February 18, 2021-In today’s podcast, we welcome special guest Andrew Chau, Co-Founder and CEO of Neo Financial, and co-founder of Skip the Dishes, which was previously acquired by Just Eat for $200 million.
Neo Financial is a technology company that’s building a better financial experience for all Canadians.
On the podcast Andrew discusses:
- The background behind the founding of both Skip the Dishes and Neo Financial
- Growth opportunities being pursued at Neo
- Competition and the future potential of fintech
- Start-up advice for those considering the jump to entrepreneurship
- And more
Welcome investors to the Absolute Return Podcast. Your source for stock market analysis, global macro musings and hedge fund investment strategies. Your hosts Julian Klymochko and Michael Kesslering aim to bring you the knowledge and analysis you need to become a more intelligent and wealthier investor. This episode is brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at www.Accelerateshares.com.
Julian Klymochko: Welcome Andrew to The Absolute Return Podcast. Happy to have you on the show, super excited to have you. Let’s get into things quickly. How about you let our listeners know about your background, how you got to where you are today and really where you came from and what provided that foundation for the success that you’ve had thus far?
Andrew Chau: Right on. Well, thanks for having me Julian and really excited to be here. Yeah, so my background and, you know, I’ll start at the very, very beginning. I am originally from Saskatchewan here in Canada from a city called Saskatoon and, you know, coming from a town that is not known for our tech epicenter, you know, you generally, you know, go through school. I went to school there, got a finance degree. You know, and after graduating, really wanted to know where should I go with my career? So, I ended up moving to Toronto, worked and went down the consulting route there. Spent a couple of years in Toronto, and when I was living in a bigger city and traveling to New York, traveling to London and other places, my other former classmates had also done the same thing. And we had seen all of these large tech companies coming into these big metros, but they were all really skipping over Canada as a market and skipping over, especially the smaller markets like Saskatoon where we’re from. So, we said, well, hey, you know, why aren’t these large companies coming to these smaller cities? So, we decided to take one of these ideas and concepts, which happened to be food delivery back then, which by the way, which is 2012/2011 and we quit our job, moved back and started the first version of SkipTheDishes, which is a food delivery network in Canada back in 2012. So that was sort of our first foray into the tech world.
Julian Klymochko: Right. To let our listeners, know that SkipTheDishes for those you know, not non-Canadians it’s like Uber Eats or a Foodora and services like that.
Andrew Chau: Yeah, exactly. So, we were essentially the Canadian version of an Uber Eats before Uber Eats had even existed because we were the first ones. And really just stuck with that and grew that over the last seven, eight years. And which sort of led us to our next startup, which is Neo Financial, which would be, you know, more relevant here, but you know financial where we are building a new challenger to the banking space here in Canada.
Julian Klymochko: That’s a really great Canadian success story. So, thank you for sharing it and SkipTheDishes ultimately sold or was acquired by one of the major consolidators in the space, Just Eat, so congratulations on that. So exciting stuff happening at Neo Financial. How did the idea for Neo come about? Cause it’s quite a bit different from, you know, you had the first food delivery platform app in Canada and then transitioning to this financial technology company. How did that come about?
Andrew Chau: You know, it’s actually quite similar to how the same way that Skip had come about where, you know, again, I find that Canada is generally quite behind when we think about consumer technology, right? Especially Canadian grill and technology. So here in Canada, we use Spotify, we use Amazon, we use Uber, we use Netflix. These are all American or international companies who are coming into Canada, building a brand. And, you know, every single Canadian is using these tech enabled products. When you look at the banking space here in Canada, it’s quite unique. Where you have the top five or the big five banks who own 90, 93% market share.
Julian Klymochko: Yeah, oligopoly.
Andrew Chau: Across the board, which I mean, you’d be super familiar with Julian.
Julian Klymochko: Yeah, for sure.
Andrew Chau: So, it’s an immense concentration. And because of that, you start to lose a lot of that innovation, that technology and that tech-first approach and that digital-first approach. And that’s really what we’ll want to bring into the market space here in Canada, where we had learned a lot about consumers. Building up SkipTheDishes to about 7 million users. We did $3.5 billion in sales last year at SkipTheDishes and translating those digital experiences where it looks and feels like a tech company rather than a bank. And that’s really the, you know, the Genesis of how we started Neo. So today what we have is, we’re starting with the credit card, we have a bank account with no fees, a high interest rate, you know that’s 30 times higher than any of the large banks out there. And then on top of all of this, we have a merchant rewards network where we partner with thousands of SMBs and brands to offer rewards to our card holders.
