The Rise and Stall of Lanistar "bank"
Why building a challenger bank is hard, why marketing is vital and the essential tenets of building a challenger banking proposition
Thank you for joining me in the first of many Fintech R&Rs.
This week I'm looking at Lanistar, the UK-based neobank, which, according to ChatGPT, is "poised to disrupt the traditional banking industry and change the way we think about banking". Based on that statement, GPT3 clearly has a ways to go.
JasGPT's description would be more like "a controversial challenger banking proposition that has, so far, not lived up to its lofty promises but has potential".
Lanistar has piqued my interest because they've had A LOT of bad press since its flashy marketing campaign. And I have yet to see much mention of the product, discussion about the challenges of building challenger platforms and problems Lanistar is solving. So that's what I'll dig into.
Here's a quick summary of this week's Fintech R&R:
Who and What is Lanistar?
Their journey and some of the troubles
Essential tenets of challenger Financial Services builds
What I'd do next if I were them
Now, enough horsing around (a reference that should become very clear further down the page with a spattering of horse puns to follow). Let's get into it.
What is Lanistar? 📖
Lanistar is a challenger banking proposition and brainchild of first-time fintech founder Gurhan Kiziloz, created in late 2019. Gurhan was quoted in several articles talking about Lanistar as 'the next £1bn fintech company'.
An ambitious target considering at the time of most of these articles, there was no product to talk of and, therefore, no customers or revenue. But in fairness, he's just one of many people to talk about creating a fintech unicorn before a validated product exists.
He is, however, the first to create a lifesize version of that unicorn resembling something straight out of the mind of James Cameron and the Avatar saga.
The other messages from these public announcements were about who Lanistar is for, the problems it would solve, and how it would solve these problems for customers to provide them with value. And this bit concerns me more than the big blue unicorn because the product ambition doesn't match the lofty financial dream.
Who's it for? 🧑🏼🎓
18-35-year-olds, aka Gen-Z and late millennials. The message has been consistent across the board, on socials, in interviews, and hinted at throughout the branding and tone of voice. I'll talk more about the challenge of a wide customer segment later.
What's the problem Lanistar is solving? 💡
It's unclear from what I can see. At best, it's vague. There's talk about deficient card and account security, customers needing better service and support, and a lack of personalisation. I'd suggest it could be "a lack of dedicated financial services and financial education tools for the Gen-Z population", but it's unclear what the issues around the lack of financial services for this group are and precisely what problems they'll solve for this demographic.
Key Features and Mane attractions? 🐴
Clearer problem scoping from the previous section means a clearer sequencing of the features in order of importance. But regardless, outlining the product features and some of the operational differentiators usually gives a better idea of what the product is, so here goes:
Polymorphic stackable card - Ability to link up to 8 external cards, i.e. Monzo, HSBC, Starling etc., onto a single card and ability to generate one-time PINs and CVVs for each transaction using the LCD screen on the physical card as well as change the source of funds for the transaction up to 7 days after transacting date
Transaction Feed - Real-time display of transactions and history
Card Controls - Ability to freeze and block cards in-app
Round-up pots - Round-up transactions to the nearest whole number and put the remaining amount in a separate pot
Savings pots - Pot for saving monies outside of the primary account
Enhanced Security - 3DS for online and POS transactions
Notifications - Of merchant transactions and other account info on
Excellent Customer Service - Not really a feature, but excellent customer service is something promised by the Lanistar team and a key differentiator of them vs other financial service offerings
You may look at the above features and think, "I've seen this all before".
And you'd be right.
Most challenger propositions have a transaction feed, round-up and savings pots, 3DS, notifications, Card & Account controls and in-app customer service.
So it's clear that the differentiating factor, or Lanistar's 'Hero' feature, is their polymorphic secure stackable card. But the stackability aspect...(no need to look it up because I can confirm 'stackability' is a word)...the stackability aspect has already been done quite well by a company called Curve.
