Pending approval from Australian regulators, this week fintech Douugh will list and trade on the Australia Stock Exchange, unlocking the funding it needs to fully launch its digital wealth model in the U.S.
Sydney-based founder and CEO Andy Taylor says the startup has reimagined wealthtech from the starting point of a person’s bank account. It’s from here that a person’s income, spending, and debt are centered. Therefore to change behavior to encourage the building of wealth, rather than of indebtedness – to enable consumers to advance from living month to month to becoming builders of wealth – the fintech has to begin there.
“Trust us to manage money on autopilot,” he said. “Open banking removes the barriers.”
Douugh is not a bank, however, and it has no desire to become one. Using technology to provide “banking as a service”, with the actual bank account piggybacking off a partner, allows it to provide the infrastructure to offer its true service: wealth management led by artificial intelligence.
“Our focus is on an A.I. engine to automate money management,” Taylor said. “To change customer behavior, we can’t be a bank – we have to be a platform.”
Funding at the ready
The company has raised $6 million in a Series A funding round, with backers including Japan’s Monex, itself a digital broker. The proceeds are held in trust and will be unlocked once Douugh stock can trade on ASX.
The listing company is actually part of a reverse takeover: Douugh, wanting the publicity bang of an IPO, swapped shares with an already listed company and changed the name.
Taylor built a first career in digital marketing, and then launched an Australian peer-to-peer marketplace aimed at helping borrowers consolidate debt. The P2P model had too many problems, including finding the investors to back consumer refinancings, and Taylor realized the platform wouldn’t scale.
Trust us to manage money on autopilotAndy Taylor, Douugh
He then decided that it would be better to stop chasing the product-level aspect of debt consolidation, and attempt to change consumer behavior so customers don’t fall into debt in the first place.
The new business took root in the U.S., though, where he won the favor of an overseas branch of Aussie financial group SunCorp – which was pioneering “banking as a service” software models with the U.S. arm of Spanish lender BBVA. SunCorp USA tried to plug Douugh into its BaaS business via APIs. The initial experiment failed – Taylor says the BBVA legacy banking system couldn’t handle the integration – but the stakeholders liked Douugh’s concept of wealth management.
BaaS beats banking
The business has partnered with local credit unions, which are customer-focused and, while limited to regional activities, have national charters so they could export a digital business. They act as Douugh’s bank account and custodian, enabling the fintech to move money. They also benefit from the digital services Douugh can sell. “They’re happy to be our pipes,” Taylor said.
Douugh meanwhile can operate a BaaS, which is to say, a business without reserve capital requirements, which Taylor says will make it competitive against both neobanks and traditional lenders.
Next was to strike a partnership with Mastercard, in order to issue debit cards.
This step alone can be profitable in the U.S., thanks to relatively high interchange fees (paid by acquirer banks to consumer banks for a card customer’s transaction). Taylor says this is one reason why American neobanks like Chime are making money.
Wealth on autopilot
But this is not Douugh’s mission. It intends to launch its wealth proposition in the U.S. by the end of this year, and bring it to Australia in 2021 with other bank partners in the background.
Its wallet and app offers “jars” (that’s the visual image) starting with one for bills, and then others like debt. These represent a person’s financial obligations. Its robo engine looks at a person’s goals, their starting investment size, and their risk appetite. It then first allocates money to various obligation jars, and then to investments.
Underlying the jars is a small range of ETFs managed by BlackRock and Vanguard in the U.S. Douugh’s A.I. decides a dynamic allocation mix, like an old-fashioned multi-manager account. “Our autopilot moves money and manages cashflow,” Taylor said.
The idea of someone giving an algorithm complete control over their finances is daunting. Taylor says the user experience is designed to give people a feeling of control. They can adjust settings around goals and risk. He calls it a system of nudges to get people to do the sensible thing, rather than a tyrannical robot overlord.
The core market is the U.S. Australia is a tiny market. But it has advantages as a jumping off point for international expansion. First of all, the team is Australian. Secondly, Mastercard’s innovation labs are in Sydney and Singapore. Third, Australians are way ahead of Americans when it comes to contactless payments. Fourth, although interchange fees in Oz are poor, the country’s incumbent wealth managers charge high fees – an enticing target.
The Monex connection could offer a route to Japan later.
The other expansive business move will be to begin charging users a subscription fee. Taylor hopes that will be viable once users decide they can’t live without Douugh.