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Tech February 23, 2022

CTO's Journal: Building the all-in-one CFO tool

Welcome to the CTO Journal, a place where one of our illustrious founders, Patrick reflects on his key learnings leading the tech team at Airbank. This article was originally posted on Patrick's Medium blog.


Today, we’ll be talking about how Airbank approached its ultimate ambition of becoming the CFO tool to rule them all, the understanding we have of the market, and how we are positioning ourselves to win.

Technology follows cycles of aggregation and erosion. A company builds a product that caters to a wide range of customers; sometime later, another company challenges it on one of its segments, building a vertical, specialized solution. Others follow, focusing on different segments, and the market becomes a granular mess of niche providers until eventually a series of M&A events or the rise of a new competitor manages to put multiple segments under one umbrella, and the aggregation phase begins again.

Of course, this behaviour doesn’t only apply to customer verticals, but also to feature blocks. In the CFO space, we have seen multiple cycles of feature aggregation and erosion in the past decades — especially in the SMB space, where the large ERP systems don’t have a grip. The latest attempts to have everything under one roof came from neobanks (e.g. Revolut Business, Qonto), accounting platforms (e.g. Xero, Quickbooks), and acquirers (e.g. Square, SumUp). Attacking from different product and customer angles, most of these companies have been around for at least 5, usually 10+ years, and while some of them certainly are very successful in their core businesses, none was been able to fulfil the all-in-one prophecy.

Neobanks came short on market penetration, as their closed ecosystems require customers to switch banks — a high cost that their feature offering wasn’t able to offset, especially not for larger SMBs.

Accounting platforms came short on their financial offerings, sitting too far away from the flow of funds. Some have tried to offer embedded banking products, none succeeded. The geographical specifics and regulatory landscape eventually forced these players to pick their battles and reduce ambitions.

Finally, acquirers managed to go a long way into being the de facto only CFO tool needed by their customers, with many including embedded banking, cash advances, accounting automation, and finance management features, but they ended up being restricted to merchant-type businesses. While a restaurant can find god in SumUp, a startup or small industry is completely out of scope.

Chris and I spent countless hours trying to identify a path to victory. We realized that the biggest challenges of building an aggregated solution are the entry point and the order in which features should be developed and customer groups targeted.

During our market research, we came across an interesting segment of companies that, thanks to open banking and banking-as-a-service, are now transitioning from being niche finance management products to more full-stack offerings. Here we have specialized tools in any part of the FinOps chain, including cash flow management (e.g. Agicap), AP (e.g. Libeo), AR (e.g. Upflow), expense cards (e.g. Spendesk), and many more.

As we went through each of these niches, one thing got clear: It would be really tough to compete with these individual players in their focus areas while also investing in breadth.

This is what I call the Aggregator’s Paradigm:

You can’t successfully pitch yourself as all-in-one until you cover a wide array of features, but at the same time, you can’t go deep enough into individual features to be able to compete with niche providers while you build out the full vision.

The entry point

So the only logical path would be to find a combination of features that would provide value very early on, and in which competition was weaker, and then gradually expand from there into adjacent niches, building features that were good enough for most companies to migrate away from niche providers in order to gain the benefits of a broader solution.

This finally opened our eyes to the ideal entry point: Bank aggregation. By plugging our customers’ bank accounts through Open Banking and giving them an aggregated view of transactions and balances, we could replace their banking portals and lay the foundation for all that was to come. We looked into the market and realized that bank aggregation, or multi-banking if you will, was offered mostly by incumbent treasury management solutions (e.g. Isabel Group), none of them using Open Banking, but rather cumbersome EBICS and SWIFT connections that required the customer to send physical mail or even show up in person at their bank to approve. That was all we needed to see: Airbank knew how to get started.

The expansion

In finance management, everything revolves around two main pieces of data: Transactions and Invoices (you may also call them bills or receipts depending on the circumstance). Through bank aggregation, we get all transactions and could immediately start building features on top of it.