Curve is a company founded over 7 years ago and gives the customer the ability to link unlimited bank cards (with their premium offering) but use a single payment card for transactions and gives the customer rules to allocate transactions to different cards and manually allocate a transaction to another card if needed. For example, suppose you're at a business meeting and accidentally use your personal card to pay for lunch. In that case, you manually allocate that transaction to your business card through the app to save hassle when claiming expenses.
A convenient feature that also means you can move a transaction to another card with a more favourable interest rate or overdraft limit if needed.
Curve also offers other benefits, such as fee-free FX, rewards and cashback.
This is not a sponsored ad btw. I just love how the Curve proposition has evolved.
My point is, what is the real difference between what Lanistar is looking to launch in the UK, EU and beyond and Curve?
Well, it's a combo of two things.
1. The physical card with the ability to generate one-time pins and give customers extra security and
2. The explicit target demographic of 18-35-year-olds
Card fraud is still an issue, especially in the UK, with most victims per 1000 people in the whole of Europe, so a more secure card would go some way to fixing that problem.
But the question then becomes, is that enough of a differentiator to compete in what has long been a very competitive market, acquire customers fast enough with a low enough churn and with a scalable revenue model to become a player in the market.
And that's the 1 billion pound question!
But before getting into the weeds of whether this could be a successful Fintech challenger, we have to take a quick look at the journey so far, some of the bumps in the road, or what many have called the controversies that stalled progress.
Lanistar's journey and troubles along the way 🛣
A picture speaks a thousand words, so I've put some of the key points in their journey into the timeline format below.
As you can see (hopefully, the diagram is still visible for mobile users), they have not been without their issues. And considering the company was founded in 2019, why has it taken so long to get a product to market?
Here are the four key ones from the diagram that looks to have caused the most significant wobbles to development, the product and the overall launch timeline.
🤦🏽 Stirrup trouble with the FCA: Immediately after their massive public launch involving thousands of influencers, a branded Bugatti Veyron and a social media thunderclap, the FCA, the financial services regulator, issued a warning.
"This firm [Lanistar] is not authorised by us and is targeting people in the UK. Based upon information we hold, we believe it is carrying on regulated activities which require authorisation," it said. "Almost all firms and individuals offering, promoting or selling financial services or products in the UK have to be authorised by us. However, some firms act without our authorisation and some knowingly run investment scams."
This looked like a combination of bad timing and miscommunication rather than malicious intent. Because as mentioned above, an organisation offering, promoting or selling financial services has to be authorised by the FCA. And Lanistar were in the process of obtaining authorisation by becoming a partner and EMD (E-Money Directive) agent of Modulr, who themselves are regulated by the FCA to issue e-money and provide payment services.
However, this agreement still needed to be wrapped up, Modulr had yet to complete its rigorous due diligence process therefore, Lanistar was not an FCA-regulated entity.
Although, in my view, this is down to the timing of the launch and the team wanting to push ahead with the global launch programme, as well as not explicitly disclosing that it was in pursuit of FCA approval, it still means a bit of a reputational hit and a loss of goodwill with the public.
Trust is everything when it comes to financial services. Especially when you are building a security-centric proposition and creating "the world's most secure card".
🚀 Failure to Launch: Nothing to do with the 2006 Sarah Jessica Parker and Matthew McConaughey hit rom-com. But rather about the initial commitment to launch in Q4 2020. After missing that launch, a shift to Q1 2021 and opaque communication about the official launch date to the public.
The difficulty is, once you create buzz around a proposition keeping up momentum is vital. So a marketing campaign with a precise launch date and regular communication between customers until launch (even if it's a beta launch) is essential in keeping the excitement and intrigue and hitting the ground running when the product goes live.
So after a successful marketing campaign and a missed launch date, I expected immediate communication about the new date, which didn't come.
And ideally, you want to avoid keeping customers on a perpetual waitlist. It erodes customer trust.
Product launches are not easy to get right, but I do have some rules I abide by when planning a launch:
Clarify the scope & objective of the launch. Is it a beta launch? A full public launch? Who is the launch targetting? Is the aim to get waitlist sign-ups? Validate the product offering? Test robustness? What's the next step after the launch? If it's a beta launch, what's the best customer feedback mechanism?
