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Hayden Smith  00:04

We have about a billion dollars of people's money that's invested through Pealer. So about a billion dollars worth of Australians money we look after, and is quite a responsibility. It's something that we you know, always focus on getting right.

Dr Juliet Bourke  00:24

Worrying about money keeps lots of us awake at night. But when you’re in the business of money, it’s other people's cash that causes stress.��

When you’re a new startup like investment app Pearler, trust is everything.��

But the classic startup thinking of “move fast and break things” doesn’t exactly assure future customers that their money is in good hands – so how do Fintech’s adapt?

I’m Dr Juliet Bourke, and this is The Business Of, a podcast from the University of New South Wales Business School.

Hayden Smith is the Co-founder of Pearler, and he knows that when you’re dealing with other people’s cash you have to do things differently.��

It helps to remember why he got into the business of money in the first place.

Hayden Smith  01:10

Pealer, at a really high level, why we wake up every day as a company is that we see that there's too much financial stress in the world, financial stress impacts everyone relationships, families. And we're there to try and provide the education and tools to basically break down that stress. So we want people to live more relaxed financially well lives. Well, how we're trying to tackle that at the start is building a basic investing app that essentially allows people to invest in very safe, boring assets, with the hope that one day they'll have enough passive income from those assets that they can, you know, take stress off their life, because you know, they don't have to work forever, basically.

Dr Juliet Bourke  01:51

Alright. So it's the business of money. And you're trying to create a little pearl of wealth for yourself. So just talk me through then unscrewing finance, unscrewing personal finance, that's sort of part of the mantras. What does that actually mean?

Hayden Smith  02:09

Most people track their spending, reduce their spending, start investing, figure out what's a good savings account. There's this awareness that that stuff should happen. But most people are busy, tired, stressed, you know, the person who lives underneath me in my unit, she's a single mom with a four-year-old and six-year-old. No doubt she knows she should be doing this stuff. And doesn't have the time or headspace for it. And I think the headspace is a big thing. Because you know, if you could just press a button, and suddenly put all of your money in the best savings account and the right amount, everyone would probably do it. But they don't feel there's a place that they can get trustworthy information. It's not clear. So unscrewing it, for us it's just again, like we always talk about education and tools. So the education part, we're not really you know, an education provider. But it's more like we want to help guide people and make decisions easy. And then the tools are that we actually have to do the thing because there are apps out there that might help you understand how to invest, but they don't actually let you do it. So unscrewing for us is actually just providing the tools to make that happen as well.

Dr Juliet Bourke  03:14

So are you saying in this market of finance, which is a pretty busy market, there's nothing else like Pealer?

Hayden Smith  03:20

At the moment - yeah, that's kind of why we started. The interesting thing about Pealer is that mechanically, what we're doing is not that different. So there's a lot of products out there, I could list a lot, and many of them do the exact same thing. So for a well-educated, thoughtful person, they could go in and just buy the same ETF the same way. You know, in Australia, when you buy a stock or a share or an index fund, you have to buy a whole unit, right? When we started, we, we just said to our customers, you know, how much do you want to buy, they just type in 300. And we tell them, that's how much you can buy. And that's how much is left over. So in a way, if people kind of get lost on our unique value prop, it's often best summarised is just user experience. And that's mostly our platform is just an aggregate of those micro experiences.��

Dr Juliet Bourke  04:16

Your place in the market seems to be that you are not on the side of the banks, or the investment funds, which are like we deal with it this way you move towards us. And whereas you're moving towards the consumer, which is just ‘I've got this amount of money, and this is what I want to spend,’

Hayden Smith  04:30

Yeah, and a very, very normal consumer, because a lot of the investing apps, quote unquote, out there. They're like us, we make money off commission. So every time someone buys or sells we make money. And we're a very interesting platform because we're basically a platform that says you should buy investments and don't sell them. Whereas other apps out there they make a lot of money by saying oh you should buy, it's time to buy what's going on in the market, you know, is CommBank up or down They're incentivized to kind of, to play into that trading culture, where activity is everything. And that's what scares normal people about investing, right? They think about, you know, the 1980s, Wolf of Wall Street movie, they think about all those things, you know, men in suits running around looking at charts thinking about numbers hearing about, everyone's heard about lithium, buy lithium, you know, something's happening with electric cars, it's just, it's too much. So they target consumers, but they target that kind of subset of Australians that, you know, have the money and confidence to kind of engage with that, and they make good money off it. But that's, that's not why we set out.

