Why Australian fintech Tyro aims to become a bank

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Tyro, the 12-year-old payments company backed by Atlassian’s Mike Cannon-Brookes, has raised $100 million to create a new bank.

The company boasts 14,000 small businesses as customers, and processes more than $8 billion a year through its payment terminals. In August it received permission to become an “Authorised Deposit-taking Institution”, or ADI. Tyro can’t call itself a bank, but is allowed to take deposits from customers.

With $50 million in its coffers from the capital raising – the rest is being spent on platform expansion – Tyro now has sufficient equity to apply to be called a “bank” and is lodging its application to become one.

The incumbent banks are ripe to be targeted, according to Tyro’s CEO Jost Stollman. The industry is one of the most profitable in the world, and is still “sitting on a legacy business”.

The big banks have recognised the threat posed by nimble fintech companies and have set up their own divisions to develop new products, investing heavily in fintech hubs and venture capital firms. NAB now says its “busiest branch is a mobile phone”, as its apps take over from branches as the front line.

Last week, the former CEO of Barclays, outlined a nightmare scenario for the future of established banks, warning that they faced a potential “Uber moment” and having their established business practices suddenly upended by technology-driven alternatives to their services.

Stollman says Tyro’s advantage is that it is “genetically a technology company”, so it has the advantage of being technologically native. They first developed a technology platform that they are now “marrying” with banking.

Stollman insists that the increased regulatory oversight that comes with being a bank will be a positive. While “most people would consider regulation a downside”, Stollman says they view it as a form of support and risk management.

“We are coming in with a very low cost, very efficient technology platform,” Stollman told Business Insider.

“We are the bank and we are the technology play.”

Tyro will first build a base of deposits over the next year. Currently its payments customers settle using accounts with traditional banks. In the future, customers won’t need to use an external account for settlements.

Once they have a base of deposits, Tyro will enter the small business lending market.

Tyro’s 14,000 customers who use the company’s payments terminals are mainly small businesses. According to Stollman, they are underfunded. He cites research by Macquarie Bank that there is $60 billion in unmet loan demand in Australia.

While not addressing how much of this unmet demand represents viable lending opportunities, Stollman says it is evidence the incumbents haven’t met the requirements of small, fast growing businesses.

“How many jobs could be created, how many products could be launched if the small businesses could get funding?” says Stollman.

While he stresses its too early to talk about how Tyro will make its loan decisions – they won’t launch loans for at least a year, Stollman notes Tyro has access to data that other fintech companies don’t have.

“We have a long history in our merchant base of payments. And it’s real time data. So this is one of the major sources of our information,” he says.

“We are sitting in a real good spot because we are real time. And we are sitting in the work flow.”

“But we can obviously collect a lot of the other available information that other people use to feed their decision making algorithms.”

Tyro aims to be not just a bank but a platform that integrates with its various partners. It has more than a hundred software partners and even runs its own fintech hub.

“Its obviously a bank that is software and algorithms and data. And its a bank that cooperates with software partners.”

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