Set checkpoints leading up to the launch date to track progress and ensure a re-validation of the launch date if checkpoints are missed
Bake in buffer time for internal testing and rounds of bug fixes. Customers will only do some of that work for you.
Publicise a launch date ONLY AFTER it's been validated by critical teams in the organisation, i.e. Engineering, Product, Delivery, Design, Marketing, Partnerships
Be as transparent as possible if a launch date is missed or about to be missed. Validate and then communicate the new date to customers using the brand's tone of voice. And give yourself sufficient time to ACTUALLY hit the new date
💥 Culture Wars: In 2021, there were claims from several former staff members that Lanistar "has a toxic culture, with a particularly hostile environment for women". This toxic culture took the form of unpaid salaries, bullying and sexual harassment. Unfortunately, it's often difficult to fully substantiate all of these claims. Still, there's often no smoke without fire, and there is no doubt that salaries were unpaid as at least 12 ex-employees managed to take Lanistar to an employment tribunal and were awarded thousands of pounds in unpaid wages and holiday pay.
The culture of an organisation and the teams within that organisation impacts product development. Whether directly by affecting the individuals building and launching the product or indirectly by restricting the ability to source and bring in the best talent. Positive company culture is imperative when building a greenfield product because there are often issues with timelines, partners, development etc. You need to know your team, and senior leaders have your back. And if people don't have that support and positive culture, they're not to work extra hours, cover different roles, and go above and beyond for the team and company, especially in tough times.
🤝🏼 Howdy Partners: The last of the significant troubles that have impacted the development of the Lanistar product.
Partnerships have become increasingly important in building financial services products over the past few years, with Banking-as-a-service (BaaS) companies creating almost a mini-economy within Fintech. Companies such as Marqeta, GPS, Modulr, 10x, Temenos, Mambu, Jumio, Onfido, Thought Machine and many others provide niche domain expertise, innovation experience and tried & tested technology solutions. All of this means a faster time to market and, with the right partner, the ability to scale efficiently.
If you want to read more about Banking-as-a-Service options for merchant payment processes, check out this piece I wrote a while back.
Although Lanistar has selected some established partners, Mastercard as its network, Modulr for licensing (and possibly card issuing), GPS for card payments processing and Jumio for KYC, management of these partner relationships could have been better.
Coordinating its launch efforts and keeping Modular in the loop would have saved them a wrist slap from the FCA and the frustration of moving the launch date. And it's also in a bit of hot water with GPS, which claims to have not been paid for its services. If GPS decide to end the partnership, it would further stunt the progress of Lanistar as they'd have to find another payment processor. Keeping partners onside is a critical success factor, as I'll cover later.
Building card-based propositions is a 'keep your customers close, keep your partners closer' game.
Essential Tenets when building challenger banking propositions
Based on what I said previously about partnerships, you'd think it's relatively simple to stand up a challenger banking proposition right? Pick the right partners and technology providers, set up your product, and launch.
Well, not quite. Although technology can go some way to creating a successful challenger banking product, and it might sound a bit crazy to say this but...great technology alone doesn't lead to a great product. There are additional factors that determine or indicate whether a product will be a success or not.
So I have tenets (a fancier word than principles) I look to establish when helping build challenger banking propositions or assess a challenger's viability and longevity. Some of these tenets have come from experience, being part of four different challenger banks in the past three years, and some come from the fundamentals of product development.
Not only will I outline those here BUT, I'll also rank Lanistar on how well they've hit the mark with that specific tenet.
Customer and Market Clarity
At the top of this newsletter, I outlined who Lanistar was for and what problem it seemed they were looking to solve. And from the product, website and marketing materials, it was abundantly clear it was for 18-35 yr olds, aka Gen-Z and late millennials. But this is a really broad demographic.
That's 3 Billion people globally!! Over 30% of the global population.