Dr Juliet Bourke  05:34

So let me just take you back to these boring investments. Because when I hear boring investments, I hear blue chip, you know, things that take a long time to mature, not rapid fire, no ups and downs, no volatility, is that what you mean by boring?

Hayden Smith  05:49

Most of our customers 75% of the things they invest in are ETFs, or exchange traded funds where essentially you buy buckets of shares. So these ETFs are really popular, because when you're investing in a lot of stuff, naturally, there's some winners and losers, but you're brought down by the average. So QANTAS does really poorly during COVID. Well, you know, CommBank, picks up because they've got all this other money, it's just very slow, moving up very slow moving down, very predictable, kind of long term growth, we call it we call it boring, because nothing crazy happens, you put money in, like housing is boring, you know, the long term prospects for housing is pretty clear, you can have some bumpy periods. But if you buy it and keep it for 20 years, you have a very boring story to tell generally. So it's we're trying to emulate that, that security people feel in housing with listed equities because it exists.

Dr Juliet Bourke  06:39

So that's just, you know, the business of money itself. Talk about that a bit. And I'm thinking here about is it a challenge to go into the business or startup business that's involving money? You know, why would you go there? Why wouldn't you go to another startup area?

Hayden Smith  06:55

It's definitely a challenge. I wouldn't want to sound too cliched, but it felt like the right place to go because money so important. Sometimes I dream about a world where I go and build another like, Duolingo or something, you know, those language apps.

Dr Juliet Bourke  07:13

I do know Duolingo, I'm obsessed.

Hayden Smith  07:17

I see everyone obsessed with that. And I'm always like, why is that? Money is so important? You know, like, my, my family grew up in a financially stressed environment. A lot of people that I've cared about in life have the same kind of thing, seen relationships break down because of, you know, medical bills, or, you know, just poor education or something. So, it seemed like the right place to put my time. But one of the biggest challenges of it is any startup in a regulated space is generally really hard to get off the ground. This is true in health as well. So sometimes referred to as like health tech, or FinTech, because things cost money to start. So in our case, we wanted to build an app that was basically you deposit money, and then you invest it. That means we need at least a few providers, we need to work with a bank, we need to work with an identity check provider, someone who verifies your passport and driver's licence, we needed to work with a broker who actually does the investments on the stock market. If you sign up to Pearler and you don't even invest, you cost us money, we have to pay other people to like verify you. So it's a tricky company to start because you need some money. And I was very lucky that my co-founder, Nick he is like 10 years older than me. So he's like, at the time, he was mid 30s. And he’s just been working for a long time. And you know, he had like a couple hundred thousand dollars sitting around that he could throw at it. It's like we would have been there's no way we could start without that. I know people get all like, just have an idea and work hard. But like, No, we needed a couple hundred thousand dollars to get started. So yeah, working in a regulated space, I think is particularly tricky, because you have to identity check people, because the bank won't let you in otherwise, you know, so? Yeah, a few hurdles like that.

Dr Juliet Bourke  08:57

So there's hurdles. But is there also a fair bit of pressure in dealing with other people's cash?

Hayden Smith  09:02

Oh, yeah, definitely. Definitely. I think I think what's scary, I think right now we have about, it's about a billion dollars worth of Australians money. We look after and is quite a responsibility. It's something that we always focus on getting right. Thankfully, technology these days is fairly robust. And you know, we spend a lot of time trying to keep it safe and everything like that. Australia is a great place to invest because there's, you know, good protections, like you know, we're an insured company. We're a regulated company, we have people oversee us. So, you know, even in some horrible case where something goes wrong with Perl or our customers are still protected. I think if we were in like a bit of a dodgy, you know, a dodgy country where we could have done anything, and if the money's gone, the money's gone. Like those crypto horror stories you hear about? I definitely be stressed a lot more. But yeah, it's definitely a responsibility.��

Dr Juliet Bourke  09:53

Oh, you're very grounded. You're in the business of money, which is a long term play for you in particular, it's a long term plan. But there is this ethos in startup land, which is fail fast and break things. How do you navigate that tension? 

Hayden Smith  10:08

Yeah. I mean, the first startup book I read was The Lean Startup, like a fairly popular book around, you know, and the message of the book is essentially, learn things quickly, even at the expense of creating friction. We do a lot of that we often generally, we try things out, we release betas all the time, like half finished products to our customers constantly. And we're just telling them like, this is half finished. Tell us what you think, you know, and then we'll abandon some and we'll keep working on some but the interesting thing about finances, you have to be really careful where you do that, right?