The first we built was cash flow management and forecasting. How come? Well, first of all, CFM can be built with nothing but transaction data (you don’t need invoices for that). Second, it is something that every company needs to do on a monthly basis, which would generate recurring usage on our platform. And third, when you have insights into your customers’ cash health, you can also expand into cash advances (revenue-based financing and the likes), thus opening up a beautiful door into intermediating financial services.

The second thing we started working on was reconciliation — matching invoices to transactions. This has been the #1 customer demand ever since we started, as preparing data for accounting takes an enormous amount of time and is quite a headache. Here, we incorporated the second major piece of data, the invoices. With that in place, the obvious next step is building direct connections into accounting systems, thus offering full automation. Very soon, all our customers will need to do is upload the pdf files and they’re automatically matched to transactions through OCR and synced with their accountant and/or accounting system.

And just like that, we are building a stronghold that spans from banking to accounting, achieving a product that is deep enough to compete with niche solutions along the way, but also broad enough to be more attractive than them.

Banking and accounting are commodities

Now an obvious next step could be to launch bank accounts and thus completely own the banking side of the table, or go into accounting (e.g. Pennylane) and own the other side. However, both alternatives are blunders, as they imply entering commoditized markets with high competition, tough regulation, and geographical boundaries.

B2B neobanks have extremely low market penetration in Europe— close to 0% if you exclude freelancers and micro-SMBs from the analysis. There are many reasons for that, including:

  • Lack of products and services required by business owners (which incumbents are able to provide)

  • Not enough of a value proposition to compete against pre-existent relationships with incumbents and justify the switching costs (a more beautiful app can’t defeat the personal service, fee exemptions, and low-interest loans your local bank manager can get you)

Conceptually, neobanks are all about offering a better UX, but this is way easier to achieve and pitch for B2C and micro-B2B. Furthermore, you can’t test a neobank’s finance management features before you create a proper bank account on it, undergoing tiresome KYB/AML processes that take multiple days to complete.

That’s why, for our target market, building on top of existing bank accounts makes so much more sense than becoming a bank.

At Airbank, you can start using the platform right away and for free by plugging in your existing bank accounts instead of having to create a new one, absorbing value from day one without any of the painful checks and switching costs. This puts us in a privileged position vis-a-vis banks, as customers abandon their banking portals to handle all operations through us — from monthly closing to paying bills to getting loans, all enabled through a series of partnerships, while our core expertise remains the UX, carefully planned through customer research, lots of feedback, and a stellar team.

And on the accounting side, it’s really a matter of parsimony: Why become an accounting system when there are so many out there to which we can simply integrate? Accounting is as commoditized as it gets, and if in addition to converting companies we also had to convert accountants to our platform, our traction would be slowed down drastically.

Overcoming regulatory and geographical barriers

We’ve talked about customer and feature aggregation, but there is another axis under which the cycle operates: Geography. When talking about B2C products, it’s usually a matter of culture and language that allows for country-specific solutions to defeat players with global ambitions. On B2B, it’s mostly about the regulatory landscape and partnership bottlenecks (i.e. access to the right people at the right places to speed up penetration).

Leveraging Open Banking for bank connectivity, and plugging into the most important accounting systems of every country we operate in, Airbank is able to overcome the first big hurdle to become a truly global provider. Then, by being a software layer instead of a financial services provider, we overcome the second hurdle: Regulation. Banks and accounting systems are regulation-first, Airbank is feature-first.

This is why since day 1 we are able to operate all across the EU and UK, and soon also in other parts of the world — depending on the open banking and accounting integrations we prioritize.

Airbank is well on its way to uniting the CFO stack into a single tool. We have a growing team of 30+ people, fully remote, but with major hubs in Berlin, Vienna and Barcelona, and are backed by some of the greatest fintech investors in Europe. If you’re interested in being part of this journey, shoot us an email.

I know… I left many questions unanswered in a post that was so much more business than tech.

Are you wondering how we can let our customers do payments on Airbank without effectively touching the money? Or how we managed to achieve a 99.5% connectivity success rate through Open Banking, which is well-known for its inconsistent API stability? Well, these are stories for future blog posts. Stay tuned for more CTO diaries!

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