Big banks are under a lot of pressure to modernize their services to meet demands of consumers who now view as table stakes things like mobile apps that identify who and where you are; or instant, on-demand products — consumers that are in turn increasingly looking at neobanks to give them a better level of service when it comes to their money and managing it. Today a startup that is building tools to help incumbents address this challenge is announcing a round of funding on the back of a lot of demand for its services.
Personetics, which has built AI-based technology for banks to personalize their offerings — for example understanding a users’ spending habits, and combining that with larger data sets, to offer advice for savings, based on a customer’s spending patterns — has raised $85 million, funding that will go toward expanding the tools that Personetics provides to banking customers, as well as to expand its base of users.
That base is already pretty impressive. It currently has 80 banking customers, a list that spans some of the world’s biggest names in financial services. (Names that it can disclose include Metro Bank, Santander, U.S. Bank, Huntington Bank, UOB, Hyundai Card and MUFG.) Altogether Personetics’ technology interacts with some 120 million users across 30 countries.
It has also been on a fundraising run, with this round adding up to $160 million raised since the start of 2021. This latest round is being led by Thoma Bravo with Viola Ventures, Lightspeed Ventures, Sequoia Capital, Nyca Partners and Warburg Pincus — all previous investors in the company — also participating. It’s not disclosing valuation.
Although we hear a lot of talk these days about digital transformation being synonymous with migrating to the cloud, Personetics typifies a persistent trend in the world of enterprise that runs contrary to that. David Sosna, its CEO and co-founder, said that although the company offers a SaaS version of its personalization tech, “many” of its customers — including some of the names that have made a big point of trying to modernise, such as Santander — are actually using Personetics on-premises.
“Sending financial data out is something banks are doing, but it’s not 100%,” he said. “I see them moving there, but I don’t see them rushing there. Financial data is probably the last thing that you will see migrate to the cloud.” More commonly, they may build new services in the cloud, which they will then run in tandem with legacy services, which are not. Even in those cases, he added, “we are part of that infrastructure on services like Azure, or Google Cloud or AWS, but they own it — not us.”
Beyond the mechanics of how the services get implemented, the more salient fact is that they are being implemented full-stop. They are moving to personalisation for a number of reasons. First and foremost is the rise of challenger banks lighting a fire under them and getting them moving.
“They are seeing the impact of the alternatives,” he said, with the migration away from the incumbents happening gradually. “Twenty-five percent of your customers may be adopting external lending providers or BNPL. That’s a common thing.”
Secondly is the fact that this is simply what consumers are demanding now, the “table stakes” in this territory, as Sosna puts it. “They really have no choice.”
Third of all has been the impact of COVID-19 and wider market forces. With more banks closing down physical branches, they have become more — and in some cases, completely — reliant on digital platforms to run and grow their businesses. This too is leading them to build and run better sites and apps to get this done.
Given that it’s not a big leap between financial services and fintech — indeed, in cities like London which have strong industries in tech and financial services, the two have long competed heavily to recruit technical talent — it’s surprising that we haven’t seen more banks trying to build personalization in-house rather than look to a third-party provider like Personetics.
Sosna said that some have indeed tried this. “The big ones are trying and have built certain capabilities,” he said. “The big ones believe they need to own it.” However, much of this has been slow to take off, and so in many cases working with a third party has been an easier way for them to experiment. “That’s the case and I don’t think it will change,” he added.
In the midst of a fintech revolution that has seen a huge wave of challenger banks emerge, and an equally impressive group of banking infrastructure startups surface to provide API-based, embedded services to neobanks to build their products, there has been a smaller set of companies that have seized an opportunity to address the needs of incumbents to compete against these newer players. Others in the same category include 10x, which was founded by ex-incumbent banking executives and has raised significant funding to build tools specifically for the behemoths.
It will be interesting to see how and if Personetics over time works with more neobanks, alongside the incumbents. After all, neobanks have gone all-in on embedded services, so it would make sense for them to look to third parties potentially to improve personalization, too.
Personetics does have some digital banks as customers, Sosna said, although most of these have grown out of the bigger incumbents. “We like that segment because they have more muscle to start with,” he said. “A lot of these fintechs start and stop and go right and left. It’s hard for us to understand their strategy, so once they get to a certain size it might make more sense to partner.”
Down the line, the company is likely to bring on more services to underpin the personalization it already offers, such as in more specific areas like lending, where it might, for example, give banks the ability to evaluate loan applications faster and using a wider set of data comparable to what new-wave fintechs are providing. It’s already doing a lot of automated work in moving money around so lending is a natural step.
“When it comes to savings and lending and investing one of the things we like is to provide an automated capability to move money on your behalf,” he said. This might happen, for example, between a current account and moving surplus money every month into a higher-interest account to accrue better returns. “We have multiple banks using that now, where you opt in and then automatically moves the money without asking your permission every time.”
“As the range and complexity of financial products continues to grow, Personetics simplifies and personalizes banking for consumers with its industry-leading AI technology,” said Robert Sayle, a partner at Thoma Bravo, in a statement. “We are thrilled to partner with Personetics and leverage our operational expertise in software and financial technology to help accelerate the company’s momentum, the introduction of new products and technology, and the platform‘s reach to financial institutions and their customers across the globe.”