Having a broad demographic is acceptable for the long term, but when building a product, you don't create a fully-fledged product to solve all problems for the entire demographic on day one. Because frankly, it's impossible. By the time you've built the product, the demographic or issues will have shifted.
Instead, you first look at solving problems for a subset of the demographic, build advocacy, validate the product, and then iterate and evolve the product and widen that target demographic.
Clarity over the market and problems is also essential. It's the reason the demographic will initially gravitate to the product and continue to use it. I'm not convinced that 'people concerned with card security and fraud' is a clear enough market in the long run. The market geography is also vast. UK, EU and Brazil.
Lanistar Rating: 5/10
Customer definition, market and geography are all super broad, making it difficult to build, launch and market a 'sticky' product that can be grown and scaled efficiently.
Creating a strategy for any digital product is vital. Research on the market, problem space and, most importantly, the research on customers underpins that strategy. And creating one focused on the problems the customers and specific demographics face is crucial to building a product with a higher likelihood of adoption with that base. The product team's strategy work includes understanding and defining the product's first version, creating a roadmap that will ensure consistent value add to the customers and defining a Product Vision. Other important strategy work includes revenue generation and growth for the product, the structure around the product marketing work for go-to-market and clear communication of the overall strategy, internally and sometimes externally.
A clearly defined and communicated strategy is an excellent indicator of initial product success as it brings clarity to all teams as to what will be built, the sequencing of the build, who it'll be created for and how the product will evolve over time.
Lanistar Rating: 5/10
Based on the lack of clarity around the customer and market as well as the financial vision of 'Becoming a fintech unicorn' but lack of a clear and matching product vision
BaaS Partners and Relationship management
I covered the importance of this earlier. But to reiterate, these providers bring niche domain expertise, innovation experience and tried & tested technology solutions. Using an experienced, established, and innovative BaaS provider can supercharge product development and speed up your time to market.
However, without proper planning and relationship management, these partnerships can sometimes be more of a hindrance than a help.
Part of the planning comes from the customer discovery work and product strategy efforts, as to select the right vendor, you need to know what you're building over the next few months and years. And these requirements, therefore, affect the partner you select, their functionality, and how they will evolve. Choosing the wrong partner because of a lack of planning can restrict your innovation and development ability.
Lanistar Rating: 6/10
They've selected some good partners, but communication and relationship management could have been better in some cases. And the troubles with GPS are a major stumbling block.
Brand and Marketing
Brand and marketing are the most important aspects of getting a product to market outside of the quality of the product itself.
You can build an excellent product with the perfect features to solve real-world problems for a clearly defined market and customer demographic.
But without an on-point brand & tone of voice designed for your customer base and an effective marketing strategy, the right customers won't hear about your waitlist, they won't hear about the product and services, so they won't pay for or even use your product.
The biggest neobanks like Monzo, Starling, Revolut, N26, Nubank, Chime and Oaknorth have their own distinct brand, tone of voice and effective marketing strategies.
And an effective marketing strategy has more than just an impact on customer acquisition. It creates broader brand awareness and, paired with a growing customer base, attracts investors' eyes, which can mean more funding for future phases and marketing investment. And that growth chain reaction continues.
Lanistar Rating: 8/10
Distinct designs, brand & tone of voice, all of which fit their target demographic. And frankly, 1,000,000 customers signed up (not necessarily fully fledged users but folks who have signed up to the waitlist) is not to be sniffed at
Leadership team experience
The last of the essential tenets but no less important than the others. Leadership experience sounds obvious, but it's more than just bringing structure, a constructive work environment and experience to the product build. It's also to provide confidence when things go wrong. And they often and inevitably do.
When there's friction with partners, delays with engineering, design revisions and general roadblocks, the team looks to experienced leaders to figure out the way forward. And without those people who have been there and done it before, it takes longer to resolve the issue, if at all. Whether it's building a challenger bank, being an engineering whiz, a design prodigy or a regulatory expert, these experienced leaders help ripple confidence throughout the product build and help move things forward when times are tough.