Dr Juliet Bourke  10:40

Someone's gonna lose money on that beta right? And it's not you.

Hayden Smith  10:45

I think, yeah, it's interesting. Yeah, exactly. Back to signals, you don't know where the confidence signals will disappear. You know. So for instance, if someone's trying to, you know, buy something, and you give them a different way to buy it, and it doesn't work. They don't, they don't think that it not working is going to impact them financially. But it not working. If you don't explain it, right makes them think, is this thing broken? Is this thing like poorly managed? Is it a bad team is my money in there am I going to lose all my money. So back to the trusting it's really, you have to be really careful with how you, you do this stuff, you have to do a lot of like, coming soon, as opposed to just trying something out. Trust is a massive thing you can accidentally lose. If you employ these kinds of like classic hyperscale startup ideas too often, we still do them a lot, but we have to be restrained about it.

Dr Juliet Bourke  11:34

You talked previously about there being this sort of word of mouth referrals. And so that, in itself is a trust mechanism, friends, introducing friends, how do you as a brand, build trust? How do you throw those signals of trust?

Hayden Smith  11:47

Yeah, trust is a big thing for us. Probably the two biggest things. One is that we identified really early on that it takes a long time for people to trust institutions. I tell people often that, you know, even as someone who was a new finance company out there, I probably am in the top 1% of people who can identify how risky it is. Because it's my day job to think about it so you know what to look for. And even then I still wouldn't touch it. For months. Like even if there was amazing people LinkedIn me all the time, like, ‘Oh, here's a new peer to peer loan thing. Here's a new bank, here's new investing app’. And I'm like, ‘Cool, cool’. And I kind of put it in my back pocket. Like, I don't even think of that consciously. It's just like a habit. It's like when you see in your ice cream at Woolworths, sometimes you're like, ‘Ah, I don't know what that is. I'll come whatever, another time’. So we identified that early that we just needed to get in market. So even though early on, we didn't have a lot of customers, we kind of knew that. We just had to get the brand out there, generate wait lists, talk about what we're doing. See if we could generate some media spin. And I say this, you know, to my co-founder a lot. It's like, sometimes they'll go to launch a new product or a new aspect of something I think we used a while ago about oh, wouldn't it be cool to start a superfund in a few years or something, you know, and I'd say it's like, if we were to launch a superfund, you have to go in knowing that you're going to have two years where not a lot of people touch it, I wouldn't no matter how much I like a company, I'm not gonna go move my super across, like, straightaway, some people do. And they're amazing, because we'd be dead company without them. Right. But it's like, for most normal people, they kind of look at anything new as, I'm not too sure. So time in market is a massive thing for us. And then second thing is we do everything we can just to be very transparent with our customers, which I think helps a lot. Like, we don't have a massive legal team, or we have no PR team. We barely have a marketing team. So if we make a mistake, we just email our customers and tell them what happened. If we're doing something new, we let them know, we just in a lot of ways, I guess, we try our best to respect our customers intelligence and agency. Naturally, I'm sure that will bite us sometimes, you know, sometimes we do say something and customers will use it as leverage to you know, really complain or something like that. But in the long run, we think it pays off as always trying to be honest and upfront with them, because we'd like to think our consumers are quite smart and can you know, take the information.��

Dr Juliet Bourke  14:10

It sounds like it's very sort of low key, is that part of the trust thing? It's a very direct relationship between you in that, you know, there is no PR department there is no person that's interfacing it.��

Hayden Smith  14:20

Yeah, definitely. I wish there was a department sometimes a bit earlier, you know, like, because there's, there's always something going on. But I remember in the early days, we'd make a mistake and deposits were meant to come in on a Tuesday came in on a Wednesday, and we'd be like, oh, yeah, we got to get an email 600 people tonight and explain this to them. And there's always like, there might be a customer that says like, I was going to invest in, come back tomorrow and it was $60 a share and now it's gone up to like $62 a share. You guys owe me $300 You know, and it's not that that's an unreasonable complaint and I'm not I'm not dissing on that person. But that's the risk we carry as opposed to you know, we could make up some story ‘Oh, you know, put on some protections,’ but ya know, it's very low key. I mean, that's just I mean, we treat people again like we would our friends or something. I mean, a woman who lives. Yeah, exactly. Like, these are real people. They're not kind of, you know, little sheep that we're trying to move around some very real to you. Yeah. And there is a cost of that sometimes. But we again, we think it's worth it for sure.

