case study

Being an Open Banking Startup in SEE: Why Iris Solutions Pivoted from a B2C to B2B Solution Right after the Launch

Eleven Ventures16. July 2020, 09:49

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Eleven Ventures’ Visa Innovation Program helped Iris’ team design the right timeline for launching their products

On the 15th of September 2019, all banks in the European Union were required to open their systems for other service providers and allow them to use the data to build new solutions. Two days later, Iris Solutions, an open banking startup became the first Bulgarian company to receive a certification for such a service provider according to the European standard and complying with the European Service Payment Directive (PSD2). For the young company that meant one thing – almost limitless market potential for there were almost no other players in the space, and they were certified to offer a wide range of services. So Iris was set to conquer the Southeastern European region.

To be certified as a Third Party Provider TTP according to PDS2 means two things. Receiving a license for Account Information Service Providers (AISP), these players are authorized to retrieve account data provided by banks and financial institutions and thus build solutions such as money management tools, cashback, and loyalty programs, and make the loan application processes easier. Being certified as Payment Initiation Service Provider (PISP) allows companies to initiate payments into or out of a user’s account e.g. directly paying an online merchant through a bank account – without intermediaries.

With all the necessary certifications, at that point, Iris Solutions had a lot of opportunities and there were many different scenarios. “Our initial strategy was to enter the market with a B2C offering – a multibank wallet and a instant payment POS terminal with a QR code,” says Mihael Mihaylov, the business development manager of Iris.

The company decided to first launch electronic payments based on QR technology and multibank e-wallets. With the QR technology-based product Iris Pay, the startup gives online and physical merchants the opportunity to easily receive payments, and users – the convenience of paying without having to fill in any data. The Multibank e-wallet is the other customer-oriented product of the company – it allows users to manage different accounts and cards through one app. The company also offered (and still does) instant payment – without banking cards.

These two products were live in March 2020, after the company managed to integrate with all banks in Bulgaria who had launched the necessary application programming interface (API; around 85% of the Bulgarian banks currently have it, the rest are expected to launch final APIs by the end of 2020). Around this time, in April, Iris entered the Visa Innovation Program to fine-tune its strategy and soon to be faced with the VC approach and the “focus is needed” mantra.

Fine-tuning strategy and finding a new focus

“In April, we entered the fintech innovation program and realized during the early diagnostic session that this is not the right timing for this product. So the program gave us signs that we need to refocus and start with the banks and the financial institutions for there’s no way to develop open banking if the banks haven’t realized the potential,” tells us Mihaylov. In the three months long Visa Innovation Program the team of Eleven Ventures mentors the startups, puts them in contact with different big players from the financial sector, and facilitates pilots. One of the first steps of this process is the diagnostics, where the experts from Eleven prepare diligent research on the market and the potentials and look for the best possible positioning of the startups. In this case, it turned out that it would be more beneficial for Iris to start with a business model oriented towards other businesses.

“As open banking is still a very new and unknown concept in Bulgaria, the issues which startups in this sector are facing are related to both perception on the side of the banks, as well as trust from the end customers in using Open banking services. Iris, as a pioneer in the sector, is facing the uneasy task to educate both. This includes both convincing the banks of the value that open banking can bring to them and building trust among end-users to share their data with TPPs for the purpose of gaining better transparency over their financials,” explains Gergana Stoitchkova from Eleven Ventures.

As a result of this Iris Solutions decided to first push its product PSD2 HUB to the market. This is a solution that allows any financial institution to get the most out of the opportunities created by the implementation of the Second Payment Directive (PSD 2) by realizing a complete customer experience in its digital channels. In other words, the PSD2 Hub is integrated with all banks and any other player in the market could use it to easily build other solutions and services on top of this, including one bank using Iris’ solution to access information from other banks and offer its own services. And since banks are currently most concerned about offering new solutions and better customer experience, as Eleven’s managing partner Daniel Tomov stated in a recent interview, this turned out to be the right step at the time. Thanks to this approach Iris is now on the final stage before launching a product with one of the largest Bulgarian banks.

Startup to Startup & the ecosystem perspective

Throughout the program, Eleven facilitated one more b2b pilot for Iris. The one with another company from the Visa Innovation Program – the voucher startup Cashwave. As part of this collaboration, when users share the information about their card while shopping in Cashwave’s store, they receive cashback. The partnership also made Iris think in the direction of supporting the regional startup ecosystem and growing with it. Therefore, the company is also offering preferential prices to its services to other startups. “This is not so affordable. If a small company wants to connect to some of the big open banking providers the prices are 5-6 digit, which is unthinkable for a startup. We want to develop the ecosystem together with startups. We are open for collaboration with startups in accounting, insurance, banking, financial institutions, loan brokerage, who want to develop solutions based on open banking, we have preferential prices,” explains Galya Dimitrova, the managing director of Iris Solutions.

Bringing the VC and open banking together

One of the challenges for open banking startups is the lack of funding due to the fact that VCs don’t really understand the domain, as Marinos Xynarianos, Greek open banking expert and Visa Innovation Program facilitator in Greece, notes. Therefore, funds such as Eleven Ventures, that are building up expertise in this segment are essential. And this is a two-way-bridge. Open banking startups, oftentimes started by financial sector experts, also need the investor and scalability perspective. So a program like the Visa Innovation, facilitated by a VC that also features potential funding, is a win-win for everyone in the game.

“Even though our team has very solid experience and expertise in the financial world, developing a startup is something completely different in every given aspect. We, having worked 15+ years in the banking industry, were faced with a totally different environment, people and mindset,” says Mihaylov.

Now, towards the end of the program, Iris has a clear vision and timeline to launch its products to the market, and also a better estimation of how big this market is. “Our vision is to offer the best possible open banking solutions to companies in the SEE region. The challenge we want to solve for the region is API integration,” explains Galya Dimitrova. And thus, Iris could serve as the platform many other companies to offer different novel solutions and build a vibrant open banking ecosystem for the benefit of both businesses and end customers.