of things that any provider of Enterprise technology to regulated financial institutions needs to get right:

●  Get the technology foundations right and do not cut corners from a resilience, security, performance and scalability perspective. It may take longer to get to MVP, but early mistakes in this area can be very hard and expensive to correct later on.

●  Hire the best people. Not only does having the best team build trust and confidence on the customer side, but it also means that they don’t work for one of your competitors.

●  Work with investors who understand the complexities of the enterprise business. Sales cycles are typically long and hyper-scaling a business is not possible in this sector. The key to success is building sustainable, long-term relationships with customers, investors and staff.

8.​ What’s on the priority list for you and your team for the next year?

Building on the success of the business, we are firmly committed to building out the platform functionally and geographically and servicing more customers with more payment types in more currencies. This requires us to scale the team further and ramp up our R&D investment, moving us closer to our vision of becoming the world’s most trusted provider of payment technology .

9.​ Where is the financial services sector headed in the next 12-18 months, and what should we be watching out for?

That’s a big question. Overall, I believe that specialist providers and digital challengers will continue to put pressure on legacy providers. Some legacy providers will be able to adapt and overhaul their technology and business models, others will find it harder to be competitive or remain relevant to their customers, leading to consolidation in the industry. The speed of these developments will largely depend on the level interest rates/net interest margins, which in turn will depend on inflation in a post COVID environment. Crypto currencies will remain an asset class in its own right – although the usefulness of this technology will largely depend on the adoption by central banks as CBDC’s. Open Banking will become mainstream, but potentially less of a ‘game-changer’ than many expect. Payments will continue to become real-time and request-to-pay become a viable alternative to card payments and maybe direct debits in the long term.

10.​ Your favorite place(s) for a meal, coffee or drink (pre-COVID19)?

My family and I are spending quite a lot of time in Italy and I am a big fan of Italian cuisine and coffee. It still amazes me that it is possible to walk into any Italian bar and buy a ‘caffe’ for very little money that is much better than anything that you can buy outside of the country. And some is true for food in pretty much any trattoria in Italy that I have ben to over the years.

For a decent pint though, I would always prefer a London pub and I am looking forward to those drinks with my team after work again.