Julian Klymochko: Right, so with respect to what you’re trying to accomplish at Neo, are you trying to get consumers to switch from say a BMO, RBC, Scotia to exclusively use Neo? Or are you just trying to offer, you know, a different combination of services that they can rely on the big five oligopoly and then use Neo in addition to those, are you more of a replacement or an addition?
Andrew Chau: You know, I think we can all sort of get along and I think we can be symbiotic in terms of what we offer and we sort of let the consumer decide. And if they’re looking for a cash back credit card that supports local, they can get Neo, alongside their other credit card, or if they are looking for a high interest savings count or a no fee everyday bank account, they get the Neo bank account alongside their mortgage somewhere else. So, I mean, for us at Neo it’s because we’re technology driven and enabled, and we built all of our technology from scratch. We’ve really been able to one, reduce a lot of that cost base that you typically see with branches and really pass a lot of those savings back to the consumer, where again you know, the savings rate that we have, which is technically a checking account because we offer unlimited transactions. When you get 30 times higher of our rates where I think most rates are zero or 0.05% a year in Canada. We’re offering, you know, a north of a percent and a half on our hydro states account.
Michael Kesslering: So, what led you, I guess, West, what led you to Calgary and setting up here in the great city that we’re in right now?
Andrew Chau: Yeah, you know, it comes back to the mentality of the concentration. So, I think the big five banks, they’re all headquartered in Toronto, and, you know, I’d love to put the question back to you guys in terms of, you know, with Accelerate, you know, why not in Toronto? But from our perspective, you know, to really build a challenger that is different and differentiated and can bring a new perspective from a technology angle versus the big banks, you need different groups and you need different people in that mix. So, we, you know, are from out West. We are in Western Canadian born and we know the talent is all here. So, for us, it’s really around how can we leverage that to our strengths and build something that is truly differentiated starting with the culture and the people as well.
Julian Klymochko: You guys have very ambitious goals in terms of, you know, trying to challenge some of Canada’s biggest banks because they have this sort of anti-competitive oligopoly and they don’t like to be challenged. So, kudos to that, and you guys definitely are on the right track. Raising this $50 million dollars Series A, it’s out there in the news. What sort of growth opportunities will you be pursuing now that you’re well capitalized and you have all these different options?
Andrew Chau: Yeah, I mean, I think when you think about the space and how large it is in Canada, I think the top five banks again their combined market cap is over $500 billion dollars and in Canada and the opportunity to focus on adding value back to the consumers and the Canadians as well, as adding value back to the retailers and the merchants that we work with because, you know, the way that we operate is, you know, we have this consumer network, we also have merchant network and we are trying to help grow these businesses, these SMBs, and then we’re helping provide more value back to consumers. So, for us, you know, the runway of growth, whether it’s everyday banking products, spending, saving, investing, I mean, these are all areas where we can take any one of these products and build leverage technology to make it easier to use, cheaper, more transparent or seamless, because again, it all starts with the foundation that we’ve built, which is, you know, building banking technology from scratch.
Julian Klymochko: Yeah, the business model seems very similar to SoFi in the U.S. which is, you know, an all-in-one financial service provider, whether it’s, you know, checking, savings, investing, rewards, all of these different financial services in just one really easy to use platform. And they actually just recently announced a going public transaction, which is pretty interesting. And they’re obviously have been around for a while and fairly far down their growth path as for Neo. Where do you see the business in five years?
Andrew Chau: Yeah, I mean, SoFi is a great example of, you know, a challenger that has carved out a meaningful share you know, and really what they started out with was student loans, I believe. And, you know, with Neo, you know, our niche here is, you know, we are born and bred in Canada. We are focused on Canada because, you know, when you can focus on adding value back to Canadians, versus, you know, having someone else come in here, that’s really where our advantages can come into play. So, when we think of our next five years and what we can become, you know, how can we build a product that, you know, when someone is choosing between choosing to open a bank account and they can choose between a big five bank account, or they can choose Neo, how do we ensure that Neo is that top of mind choice? whether it’s, you know, the experience that you get, whether it’s the rates, the no fees, whatever it might be. You can sort of look to any of the other sort of banks out there, but how do we just make it a no-brainer? And that’s really where we want to get to from a brand and experience and a product standpoint over the next couple of years here.
Michael Kesslering: And so, when, when you’re talking about being top of mind for consumers, I mean, and it was well, there’s the consumer side and the merchant side, you know, obviously partnerships are a huge part of that. So, you know, can you provide a little bit of insight into your process of selecting these right partners? I mean, in 2021, you’ve already announced partnerships with Concentra and Hudson’s Bay. Can you provide a little bit more insight into that selection process?
