WHAT’S DIFFERENT ABOUT DOZENS?
Given there are more than 1,600 FinTech firms in the UK, with that number predicted to double within a decade, the financial start-up disrupter marketplace is already very crowded. Many of these offer similar – or near-identical – services. The iron law of survival of the fittest means that not all will be around as long as HSBC or Barclays.
Nevertheless, a lot of funding is still ploughing into these disrupters – more than $3 billion in 2018. Can Dozens whose Fixed Interest Bonds are traded on NEX Exchange, distinguish itself sufficiently, and overcome the post-2008 distrust of all things financial, to become one of the survivors?
There’s perhaps no-one better to pose that question to than Aritra Chakravarty, the founder and CEO of Dozens and Project Imagine. Dozens is the first product of Project Imagine, which is a “financial incubation brand”, says Chakravarty. Project Imagine has raised $15 million, the majority of which has come from a Hong Kong-based hedge fund, with some additional investment through crowdfunding platform, Seedrs.
The business, in Chakravarty’s words, was ‘founded from a need to align shareholder interests with the customer’s financial wellbeing.” Dozens, which advertises itself as the “new home for your money” is not a bank, but instead is authorised by the Financial Conduct Authority (FCA) as an e-money institution and also an investment firm, and like many of the new fintechs is essentially geared for the App-fluent. It provides its users with a current account and debit card – recently exchanging
its Mastercard issued debit card for a partnership deal with Visa – and offers most of the regular current account services you’ll find with one from a bank. In addition to these services, it also offers its customers a smart budgeting tool, savings tools and an investment manager with a range of thematic investments, plus the lure of being able to grow their money with as little as £100 in its 5% p.a. Fixed Interest Bonds.
The bonds are Dozens’ first proprietary financial product, designed to bear practically no risk. Dozens says that “to help build your trust in us we will place all of your money to be invested [in the bonds] plus the full 12-months interest, in a separate trustee controlled account (where we can’t touch it) on your behalf. This would be used to pay you in the event of any default on our part.” These bonds are not regulated by the FCA.
How is Dozens able to offer this rate? According to a blog post on their website:
“As a new business we wanted a progressive trading venue that would be open and adaptable to our needs whilst still providing benefits to our retail customers, including an ISA eligible exchange for our fixed interest bonds. We had great conversations with NEX Exchange and were delighted to select them as the exchange for our first proprietary product.”
“By simply treating the 5% as a cost of building an entire offering around savers. Why? Because we believe in the importance of having a high-interest product for people who are just starting to save and experience interest, which is why we’re willing to fund this product from the revenues earned from our other products.”
Dozens’ listed fixed interest 5% pa bonds are available on the app, in limited monthly issuances. The allocation of bonds works through a bidding process, in which smaller bids are favoured over larger ones, to give most value back to first time and small savers.
In the 18 months since Dozens started life it has shown how agility and cleverness can outpace retail finance giants
For Dozens’ separate thematic investment shelf, a platform fee of 0.5% p.a. is applied, says Dozens “only on the days where [the customer’s] investment is equal to or higher than the amount [they’ve] contributed”. As with its overall business model not relying on debt, when it comes to investments Dozens is set up in a way where they can monly do well when the customer does, aligning incentives across the board.
Chakravarty lists himself on his LinkedIn profile as a “recovering banker turned fintech entrepreneur”. He spent more than a dozen years at HSBC, ending up as the Global Head of Digital FX and Investment Products within the bank’s Wealth Management division. So he has witnessed from the inside how big banks regard their customers. Chakravarty explains: “You could say that banks are platforms where depositors meet borrowers. In a sense, it’s no different to Uber or Airbnb.” It’s about matching supply and demand. “But Uber or Airbnb keep 10 to 20 percent of the money they make from the car or apartment and then pass on the remaining 80 percent to you. Banks do quite the opposite. They keep 80 to 90 percent of the money they make and pass back only 10 to 20 percent.” says Chakravarty.
In a sense Dozens is nothing new - Chakravarty refers to the wealth management sector of finance as a model. Wealth management, conventionally only for higher earners, has to fight for wallet share and makes “very thin margins across volumes. We’re applying that principle to retail, so we monetise every time you spend on the Dozens card if you send money overseas, and if you buy an investment product from us, which is what we hope, most people will go on to do.” Chakravarty wants to help Dozens’ customers on their journey from spender to saver to investor. “We still have all the checks and balances, so you can’t invest without going through risk tolerance assessments, but all the information is done in a more intuitive way and through the same App,” he says.
“In many ways, we shouldn’t exist,” says Chakravarty. The big banks “have so many more resources” but in the 18 months since Dozens started life it has shown how agility and cleverness can outpace retail finance giants.
He doesn’t think conventional banks are doomed just yet, their current model has been working for them for over a century without issue, and he even assesses that banks will rather rapidly get around to making the consumer experience much more pleasant. Rather, Chakravarty sees some fintechs as vulnerable because many of them are following the same business model as the bigger banks. “The banks realise they have to fix things and they will do that in the next five to ten years. I think the banks will find the business model much harder to change because they are so used to lending. So fintechs that innovate on business model are more likely to stay competitive.”
Chakravarty comes out with an unprompted statement that implicitly throws down a challenge to big conventional banks: “We can’t do well with you suffering. New banks are making money exactly the same way as the old banks – so what’s the point? Dozens is not lending and we could not survive if we were to try to make money off you by borrowing.” As with any business, Dozens needs to make money to survive. But, unlike the old model for retail finance, Dozens has decided it does not need to squeeze every last penny from its customers’ pockets. Long may it survive and thrive.