“The ‘monopoly’ of banks is being tested”: Interview with Modularbank’s co-founder and CEO Vilve Vene

The ongoing COVID-19 pandemic has put a spotlight on the increasing need for digitisation with fintech firms enabling businesses and individuals worldwide to transition to secure and inclusive digital finance.

Young company Modularbank seeks to take fintech one step further by offering next-generation financial services to both retail and business banking through its API-first banking platform, which enables customers to pick and remove services as they go along.

Established in 2019, the Estonian startup is already gearing up for global expansion, so we wanted to catch up with CEO Vilve Vene, the successful female co-founder behind Modularbank, whose career in fintech spans over three decades. Read on for an insightful interview covering the latest banking solutions, digital innovation in Estonia, the role of diversity and inclusion at work, and ways to handle rapid business growth during a pandemic.

Thank you for joining us today, Vilve! What motivated you to create Modularbank, and how does the company differentiate itself from its competitors in the fintech sector?

It was customers themselves that inspired us to set up Modularbank. At my previous technology company, Icefire, we created tailor-made solutions for customers, however, we had begun to realise that customers no longer wanted to wait for custom solutions to be created for them. Instead, they demanded a ready-made product ‘generator’ to purchase off the shelf – right now, if not sooner.

In tandem with this, we also started to see how things were moving in the banking industry. The emergence of nimbler, more agile challenger and neobanks, together with consumers’ growing appetite for digital banking methods, drove incumbent banks to find ways of creating new value propositions. We saw an opportunity to offer a more flexible, modular type of core banking technology system than was currently unavailable, knowing that such technology would enable a much quicker rollout of digital, more convenient banking services.

What differentiates us from our competitors is our experience. The founding team of Modularbank consists of technology experts and has decades of experience in banking, having built and digitalised banks and financial services institutions since the 90s. We’ve taken that enormous industry know-how and channelled it directly into the development of Modularbank, specifically tackling industry needs.

The name Modularbank could lead us to believe that you are building a bank. What is actually your core business?

Modularbank is not a bank but a technology provider. With our next-generation core banking platform, any company from any industry can rapidly roll out digital financial services to their customers. We do not have a banking licence and this was a conscious decision on our part, as it enables our customers to retain full control of their business and banking processes while running on Modularbank.

Modularbank operates in retail as well as in business banking. Who are your primary customers?

We’ve built our platform in a way that it is flexible enough to be implemented by any company out there: be it incumbents who’d like to transform their banking core, new fintechs who’d like to quickly enter the market with a new product, or even companies outside the financial services sector (retailers, telemedicine providers, construction companies etc.) that would like to start offering their customers financial services, such as flexible payment options, directly.

With Modularbank’s platform, all of these companies can simply choose the exact capabilities necessary to be able to cater to the needs of their specific customers and find new revenue streams. Because we canprovide an extensive range of capabilities, our current customer base is also relatively diverse and includes one of the largest financial services groups in Finland, a leading retail group, and a Frankfurt stock exchange-listed financial services institution operating in 25 countries.

Could you give us a few examples of the different services Modularbank can offer to its customers?

Our next-generation core banking platform is designed to cover everyday retail and business banking processes such as accounts, payments, cards, loans, financial accounting and many more. The platform’s capabilities form comprehensive and independent modules, which firms can plug into their existing infrastructure via APIs – either as a whole module or a mix and match of capabilities from various modules – to create tailored service offerings.

We do not just provide technology ‘off the shelf’ but help our customers first identify their issues and challenges. Based on these, we suggest specific capabilities of our platform that will help them achieve their business goals.

What are the main challenges for the financial services industry nowadays?  

Banking, and how we spend and access our money, is changing dramatically, presenting the financial services industry both opportunities and challenges. To date, banks have relied on selling products and services straight to customers: if you wanted a loan, you’d go to your bank. If you wanted to make a payment, you’d go to your bank.

However, with the emergence of embedded finance, the ‘monopoly’ of banks is being tested as companies outside of the traditional banking realm start to offer financial products and services directly and as part of their products or services. As consumers naturally gravitate towards frictionless access to finance, banks and non-financial companies need to embrace this new banking method – or risk losing their competitive edge.

What will the bank of the future look like?

As consumers become increasingly used to accessing finance at the point of purchase, bypassing traditional channels, banks in the future are likely to move away from their consumer-facing roles and take on the position of ’invisible’ infrastructure companies. Banks will move towards a banking-as-a-service model, opening their platforms to apps and online services, allowing users to access finance as and when they need it.

The world of banking has been notoriously male-dominated. How have you managed to overcome these challenges throughout the years, especially now, as a female founder of Modularbank?

The banking and financial services industries have been and continue to be male-dominated. However, I personally do not feel like I’ve had to overcome major challenges throughout my career because I’m a woman. I was lucky enough to be part of teams where everyone was valued for their skills and ideas and what they contributed, regardless of gender. And this is a philosophy that I follow today at my own company: gender is not a topic for us, everyone is encouraged, supported, and valued equally.

That said, there is a lot that needs to be done on a societal level to address diversity and inclusion. I passionately believe that addressing diversity in the workplace is a critical step towards achieving this more widely. However, it is not just a question of introducing ‘quotas’ since these do not effectively address the issue. Businesses need to ensure that women and people of diverse backgrounds are actively encouraged and empowered within their roles. To my mind the foundation of success for every business lies in embracing diversity at all levels, so it stuns me that still today, I often find myself to be the only female founder or CEO at certain industry gatherings.

Estonia is one of the most digitally advanced countries in the world. What are some of the lessons you’ve learned throughout your career in terms of digital innovation? How can other EU member states catch up with Estonia’s success?

Estonia is a digital innovation success story, but this is mostly down to its humble history as a country. I remember when Estonia got back its independence, I had just joined a freshly-established Estonian bank, Hansabank. We started to build the bank ground up, which is what Estonia more widely was doing at the time because we had no legacy in place and limited financial resources, so everything had to be built from scratch. In short, the lack of legacy and money made us adopt a digitally innovative and forward-thinking mindset, and this, together with a strong sense of responsibility, has set Estonia up to be digitally-advanced. The most important lesson I have learnt throughout my career is that technology is key, but it is only an enabler. What needs to change in order to transform and innovate is the organizational mindset and the way things are done.

Your team has been growing at an incredible rate! You went from a small group of 7 in Tallinn last year in January to over 40 people based across Estonia, Germany, and beyond. As an experienced entrepreneur, could you share with us the key ingredients of success in steering this fantastic growth, especially during the COVID-19 pandemic?

The coronavirus crisis has brought about an unprecedented global economic downturn that has impacted everyone and every company. Starting and managing a startup in any sector during this time has not been easy. But for fintech firms like us, the situation has also presented an opportunity; COVID-19 accelerated consumer digital banking habits and expectations by five years. It also highlighted the issues for established institutions running on legacy infrastructure seeking to respond to these demands. The key is understanding where the market is going and bringing a solution to the market to meet that demand. Our growth results from real demand for simpler, more flexible digital banking solutions that fit the needs and aspirations of the customer.

Recently, Modularbank also raised €4 million growth capital. What are your next steps towards global expansion?

Our next steps are to bolster our platform with new functionality and grow our team to include even more top talent from the world of fintech – we are planning to double the headcount from 47 to 100 by the end of 2021. We also intend to develop much deeper footprints in continental Europe and plan to open an office in the UK.