Dr Juliet Bourke  15:22

So one of the things, obviously, with trust is data security, how do you navigate that?

Hayden Smith  15:26

It's top of mind for people. Firstly, we're really lucky that we're a startup, right? Because, and I've seen this, I have a lot of friends that work at Atlassian, and Google. And all it takes is one very silly person to do something silly. So at a small company, it's great, because everyone's kind of aware of everything that's going on. So in some ways, startups can feel a little more confident than a larger company. But the other, you know, helpful part for us is that we use a lot of external services, all startups basically run on like either Google or Amazon service. Which means that, you know, Google and Amazon, they get really good at managing security. So there's kind of like outsourcing method, there's a lot less that we have to manage as technologists that you'd expect, but where we mainly focus our time is on processes and practices internally. Because at the end of the day, you know, our biggest risk, like any company is always going to be our employees. Not that they would do anything malicious. But a good example is that only myself and my lead engineer have access to production, we call it production data. But that's basically our actual customers data. So all of our engineers work with a copy of all that data that's randomised. So they can like log into an account, but it doesn't have your name or your bank account, it just has like random numbers there and random names there. And we do that so that they don't accidentally do something silly, if that laptop stolen, or they leave it open at a Christmas party, nothing, nothing bad can happen. You try and avoid giving access to people for something until they need it. I was talking, I think I talk regularly to the team about the fact that you need to view access as a burden, not a, you know, not a bonus, basically, like everyone likes the idea of having power, like the key, right? The Master Key, like, if you work at, you know, at a big office, and you can unlock any door, it feels great. But actually getting into the mentality of you don't want that. Because then if someone breaks in, they're gonna look at you and say, like, you had the key - so is this you? So there's a lot of things we do internally that we punch above our weight for where we're really, we recently got certified for ISO, which is basically an information security standard. I don't know many companies that are consumer facing with, you know, 16 employees that have done that. So we definitely invest a lot of time into it.��

Dr Juliet Bourke  17:42

This is not your first rodeo in terms of a startup? Going into this one, how is that sort of different in terms of your knowledge base or your approach to this startup?

Hayden Smith  17:50

It's a great question. I think that the two things that I learned from the previous startup were that the people you start the company with a really important and the people I started the last company with a startup with two, they were great individuals. But I don't think we had the skill sets that complemented each others backgrounds. You know, so for example, Nick, my co-founder, now, he came from, like private equity, and before that family offices, and you know, for those that don't know what that mean, he was basically in charge of managing people way richer than Him, right. And so in the, in the business, he was so good at everything with like, how to organise the company, he works with the accountants, the lawyers, he knows how to negotiate contracts. So I'm like an engineer. So you know, he just kind of put some employment contracts in front of me, or he'll help me figure out how we're going to organise like pay bumps, or you know, and that's been so helpful having someone with complementary skills. I think, in the last startup, we were all a bit too close in terms of our own skill sets and backgrounds. And none of us had kind of cash lying around to help fund the company too. So probably the biggest thing that I noticed with Pearler was we had cash to get going. And we had like the right kind of mix of people at the top to kind of cover all the bases for sure.

Dr Juliet Bourke  19:11

Do you think you need a different kind of mindset to be successful in a FinTech as opposed to another kind of tech?

Hayden Smith  19:19

You definitely have to tame your wild side a little more, I'd say. FinTech definitely feels like the slightly more, you know, patient responsible startup, like we've been around five years, right. But we've only been in market for three. And that's because the first two years we were trying to exchange emails with banks, and brokers trying to get started because like, like, you go to Macquarie Bank, you're like, hey, we're a business. We're a PTY Ltd. Like why would they care? Usually if you talk to a bank and you say we want to use a bank account for business, like us, first question, what's your projections? How many customers will you have in two years like convinced this this is worth our time, so the time it took to get off the ground. And the cost meant, like you had to be a bit more responsible. And again, the customers are more unrelenting with, you know, not being trustworthy. So a lot of it's just about being more careful with way more like lean and startup than like a bank right? By like, 100 times, but compared to maybe a typical, like, San Francisco startup would definitely like a lot more patient and careful.��

Dr Juliet Bourke  20:24

So what would you say to founders who are wanting to start up a business in the business of money?

