Banking is broken. This small FinTech startup plans to fix it

As monolithic IT systems keep incumbent banks stuck in the past, one Estonian FinTech is getting ready to ride the next wave of digital finance.
Written by Kalev Aasmae, Contributor

Modularbank's executive team, from left to right: Jüri Kirme, Rivo Uibo, Vilve Vene, Ove Kreison, and Jan Lakspere.

Image: Modularbank

Vilve Vene has been building backend infrastructure for financial institutions for more than 25 years. As such, she's all too familiar with the problems traditional banks face when modernizing their monolithic systems for the digital age.

"In Western Europe and the US, the incumbent banks have a long history, and very often their platforms and systems are from the 1970s," Vene tells ZDNet.

"These are very expensive to manage and very difficult to change…Most of these old platforms can't respond to the online world we live in."

Vene is chief executive of Modularbank, an Estonian FinTech startup that offers a cloud-native banking platform for organizations wishing to offer financial services to their customers, or looking to move away from legacy systems.

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The platform is based on microservices architecture, and offers its banking software suite as 'modules' that allow customers to pick and choose the specific financial services they require.

While startups have been quick to capitalize on the FinTech boom, incumbent financial institutions have struggled to pivot their services with the same degree of agility afforded by smaller, born-digital firms.

Vene explains that banks have tried to innovate on the customer-facing side, spending huge amounts of money to build channels on top of their old platforms – but this hasn't been easy. "One of my customers told me that it takes six months and €100,000 just to change the interest rate of an existing credit product," she adds.

Modularbank was founded in 2019 when Vene and co-founders Rivo Uibo, Jan Lakspere, Ove Kreison, and Jüri Kirme discovered an appetite for tailored, cloud-based banking services that could be rolled out quickly to customers.

The idea had been forming in Vene's and her fellow co-founders' minds for some time. Vene, Lakspere, and Kirme launched their FinTech careers in the 1990s at Hansabank, which grew to be the biggest bank in the Baltics. Vene helped build the entire banking system from scratch, and headed the IT development division when Hansabank launched its online banking system in 1996.

In 2002, a few years after Hansabank was acquired by Swedish multinational Swedbank, Vene co-founded FinTech company Icefire, which provides financial systems to more than 15 banks and financial institutions worldwide. Lakspere and Kirme soon joined Icefire's board, with Uibo and Kreison joining 10 years later.

It was after a conversation with one of Icefire's customers that Vene and her colleagues realized that the market was ready for a new generation of cloud-based, core banking infrastructure.

"In 2018, it seemed that many bigger banks were considering moving at least a part of their business to the cloud," says Vene.

"We had a big customer at Icefire from the Nordics who told us: 'Yeah, you are doing incredible things, but why don't you offer it as a service?' We realized that we had to try out this idea."

Vene and her team piloted a series of cloud-based lending systems in Icefire and demoed it with potential clients, who were impressed. They left Icefire in 2019 to pursue the idea full-time, while Icefire was sold to UK-based unicorn FinTech company Checkout.com in June 2021.

Modularbank now employs 63 people, after securing €4 million in seed funding in 2020. Its Series A funding round is expected to close before the end of 2021. The company's growing client list includes: a stock exchange-listed financial services institution based in Finland; a large European payment card processor; and a financial services company that offers infrastructure to more than 130 FinTechs in the UK.

Modular by design

Modularbank's engineering and development work is mostly done in Estonia, while the commercial team – which covers the whole of continental Europe – is based in Berlin, Germany. The core banking service can run on AWS, Azure, Google Cloud, and Oracle Cloud, as well as on private clouds on top of Kubernetes or OpenShift. 

On top of this, Modularbank offers modules for financial accounting, payments, assets and collateral, cards, lending, and deposits and saving accounts. Because it's designed to be API-first, customers can integrate these modules into their own systems.

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The sheer breadth of banking services Modularbank covers is one of the company's key strengths, says Vene, who points out that competitors have often had to partner with third-party firms to provide the same services.

She also believes that the decades of technology and banking experience under Modularbank's belt mean it can tackle complex use cases and customer demands more comfortably than some of its competitors. "To build highly configurable modules, you have to know the product side of finance well. It's not enough to have great technology and great engineers in your team if you don't know what the customer needs to configure in your products," says Vene.

Security is another area where experience plays a critical role, and arguably nowhere is this more important than in finance. "We have been working in this field for so many years with highly regulated organizations, so it was normal for us to focus on liability and security from day one," says Vene.

For instance, GDPR compliance has been designed into Modularbank's products from the beginning, she says. "We only take customer data in its CRM module; all of the platform's other modules only reference to this data."

Outside of incumbent banks and 'neobanks' – banking services that operate without any physical branches – Modularbank has also garnered interest from companies in totally different industries, from telecommunications and retail to energy, who want to embed the FinTech's financial services into their own platforms.

Vene sees this as a growing trend as financial services become more deeply embedded in the products that consumers use every day. The banks will still be there, but they will act as platform enablers for other companies who don't have proper licenses for providing financial services,nor the necessary technology.

For example, someone looking to buy an apartment online will be able to choose a property as well as the most suitable mortgage scheme on the retail agency's website, instead of having to go through a separate process with their bank, suggests Vene.   

But to compete in this fast-growing field, organizations will need to be nimble, and able to adapt quickly to customers' needs. Modularbank sees itself as well placed in this respect.

"The new generation, core-banking market is very hot right now," says Vene.

"It wasn't so hot when we started, but now the demand is growing…I think we are in a very good position."

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