Loot, the digital banking app founded by Ollie Purdue, took a £2 million investment from Royal Bank of Scotland earlier this year in exchange for a 25 percent stake in his company.
Sitting in the startup's vast new office space in London's Bankside, Purdue talked to Techworld about the company's roadmap, overdrafts and that RBS investment.
Back in 2014, fresh out of university, Purdue wanted to build a banking app that was better than the big banks. Now, flush with funding from one of those banks themselves, and one that is planning to launch its own digital current account in the form of Bó later this year no less - what next for Loot?
"I meet with a bunch of different people at banks and investors every week and I met with [RBS] at a time when we were fundraising and it just kind of seemed logical," Purdue said. "There are a lot of things I think we do better and lots of things we don't do, because we aren't a proper bank."
So why did Purdue decide to cosy up to one of the big banks he is so keen to disrupt? "The biggest thing with investors is the value they can bring beyond the money," he said, "and when I looked at our board structure it was very fintech focused, not very bank focused, and given that we are essentially building a current account, it made sense to have them on board."
"Obviously there are things now we can potentially work together on or do stuff with, but we are still separate companies so it would be as if a normal partnership between two companies," he added.
Mark Bailie, chief executive of Bó, the digital-only bank being built by RBS as we speak, said in a statement: "Loot is a really exciting brand and one that we're proud to be associated with. Through its innovative use of technology and intention to change the status quo, it's quickly built a following of loyal customers, with potential for rapid future growth."
Building a better bank
Loot is essentially a money management app, predominantly aimed at students and young people to better manage their finances and stay out of debt.
"The core market is the same [as always] and the reason is 80 percent of that target market worry about money and making ends meet which is a bit higher than other markets and at the same time they feel the least financially literate, and they don't like their banks," Purdue said. "So it is kind of a perfect strike point for us to be a better current account that helps them manage their money and relieve that stress."
The app is built on top of core banking technology from German payments specialist Wirecard, and it currently operates under that vendor's e-money licence, with plans to get its own licence later this year.
It recently added real time budgeting, which is "already better than the high street banks because some of their data isn't even real time, which is crazy. I remember when I was on Natwest I couldn't see how much money I spent yesterday," Purdue said.
There is also payments (through FasterPayments), debit card controls, support and saving goals, all with a pre-paid MasterCard debit card.
It may seem contradictory for a money management app, but one thing Loot is keen to build out is an overdraft lending facility.
"One of our most requested features is overdrafts," Purdue said. "With an overdraft we have the ability to look at it a bit differently to a bank."
Students typically rely on an overdraft to live week-to-week, with 30 percent of Loot's target market currently overdrawn, according to Purdue, citing FCA figures.
"There are so many cool ways we can do it," he said. "So if we give you an overdraft why don't we link it to budgeting so the app tries to get you out of your overdraft as quickly as possible?"
"RBS charges £6 just to go into your overdraft and interest on top, so they are making like £10 a user a month on the overdraft and we only need to make £2. So there is a good middle ground there to be a profitable business but nowhere near the costs of a Natwest or Barclays, that's the exciting area for us I think," he said.
So the idea for a Loot overdraft is to only offer daily a daily or weekly overdraft to cut down on increased spending after that money becomes available, which Loot data has shown Purdue is a common behaviour.
"So we can limit the amount you spend and we have the data on what you spend money on so we know what you can afford or work out a way to slow your spending once in an overdraft," he said. "So even if the fees were the same as Natwest I would love to say that with Loot you won't get into as much debt. That would be for me way more important than the actual fees. I think that's an easy target for us."
Features, features, features
The plan for Purdue now is to scale Loot as quickly as possible, while retaining the efficiency levels and cost control required to be profitable.
"Our rough business plan gets us to a million users and profitable in a couple of years," he said. "Right now we are at 200,000 [users], so we have to 5x. We reckon we can do it in two years but need to double the team and invest in product and engineering to build more things faster."
That's where that RBS money comes in.
"The best solution is to build lots of engineering teams," he said, "once we have five we can fix five problems at the same time. Over the past two years the business has been fighting over prioritisation of problems and what to focus on at which time. So we will double the team to 110."
This team will first be tasked with what Purdue loosely described as "infrastructure and making payments better and the boring bits...then its just features, features, features" he said.
"I think there is a lot more we can do to provide the most relevant features to that user base," he added. "So how do we help people manage their student house? Or their first job? There are so many life moments you can work on and build better products for."