George Davis, CEO at Lorum: 80% month-to-month growth for 6 months

0:00Scaling Europe:Hello and welcome back to the Scaling Europe show. I am Seb Johnson. I'm here with George. George, tell me a bit about who you are and what you're building.

0:07George Davis:Yeah, so Lorem is actually my third business. I started my first when I was 18, a machine learning business in London and ended up exiting that business for a couple of years before AI and machine learning were really very cool. and ended up knowing super well the CEO of TrueLayer and coming on to build out a new payments product and really became super obsessed with payments and virtual accounts and equally as frustrated that we couldn't monetize foreign exchange or cross-border and ended up leaving to co-found a business called BVNK in the crypto cross-border space as chief products officer there and really through scaling a pretty massively global payments business now, really discovered there was no good clearing bank for emerging markets.

1:00George Davis:That back in the day, you would build a really global cross-folder product on top of banks like Citibank and their kind of deep emerging market FX business. But those networks were really built in a time when you didn't expect a real-time payment. and as such you will be sold this myth that swift doesn't work and is broken and that you need stable coins or an intense amount of treasury netting to solve that problem and we believe that that isn't true so actually left to start law and to solve that problem of what if we could actually be the clearing bank on either side of the transaction because the problem with the swift network really isn't the system it's the participants it's that lending banks are everywhere within the swift network settling your payments and they hold on to your money for overnight interest rates they are using it for liquidity for lending and actually this creates a slower lower quality payment and what if we could actually replace those lending banks as a hundred percent reserve institution clearing around the world through direct central bank relationships and that's really the core of what we what we started with lorem and we we started in the infrastructure and an intense amount of monetary flow um and i love telling people the first payments we cleared we used to have to print paperwork and wet sign with ink and uh career the paperwork to a branch um and we ended up having to build a lot of the infrastructure for our banking partners we had to build out a lot of things that you would just come to expect in europe um in quite a saturated market and uh we now have a monopoly on that middle eastern market and growing around the world growing i think at the moment 80 percent month a month for the last six months so we kind of triple the business every couple months um really trying to build out a global clearinghouse across asia middle east europe us um the the experience payments properly

2:58Scaling Europe:amazing that's a phenomenal growth and you know i imagine but correct me if i'm wrong you've probably spent a long time building the the fundamental building blocks of the business and the foundation and the architecture. Now you're at the point where you've built a product that is good enough, that you are now seeing this growth. Where is this growth coming from? You know, what sort of, you know, is it an interesting business in the sense that it's targeting like a, maybe like an underexplored or niche part of like the fintech stack or financial services stack? Who are you targeting? How do you grow?

3:31Scaling Europe:What does that look like?

3:33George Davis:Yeah, so we only serve financial institutions. Our job really as a clearinghouse is to remain neutral in the market and just really focus on moving money through national payment systems. And so we're always targeting mid-market banks, large payment institutions, even through to your large crypto cross-border players that need to do the first and last mass settlements. And so we're always at the bottom of the financial stack, which I think is a relatively unexplored part of that. You've seen this big evolution in Europe where ClearBank and Banking Circle have popped up and provided a really high quality clearing service.

4:12George Davis:And I think ClearBank has remained very true to that as a 100 % reserve bank providing a service that most fintechs in Europe sit on top of or in the UK at least. Banking Circle has gone through that lending journey now as well, which I think really degrades some of the product. But we haven't really seen that evolution anywhere else. and those banks in particular really struggle with dollars and so we've seen a huge amount of growth just from launching us dollar clearing over fedwire and over swift and really selling those dollars around the world we launched it and i think it's grown at 200 month a month ever since so it's really driving a lot of the growth within our business at the moment because dollars are just so difficult for emerging markets so we clear a lot of dollars into africa into asia from around the world, providing effectively a dollar correspondence service, always in the name of the end customer, always through virtual accounts everywhere.

5:07George Davis:And I think that's something that's really quite difficult to do in the market at the moment. Dollars are probably the most locked off that they've ever been. And we can settle dollars into these markets in an hour or two or so, when usually these markets sit on top of a day, two days, sometimes at worst case, three days, whereas dollars are really difficult to settle.

5:26Scaling Europe:amazing and you know you're starting the middle east you know you you sounds like you're seeing some traction in america as well are you are you being pulled in certain directions or you find yourself being pulled more to places like the us as opposed to europe where there's more established players are there other sort of emerging markets where you're which have a similar problem or issue that the middle east has held where you're seeing pull but what does that look like yes we