Lanistar Rating: 6.5/10
Although they now have Jeremey Baber as CEO (ex-Aldermore banker) and Bill Suglani as CFO (former BP, KPMG, and Open Banking executive), they probably could have done with a bit more experience in product, delivery and maybe the regulatory side early in their journey to avoid some of the regulatory frictions and launch delays.
What would I do?
Based on what you've read, you may think the outlook is bleak for Lanistar, but I'll say one thing before I get into my recommendations.
Building ANY product, let alone a financial services product takes a lot of work. I've said it before, but I'm repeating it louder for the people in the back.
And I'd be doing myself a disservice if I was to critique from the outside without providing any glimmers of hope or recommendations, so here’s what I'd do if I were a product leader in their business now:
Clarify the target demographic and then refine the product
This is the glaring one for me. Although the demographic of 18-35-year-olds seems logical, that spans 30% of the global population, and that breadth complicates customer testing and product evolution.
Here are two ideas I had which are summarised by catchy product taglines
1. "Financial education and tools for the planet's future leaders"
Yes, a bit corny. But hear me out. There's always been a gap in Financial education. It's even more apparent with Barclays and Natwest launching their financial education schemes and the popularity of MyBnk. But with the Gen-Z and Late Millenials having less trust in traditional financial services brands than Boomers and Gen-X and Y, there's a gap for a digital financial education connected directly to the finances of 18-35 year-olds. The cost of living crisis is another dimension to this multi-faceted problem.
Practically, this would look similar to the existing feature set, with some additional practical features around budgeting and savings techniques. Mostly this would be an increase in financial education content and some in-app education programmes with rewards based on improving spending habits.
2. "Financial Services for the Creator Economy"
The Creator economy refers to the influencers, artists, curators, and community builders who create online content and monetise their audiences on platforms such as YouTube, TikTok, Instagram, Facebook, Twitch, Spotify, OnlyFans, and Patreon. It wouldn't be too off-brand because most of the influencers Lanistar used for their big marketing campaign are part of the creator economy.
But my thinking about this was more to do with the growing creator economy (as highlighted below) and their specific needs. For example, revenue is generated through sponsorship agreements, ads and viewership on particular platforms. It's not a traditional and consistent monthly salary payment. So a valuable product offering might be things like a follower or views-based revenue mechanism to get creators paid a little earlier for their viewership and to balance out cashflow. Or an overdraft that increases and decreases based on need and follower count. It would mean some significant additions to the product.
Either of these demographic clarifications would mean a more refined core demographic and early product adopters.
Specify more logical launch geographies and back them up with on-the-ground research
If either of the previous two refinements is used, or it's still the broad target customer group of 18-35-year-olds, a geographical focus and growth strategy are still needed.
I will say that the pivot launch of Lanistar in Brazil is a great move. This report from Accenture shows that Pioneers, the closest group to Lanistars current target market, make up 36% of Brazil's population. Higher than the global average. And significantly higher than the worldwide average.
I suggest that rather than focusing on the perceived prestige of cracking the UK and EU, it'd be much more effective for the organisation and customers to look at areas that skew towards Pioneers. The rest of Latam, UAE and even the US have a much higher percentage of Pioneers than most of europe.
Progress Marketing Efforts
An easy one. The influencer marketing programme they created to get 1,000,000 people to sign up clearly worked. There are Fintechs who are desperate to get close to that number, so if it's cost-effective, then continuing those efforts with the same energy and increasing relevant content could be valuable in growing the customer base.
For the third and final time, building a challenger financial proposition is tricky. But there are things you can do to speed up the process and generally increase your likelihood of success.
And yes, Lanistar might have a ways to go, but with some refinement, and proposition clarity, they could get to their dream valuation.
And there is another reason I wouldn't rule them out.
Because there is another wild and eccentric high-profile man with a £1 billion vision fronted by a large blue fantasy creature. And I've already referenced him at the very start. People told him he was crazy and questioned his dream.
But in the end, he prevailed.
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