Fintech update:
Taking banking in to your own hands
When small businesses go to an insurance broker for a basic commercial coverage policy, they often find themselves travelling back in time. Many brokers still rely on paper documents, accept only cash or cheques, and are said to be among the last remaining dedicated users of fax machines.
“It can take a week or more to get insurance, and then everything is priced by hand,” marvels Danish Yusuf, cofounder and chief executive officer of Zensurance, a Toronto “insurtech” (insurance tech) startup that’s developed a digital application/approval tool geared to new small businesses looking for commercial policies.
Many customers today expect to be able to deal directly with a company and handle all their transactions online. This is a gap in the market that fintech firms are moving rapidly to fill.
Yusuf says a third of his customers have never had commercial insurance previously; the rest have shifted from traditional brokers because his firm offers a simpler experience, and one that allows entrepreneurs to take a more direct and hands-on role in managing this aspect of their financial affairs.
Zensurance’s market response is the latest evidence confirming that the most important brand promise of fintech companies has to do with the fact that the technologies involved — sophisticated analytics, reliance on big data and online payments processing — give customers far more control over their banking and insurance needs than ever before.
The key driver of this evolution in financial services is the promise of convenience, observes Dave Feller, founder and CEO of Mogo, a Canadian financial technology company that recently launched a new digital mortgage product called MogoMortgage.
Often, Feller notes, fintech services such as online mortgage approvals have sought to remove intermediaries and transactional friction, thus allowing for more direct connections between borrowers and lenders or, in the case of Zensurance, insurers and insured.
Traditionally, the process of securing a mortgage was one of the most time-consuming banking services. In the past, property buyers needed to carve out time for multiple meetings with bank advisers throughout the purchase to confirm financing.
But today, tools like the MogoMortgage mean the
entire process can be completed on mobile apps or online — from pre-approval until the mortgage is renewed or paid off.
Beyond convenience, users benefit from increased transparency into both the process of getting a mortgage and in tracking payment progress and interest rates, says Feller. “You’re getting value instantly.”
Another example of how technology is allowing users to take financial services into their own hands is peer-topeer lending company Lending Loop, which figured out how to make connections between two complementary markets.
Co-founder and CEO Cato Pastoll reckoned there was demand among investors looking to lend money for returns that exceeded current interest rates on savings accounts, GICs and most corporate bonds. At the same time, he saw a craving for credit among small businesses that often don’t qualify for bank loans but couldn’t justify the doubledigit rates charged by pay-day loan chains, alternative lenders and shadow banks. “We wanted to solve that gap.”
Lending Loop’s technology effectively cuts out several layers: investors can choose which firms to lend to, while the borrowers can access capital with far fewer delays than normally occur with commercial lending applications.
Pastoll says the firm relies on analytics to do its due diligence on borrowers’ creditworthiness and also set interest rates. “We have a full evaluation and underwriting process,” he says, noting that the loans tend to be secured by a personal guarantee and general security agreement over the business. “It’s similar to what a bank would do, but it’s more automated.”
Lending Loop bases its calculations on publicly available credit information and a proprietary evaluation
engine that generates cash flow analyses far more quickly than the three-to-sixmonth response time for a bank loan application.
While Lending Loop has allowed investors and borrowers to find one another in a more expedient way than prevailing banking practices allow, Zensurance’s mission is to disrupt an entire sector — the broker industry, which is a fixture in the distribution of insurance products and has long situated itself between customers and underwriters.
Yusuf, a former McKinsey & Co. consultant who often worked with insurance industry clients, says Zensurance raised $1.2 million in a seed round and is the only Canadian insurtech firm that’s found a way to automate this market so far. He points to a handful of companies in the U.S. and the U.K. — e.g., Lemonade and Knip, a Swiss mobile insurance broker — that have already made inroads in cutting traditional brokers out of the transaction process.
In fact, when he was consulting for multinational underwriters while at McKinsey, many told him they were looking for some better way to establish a more direct and friction-free relationship with their ultimate customers. “All my clients were asking for a solution like this.”
The opportunity, he adds, is huge: the property and casualty industry in Canada is worth $50 billion, and $500 billion in the U.S. Not surprisingly, a lot of venture capital has flowed into insurtech in the last two years, according to CB Insights, which last month estimated that the total investment in insurance startups from 2014 to 2016 exceeded US$5 billion. “It’s a massive space we’re going after.”