5:49George Davis:are we're licensed all over the world pretty much so we operate across asia middle east europe US. I'd say US is the biggest drive for currency, but not for customers. I think the US dollar market has some pretty interesting difficulties right now. If you look at dollar clearing, it's really dominated by your banks like CrossFeroBank, CFSP, all community banks in the US that maybe don't have good international access, but also are fundamentally building lending books underneath and so they struggle to clear payments fast there's often liquidity crises like we saw of svb and silver gate etc because they're not really building a payments business they're building a a lending book and they're using payments as a function of acquiring more deposits um as they have very high capital requirements and um very high liquidity requirements generally across their portfolio of companies and and so we get a lot of pull to dollars it's probably the most difficult thing we see but those dollars are nearly always traveling to somewhere that's not the US so they're nearly always traveling to Africa or Asia so dollars to China India Southeast Asia parts of Africa is all very interesting to us and that's really where we see the strongest fit but I think we've been absolutely shocked at the interest a financial institution has to domicile all of their volume with one provider and so we've had a huge amount of demand actually for GBP euro as well we're just launching that at the moment um which we i think we thought we would never have a place to do i think we felt that in the beginning that it was so saturated that um it wouldn't really be interesting to majority of the market but by the time you're covering the dollar business and dirhams and reals etc around the world um these institutions really want to build all their money in one place and this has actually driven us to build out a a large cash management business as well, where these businesses want to earn interest on the funds that they leave on platform for effects equality, where they want to manage their wholesale effects and their effects risk.

7:58George Davis:And so what we're building really ends up, over time, starting to look more like what Citi calls treasury and trade services, what JPM calls JPM payments, that kind of complement that payment as really customers want to do everything they can within their treasury on one platform, which was really surprising for us. The majority of our customers are European financial institutions. um or asian that's the most common that we see like we have a large portfolio of european banks and e-money institutions and um we were really surprised that they would also buy euros from us

8:30Scaling Europe:to be honest and how do you see that evolving over time you know you talk about you being pulled into sort of treasury more broadly like do you see yourself is that it you know is that your focus that your niche you want to stay laser focused on that or do you think there's other services or you know other parts of the financial stack that you can move into once you've built a really

8:52George Davis:robust offering there so i think clearing was our first wedge yeah like it's the bit that we feel is really the most broken but when you look at just clearing it's quite a competitive and fickle market as banks grow like it's relatively easy to change clearing back yeah okay um and it all becomes about price compression and so these banks that offer clearing often then turn to lending because they say okay let's just make money on the float let's make money on the money that sits on the books and that's really how we'll make our money and we'll offer fx near market and we'll offer clearing your market and that's why you see european clearing can be as low as five ten cents to clear a payment because really they're making their money on a the really large number of transactions but b on the floats that they hold on their books and um for us when we look at the biggest players that do this really well so if you look at city tts barclays wholesale jpm payments they are keeping the treasury within their books at all times they're building out an entire treasury platform and as this tts business line and i mean city knows it as their most valuable part of their business actually it's the thing that's kept their valuation quite high and i think to do that you have to build a platform and that platform really is allowing a say a european bank for instance to hedge its currency risk and manage risk across its portfolio to earn interest on say u.s treasury bills without leaving the euro ecosystem um to get wholesale fx liquidity around the world where maybe they have to turn to players like Stonex or other kind of FX liquidity sources that are not other banks.

10:37George Davis:And I think that's where we really see the opportunity. And I think everywhere dollars reaches relatively well with high liquidity is a market that we'll play in. Anywhere that has really low dollar liquidity, I think for the near term, is a crypto market like Nigeria, Egypt. but i do think over time where you don't find dollar liquidity now you won't find stable coin liquidity either because at massive scale you'll have the same you know usdc becomes usd and um you will you'll find the same restraints and maybe they'll become more interesting but today i think where dollars don't reach is is not somewhere that we're putting focus as it can

11:15Scaling Europe:be a bit of a distraction and when you look forward do you see you know it's almost like the growth of crypto a potential competitor you know or even stable coins do you see that as taking away from you know what you're building in the sense that you know people are using stable coins and crypto are they going to be less likely to use your product uh no not at all i mean

11:36George Davis:we actually power the vast majority of the crypto cross-border market today around the world um and so we're agnostic to the rail that they onboard into the network with and i think stable coins have a place i think the stablecoin sandwich doesn't have a place i think the thing that doesn't make total sense is fiat crypto fiat but we will clear usdc as we will clear a usd payment effectively and we it was very interesting like most of our portfolio of crypto customers turned to dollars once we launched dollars they uh they were you know liquidating with a local market partner some usdc or usdt and then buying say dirhams with us in the local market we wouldn't interact with the crypto at all and when we launched dollars the majority of them started liquidating into dollars and sending us dollars from circles say because it was far more efficient and so i think the market's not there i think until you can offer a sub one basis point effects margin on say usdc to euro which is really hard to do when you're going euro dollar dollar usdc um i think we won't see a huge move in the fx market towards stable coins i think tokenization is extremely interesting to us tokenized money market funds is something we're putting a lot of time into at the moment um that allow our customers to get in and out of say a blackrock fund 24 hours a day seven days a week because that can be really powerful for a lot of earning interest on your fx liquidity pool and that's something where i think i see a lot of growth for us tokenized escrows etc this is all super interesting and so i think very complementary to our business and absolutely something that we are on top of at the moment but the stable coin sandwich is something i think we don't see as much movement on but we will settle the payments for as and when we see them really got it okay that makes sense and when you look

