ASX-listed fintech Douugh is hoping to give “emerging customers”, which skew to the younger demographic, an alternate way to participate in wealth creation, given “property is completely out of reach”.
Founder and CEO Andy Taylor told the iTnews Podcast its service is “really a financial wellness platform.”
“Specifically, it's a money management platform that we've been building out to really help everyday Australians better manage and grow their money," he said.
The idea is to assist users by “smoothing their cashflow save and investing [that] to build long-term wealth on autopilot”.
The fintech had originally set its sights on North America and named itself after a slang term for money (the extra 'u' was to emphasize its aim to build wealth for you, and because Dough with a single 'u' was taken).
The decision to hit the North American market first was down to it being “much bigger” and having issues “ten times worse than here in Australia”.
“We were really going after this customer cohort that was looking pay cheque to pay cheque, and there's always a scary stat that we saw early on that 70 percent of Americans couldn't afford a thousand-dollar emergency expense," Taylor said.
Setting up an everyday banking proposition in that market proved challenging, however.
“We really try to focus on building money management tools around bank accounts,” he said. “What we saw was people putting in small amounts of money to test this out and to build trust."
The company decided to shift its focus to Australia, but also to pivot its business model: rather than act as a bank, it would act as a "companion" app to a customer's main banking relationship.
“We're app-based and now solely focused on Australia,” Taylor said.
Taking a long-term view
Despite a financial landscape that is heavy with personal financial management tools for everyday consumers, Taylor said many aren't "actually getting used."
Noting this, one main reason for Douugh’s pivot was to “become more of an investing platform to educate people around dollar cost averaging and what it means to responsibly invest”.
“If you look at the banks and a lot of other monoline competitors that we have, they're very focused on talking to active traders on the platform, whereas we're taking the approach to educate savers to invest in a diversified portfolio and take a long-term view.”
He said banks tend to be “legacy feature-based in terms of the products that they offer."
"They're trying to bundle it all in together [and] it's not really succinctly integrated.”
However, “emerging customers”, which skew towards the younger demographics, believe wealth creation will stem from investing, given “looking at property as completely out of reach”.
“Share trading through compound interest is where that's going to come from: investing in ETFs and things like that," Taylor said.
“When we say money management, that's really what we're talking about now. It's not about pretty graphs in the banking app, that don't really tell you anything, and that's just through experience and what we've seen.”
He said the notion is to create a "super app" to unify a person's view of their finances, leading to “greater convenience” - with education and automation via artificial intelligence resulting in more savvy investors.
This would help dispel fears surrounding investments, partly due to lack of education and market disruption in the last 18 months such as crypto crashes or “some of these meme stocks”.
ChatGPT risks
Part of Douugh's plan is to guide users through the traps of investing, which at one stage included incorporating ChatGPT into its platform to enable its users to educate themselves about finance.
However, Taylor said after Douugh “dug deeper” into that technology, “we realised the limitations of the privacy aspect of customer sharing data with ChatGPT”.
“It's pretty scary and we needed to be very conscious as we're not regulated to give financial advice," he said.
“The way that we were wanting to use this was really just to help customers get access to information more easily on the stocks that they're looking to invest in."
He said Douugh has taken a step back from its initial generative AI plans but still considers the space “certainly really interesting.”
“Where we saw this going was portfolio construction, he said.
“Actually, having the AI almost become ... a self-directed trading mechanism. This is going back to the [investing] autopilot we always envisaged, which was there's going to be some customers that will trust the algorithm and will turn it on to autopilot to manage their money for them and invest their money for them.
“That was always the holy grail for us, but I still think we've got a long way to go on that.”
Evolving plans
Back in late 2021, Douugh was set to offer traditional core-banking services in Australia through a partnership with UK-based Railsbank (trading as Railspay in Australia).
Intended to help Douugh scale faster, the partnership was meant to help the business officially launch its app in Australia by mid-2022, pending final accreditation which Railsbank would obtain from Volt Bank.
However, Volt collapsed, making it a “pretty challenging time” for Douugh.
“Unfortunately, that ripped up six months’ worth of work and we were forced to find another partner," he said.
Finding the same combination of services it was procuring proved to be "quite hard.”
But Taylor noted that it had been a blessing in disguise "because we've actually ended up with a far stronger proposition than we had a year ago in terms of what we're bringing to market now.”
Douugh now offers a transaction account provided by Cuscal and enabled through Zai Australia and fintech Wonderful, who issues a bank card via Mastercard.
Taylor added that he doesn’t believe Douugh will seek out a full banking licence as “it adds no value and just adds unnecessary cost as [defunct neobanks] Volt and Xinja all found out the hard way”.
“Bank accounts are completely commoditised. I think where we logically, vertically integrate over time is probably we take on some of the issuing and maybe we look at becoming a non-bank lender over time.”
“For us, if anything, where our future lies is becoming more of a fund manager on the wealth management side, which is really where the margin is.
“We're in a fortunate position because we've got quite a few revenue streams now coming together and what we're going to be proving out now is, as we scale up the customer base is: What does that look like from a gross margin point of view and how do you value a business like that?
“Is it a software-as-a-service business? Is it a payments business? I think we fall into so many different sectors here cause we're bringing two worlds into one.”
“It's going to be quite interesting.”
Building the tech stack
Taylor said the "great thing" about being a startup was having "a blank sheet of paper in terms of how you want to build the latest and greatest tech stack" for the app.
“We're not hampered by any legacy like a bank. We've able to build a brand-new backend architecture here that's fast, scalable and modularised,
“Then on the front-end, from the app experience, we've taken a quality approach to building a native app experience rather than utilising hybrid technology, which is typically compromised in terms of quality in terms of customer experience and our design aesthetics is clean and simple.
“The cleaner and simpler you can make things for the user, the more intuitive it becomes”.
He said he was “great believer in small teams can achieve big things” however noted that one “constraint of any startup is always prioritisation and focus”.
“This comes back to getting product market fit now and stop building some of the big features, because we've been building big features for a long time, and now actually really put the focus into optimizing what we have around performance”.
Taylor added that there is “certainly no shortage of new features we can build" for the app.
"I think we just have to be guided by the customer base now on what that priority needs to look like.”