Hayden Smith  20:29

The usual advice I would give is, be patient, back to the previous point, don't quit your day job. There's like a usual mantra in the startup world that is, you know, you've got to go all in. If you don't go all in, then it's not going to come alive. You know, I usually say, you need to go all in on a startup once you feel like you are the prohibiting factor of its growth. Because when you start a company, you know, it doesn't matter if it's like Pearler, or if it's a company selling beads in necklaces, it's like, in the early days, it's not going to be the fact for many companies that like you're the problem, right? Eventually, like with Pearler, like for instance, myself, I worked full time at my university, I studied up to pay the rent for nearly two, I don't think I got a salary till three years into the company. So I was working for free for three years. If I went all in, like 40-50 hours a week, I would just run out of money and burnt out. And it was like doing that full time job at the uni, earning that money, which helped me also pay for some things in polar. Whilst we couldn't move faster. That was so important. And I see people burn out all the time. You'd be amazed how many people start companies and then just burn out, you know? That as well. Yeah, it's crazy. So patience.

Dr Juliet Bourke  21:50

So the mindset of “move fast and break things” doesn’t really work when you’re in charge of other’s people’s money... But does it actually work anywhere? 

Professor Frederik Anseel isn’t so sure.

Frederik is a Senior Deputy Dean at the University of New South Wales Business School, and says that the further founders move away from the old mentality of failing fast and failing often, the better.

Professor Frederik Anseel  22:14

I think, in general, people are sort of realising that when you move fast break things that you break a lot of things. And that is not necessarily a good thing. And so I think what you now have this realisation is that if you want to learn from failure, you need to not necessarily fail fast, but fail clever. In the financial industry, failing is potentially much more risky, right? Because the consequences can be huge. And of course, in financial institutions, financial industry, trust this everything. And it's very difficult, gaining trust, it grows very slowly, but you can lose it very easily. So that's why I think people are probably a bit more careful when it comes to losing trust and failing in the financial industry. So you need to fail in a clever way. And so what you typically would do is, for instance, you test out things that can fail, but it means that you would learn as much from the success as you would learn from the failure. And so a typical example would be A-B testing, right? Is that you have discussion, maybe with your management team, and there's not a lot of agreement on what would be the exact positioning, or what sort of incentive scheme would you set up? Or what sort of programme would you set up? Some people would be discussing and the old ways of doing with that maybe the CEO or entrepreneur would say, ‘That's my decision. That's what we're going to do.’ 

The clever way to do it is basically ‘Well, if we don't agree, let's test both programmes. Let's test both incentive schemes. On a small scale, let's be very strict set up that sort of a-b experiment in two different markets, small group markets, let's run it for a couple of weeks and see what works best’. And so one of them will have failed. But from the failure, you learn that the other one works or not. In my own research, I do a lot of research on reflection. And so what you can do is also have structured reflection in teams. And so for instance, you could do it in a financial institution. Imagine that you have a whole programme, you've been running it for three months. And then at some point, you say, let's stop here, and let's assess and evaluate. And instead of just looking at what you've achieved target numbers, you roll it back, almost like you're looking back at a movie, sometimes they will record entire things and they will look at a movie and they will stop it almost like you're analysing a football game.��

And they will say so what was happening here exactly what contributed here to success, what were all the little building blocks, the causal model of all the little things that may it into failure or into success. And so if you do it in a hospital, right, sometimes if you have these very serious surgeries, and I've worked with a hospital where a surgery can take up to 10 hours, right. And so many things happen. And there's all always little incidents that are happening, they will record it. And then later in the week with a whole team, and often that is a team of 10-15 people around it, they will take part in that after event review, go to the whole recording of it, and we'll try to find moments where there was a risk where something happened that was a success factor or was a potential failure factor. And they will try to set a causal model of failure and success and that is how you actually learn from those things.

Dr Juliet Bourke  25:49

Perhaps the days of failing fast are numbered. Maybe it’s time to fail thoughtfully instead.

If you’re in the business of money, the risks are high, but the opportunities are worth it. As technology continues to improve at a rapid pace, more tools like Pearler can help regular people take control of their own money.��

But that doesn’t mean you should quit your job today, move to Silicon Valley and hustle your way to success. ‘Success slowly' might not be as catchy as the ‘fail fast’ mantra, but in the business of money, it’s the only way.

The Business Of podcast is brought to you by the University of New South Wales Business School, produced with Deadset Studios.��  

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