13:34Scaling Europe:back at your own career you know you know you spent a decent amount of time at true layer um you know i guess one of the very early open banking pay-by banking startups here in london you know then bvnk again like a very innovative company in the fintech space what is it that you've learned or that you're applying today that that came from those companies so i think

13:58George Davis:trula had an excellent product um but it was brutally hard to monetize um because you are selling effectively a feature for a payment company and it's a feature that banks provide for free as just open banking and so trula had a brilliant brand and a really really strong product and really strong product team and engineering team and really the best in class product but it was a product that you needed to sell for a couple pennies a payment which is really really hard to scale i'd say with bvnk um amazing ability to monetize really taught me a lot about foreign exchange revenues and foreign exchange liquidity um but not a long lock-in at the time and i think this is different now but you know when you're supplying effects liquidity companies can come to you and buy 50 million dollars in one go and then leave and churn and you then need to do the same work constantly to pick up the same volume and so for us we were very focused on how do we build that true layer like product where it's very sticky and very um kind of technically the best in the market and our customers today love that they can create thousands of accounts in their customers name around the world in seconds on a reliance model and we've really taken a lot of learnings from the true layer product there um but with all the monetization mechanism the basis points the foreign exchange spread the foreign exchange optimization of the bvnk product um and that's been a really powerful mix for us you know we get long-term customers on monthly minimum contracts they're really serious about doing long-term volume and we're a long-term kind of partner in their infrastructure stack um but with kind of that ability to very quickly make a lot of money on it and we've seen a lot of growth and we've grown very efficiently because of that and that was something bvnk did really well bvnk was a very lean and efficient business um because of

15:51Scaling Europe:that effects margin and how do you think about uh funding the business and given that you're very lean you're growing quickly is this a business that you think needs lots of capital to kind of supercharge it or do you think actually we're going to be able to grow this business with with

16:02George Davis:not that much capital i mean we we have spent uh no more than about four million dollars to to date of where we're at at the moment and we've raised in excess of 20 and um we haven't needed a lot of money to scale especially because we are the institution at the bottom of the stack our customers are the ones that are needing to pre-fund payments for their customer experience we don't you know need to borrow from players in the market to to pre-fund the payment etc like many will um and because our business is clearing moving money in and out we can be relatively capital efficient on the capital requirements side um saying that we have applied for multiple banking licenses around the world that will increase that but I still don't believe we need hundreds of millions of dollars to scale that sort of business out as the growth we're seeing really right now is very much organic got it okay and you're also

17:06Scaling Europe:building in Dubai you know there's a there's a lot of London Dubai chat always but for me I'm always super interested in like the tech ecosystem in the Middle East you know we see a lot of founders and vcs who who are moving to dubai to build their companies out there what's it like you know what's that tech ecosystem like is there a thriving hub is it getting bigger and bigger what's it like to be a founder on the ground in the middle east i mean it's very early for us it

17:33George Davis:was vital at the start of the business though we moved here and we built the business here now we have slowed down the growth of hiring in dubai and about a third of the company is here um we've gone from about 12 people to nearly 50 in the last six months um and most of that in the last three really wow and a lot of that growth is coming now through singapore and new york for us um but it's very important if you're building a fintech here that you are on the ground and building a truly local business and a lot of players have kind of fallen over because they put an mlro and a general manager on the ground and they've not really built a device business and this place is quite isolationary it's very open but it's quite isolationary so they're really looking for a business that um is global but is built here um and that can be hard a lot of global players have been burnt here because of that i'd say there was this vintage of fintech that started in covid in 2020 and that is a very tight-knit community where a lot was happening a lot of buy now pay later corporate card expense open banking but ever since there has been like this chasm of not much happening because the market is so early it's still working out how to regulate things what it wants to regulate what it doesn't want to and then you've got a lot of competition like this market looks in theory similar to europe but actually it's very again insular in each place like saudi is a very different place to the uae and to build a really really large business you need both and um it's really hard to run both with one team um venture capital has got a lot of good early stage um but you know even today most of the sovereign wealth deploys its late stage funds into europe and the us it's very rarely deployed here like you've got big successes like tabby that have raised lots of money from pif and mubadla etc um but it's it's early i'd say there's a lack of really great Series A, Series B, Series C kind of capital here.

19:42George Davis:But you do see the large US funds coming to raise money from the sovereigns here. And they do then deploy some capital into these markets, which help for. But I think there's still a way to go where these markets need to learn exactly how to regulate what they're regulating and what to regulate. Like we've seen, for instance, the consolidation of licensing in the UAE down from three regulators to one recently and that's been a great move um to move everything under the central bank and a really important move i think for them taking fintech really seriously and that's the move that actually enabled revolute to get licensed here wise etc and and so i think that's an exciting shift um in the dynamic here but it is still you know i'd say we're still 2015 london not 2020 london and beyond still still somewhere to go well george thank you so

20:32Scaling Europe:much for joining me uh i think what you're building is is super interesting it's amazing to hear how quickly you're growing while being so capital efficient uh it's in the age of ai it's always refreshing to speak to a founder who's able to grow quickly without i don't know spending hundreds of millions to get there so look george thank you i really appreciate it and uh best of luck thank you very much

21:02you