Generation Start-up: Deposit Book matches cash-hungry banks with savers hunting for yields

Siddharth Bhandari could have easily continued his career as a successful banker.

Born into a family of accountants in Jaipur, the historic capital of the Indian state of Rajasthan, he had a head for figures that saw him complete a maths degree and two postgraduate finance courses, including a Master’s degree in advanced finance from the London School of Economics.

He worked at a number of banks, including a spell at Societe Generale where he put his quantitative skills to work structuring derivatives and other products for clients across the Middle East and India, before eventually becoming head of investments for Emirates NBD’s wealth management arm in Dubai.

But Mr Bhandari could see the writing on the wall.

“Way back in 2012 or 2013 I realised that technology will disrupt a lot of [banking] processes, which are highly cost-inefficient and onerous,” he says.

He spent a long time mulling different ideas. The banker had seen many entrepreneurs making inroads into digitising payments, but wanted to do something more innovative.

“I had always thought you have to create some sort of a legacy. I'd had 22 years in banking at that time and was really looking for something which can make a difference in a scaleable way … not to solve a very small problem but to have something which is disruptive.”

He brainstormed “a multitude of ideas” before hitting on Deposit Book, a marketplace that matches banks requiring short-term funding with depositors hunting for a better return on their cash.

He founded Newbridge FinTech Solutions to build Deposit Book in March 2017 with Nicky Daryani, a former head of Franklin Templeton’s trading desk in its Dubai office, who was running a single family office investing in assets, including start-ups. The pair jointly contributed $500,000 of capital to get the new venture on its feet.

Growing the business hasn’t been easy, though.

“It took us about one-and-a-half years to build the product because we wanted it to be bank-level security.”

Deposit Book debuted at Finovate Hong Kong in November 2018, but it took a while to get banks on board.

“For 12 months we had one bank, and in the next one-and-a-half years we had 21 banks,” Mr Bhandari says.

The pair eventually secured $500,000 in external funding from BR Shetty’s company BRS Ventures. Although the subsequent downfall of Mr Shetty’s NMC Health business triggered a series of legal actions from lenders, which led to the freezing of his assets worldwide, it did not impact the start-up.

Mr Shetty's investment in Newbridge was in the form of a convertible loan and the freezing has had “no effect on the business”, Mr Bhandari says.

“There was no advisory or management position. We cannot comment further on that.”

The pace of progress at the company has picked up. It cracked distribution deals giving it access to “thousands” of corporate and institutional investors looking to place deposits. One was with FIS, a Florida-based FinTech that runs a portal known as Sungard Treasury Systems, which manages about $225 billion of money market funds.

“Through this partnership, we now get access to thousands of the largest corporate treasuries globally,” Mr Bhandari says.

In Europe, it secured a deal with Avaloq, a Swiss software company that works with private bankers and wealth managers who use Deposit Book to offer short-term rates to their clients.

The service provides an efficient, digital method of tapping a global market for liquidity, Mr Bhandari says.

The Basel III rules set up to strengthen the global banking system following the global financial crisis mean that banks can no longer rely on borrowing from the interbank market. And other than the banking giants with global networks, most lenders face heavy liability concentrations in their domestic market, which heightens risk.

Yet raising money from foreign depositors is costly, as it often involves setting up representative offices and securing regulatory approvals. Even in domestic markets, banks need internal “coverage” teams to raise funds, which also creates overheads.

“Through a digital channel, you can reach out to global customers without spending a dollar. We will provide you this digital infrastructure at a complementary cost and we only get paid when you have a transaction,” Mr Bhandari says.

“That really appealed to the treasurer. That [they] can actually access markets – from a Thai asset manager to a French pension fund or an endowment fund in the US – without having to set up [a] presence was a massive advantage.”

For cash holders looking to place funds on deposit for anywhere between a month to two years, the prospect of having lenders from around the world compete for their funds improves the return they can earn – especially in developed markets where short-term interest rates are either zero or negative.

Depositors can filter lenders by geography, credit ratings and other factors, setting exclusions where needed.

Deposit Book usually takes a fee of between 5-12 basis points (one basis point is 0.01 per cent), depending on the size of the loan and the relationship with the bank.

“The borrower always pays. For the lender, it’s a free platform,” Mr Bhandari says.

Banks with a medium-sized deposit base typically pay up to 20-25 basis points more raising deposits through traditional methods, he says.

Newbridge, which also has a UK office regulated by the Financial Conduct Authority through a representative route, is currently in the process of closing its latest funding round of $1m.

“The initial plan was to raise $2m, where we had very sufficient interest but we are now capping it to $1m purely because our strategic partnership with a US platform … we are looking at creating a strategic merger.”

On June 14, Deposit Book announced a strategic partnership with Safened, a US broker/dealer that also has a presence in Amsterdam and is developing a similar type of service.

The partnership will cover joint product rollouts and explore cost and revenue synergies to create “a truly global, cross-border marketplace by connecting banks with corporate and non-bank institutional depositors”, the companies said in a joint statement.

Talks are ongoing about creating “a much larger value proposition” covering the US, Europe, the Middle East, Africa and the Asia-Pacific region, “but nothing is yet signed”, Mr Bhandari says.

“It’s an evolving situation.”

The new funding round will be used to strengthen Deposit Book’s UK presence and hire more staff, including a chief technology officer who can bring in blockchain and machine learning skills, plus a global head of sales.

It also plans to add more products – allowing banks to sell secondary loans, commercial paper and even bonds – and offer a white label service that will allow banks to use their own branded version of its marketplace.

With the US Federal Reserve recently affirming that interest rates are unlikely to rise until 2023, demand is projected to remain robust, Mr Daryani says.

“People are looking for yield. The big driver of the deposit market is this value proposition that in Europe, in the US there is currently no yield,” he says.

“When you look out … giving access throughout the GCC and Asia, having that much of a premium of a higher yield is a proposition that I think is there to stay.”

Q&A with Siddharth Bhandari and Nicky Daryani, co-founders of Newbridge Fintech Solutions

What other start-up do you wish you’d thought of?

ND: Google. If there’s one start-up that has turned into a conglomerate … they just do everything.

What skills have you learned?

SB: In a start-up, everybody has to be everyone. I get visas processed, do investor presentations, meet the chief executives of the banks and also do some testing of the product.

If you could do it all differently what would you change?

SB: For both of us, it was the first hardcore technology experience. I wish I had understood the technology faster than probably I did [because of] the time cost. If you are burning cash, every day you can save is cash you can use for future allocation.

Where do you see the business in five years?

SB: We want to become the largest marketplace for liquidity and other financial products.

Profile

Founded: 2017

Co-founders: Siddharth Bhandari and Nicky Daryani

Based: Dubai

Employees: 12

Funding: $1.25m to date, currently closing $1m round

Investors: Co-founders, BRS Ventures