Andrew Chau: Yeah, absolutely. So, you know, Concentra Bank you know, we work with a few different banks and partners to help with, you know, the banking components of right compliant. Of course, you know, the deposit in a CDIC insured bank accounts, as well as the [Inaudible 00:12:17] and as you guys just announced a partnership with Hudson’s Bay as well. So, when we think about partnerships, it’s, you know, it’s extends on the large enterprises, like a Hudson’s Bay, which is an iconic brand over three hundred years old. One of the first companies here in Canada, first retailers here in Canada, all the way to a small, to a local coffee shop that we work with. And we work with thousands of merchants today, local SMBs, where, you know, especially during COVID have struggled to adopt new digital technologies. So, what we’re really able to do here is enable all businesses, not just the really large ones, but all businesses to provide, you know, better rewards, better loyalty to their customer base by being on the Neo rewards platform. And that’s really what we’re able to do, and it’s really around democratizing the access for financial services for these retailers too.
Julian Klymochko: That’s interesting. So, you guys are well on your way, and we talked about competing against the big five banks, but it appears that you have additional competitors on the traditional side, whether it’s other payment cards, et cetera, who are your main competitors, and are there any other startups trying to accomplish what you’re trying to accomplish and what exactly differentiates Neo from the rest?
Andrew Chau: Yeah, I mean, when we think about competition there are other fintech’s who are, you know, carving out different niches, whether it’s investing, whether it’s trading, whether it’s you know, budgeting apps, you know, there’s obviously the original sort of challengers, whether you look at the ING’s that had started, you know, about 20, 25 years ago. But in reality, when you break it down into the market shares that exists there today, you know, the biggest competition for us is really inertia. When you look at individuals and you ask them, you know, how did you choose your bank account, choose your bank? The number one answer you’ll get is, oh, it’s just who my parents bank with. Or it just, oh, I have a branch down, and that’s why I signed up. So, in reality, Canadians have really never really had choice in the matter, because there really hasn’t been a differentiated offering that’s different enough for people to actually make a choice. So that’s really what we’re introducing with Neo is that choice or that option for Canadians to actually choose which bank they want to go with, or what financial products or financial services they actually want to go with.
Michael Kesslering: I think when you talk about the brand-building and the democratization of financial services, that’s something that really resonates with us. I mean, you know, that’s something that’s very long overdue, not just in Canada, but North America in general. But when you talk about the overall FinTech space in general, what’s exciting for you as you look forward?
Andrew Chau: You know, I think when you think about the overall FinTech space, I think the biggest thing has been access and democratization. That’s what really excites me, whether it’s investing. I mean, we’ve seen what has happened over the last few weeks with the trading and investing and providing the access to, you know, the average American or average Canadian to be able to participate in a very easy and seamless way. And I think that is a big part of what we’re doing here is rather than focusing on, you know, large institutions to control all of the power whether again, it’s on the retailer side for us, or whether it’s on the consumer side, how do we provide products that just make sense? So, for example, you know, on our credit card you know, we don’t have an over limit fee on our credit card because in reality, an over limit fee doesn’t actually make any sense. It doesn’t cost a bank any more money or, you know, they charge you, I think $39 dollar, if you go over your limit on your credit card, but the system allows you to go over your limit. So, it doesn’t actually make sense from numerous standpoints to be charged. Most people where they’re trying to get you to pay these fees by accidentally going over your limit because 90% of those over limits, actually 99% are actually by accident. So, it’s really, you know, how do we reimagine the entire banking experience and be able to democratize that for consumers and retailers across the board?
Julian Klymochko: It sounds like you guys at Neo are building sort of a one-stop financial shop for consumers. And another potential competitor I see, I think attempting the same thing. They started out as a robo-advisor but now, I’m talking about Wealthsimple, they’re getting into trading and taxes. They seem to be trying to be a one stop shop. Do you view Wealthsimple as potentially a future competitor for what you guys are trying to accomplish?
Andrew Chau: You know, I think in the FinTech world, I find the space is so massive that we can all continue to grow and carve out our own spaces. There’s a reason why there’s five banks and not just one bank as well. I think Wealthsimple is doing some really great work across the board, obviously very strong in the investing side with the trading side as well. And yeah, no, it’s great to see that they’ve been able to start encouraging Canadians, that there is an alternative in the first place. And that’s really the, again, when it come back to the real competition, it’s just inertia of opening up people’s eyes to say, hey, there is a better option out there today.
Julian Klymochko: Yeah, that’s a really good point. And as you progress through your career, second startup, a great exit and success on the first one, the second one going great so far. So clearly, you’re a very experienced entrepreneur. Anyone out there, you know, starting a new company, exploring entrepreneurship, startups, any advice that you’d give to a startup founder or someone thinking about getting into it?
Andrew Chau: I would say just go and do it, just jump right into it. I mean, obviously Julian, you know all about that.
Julian Klymochko: Yeah.
Andrew Chau: Obviously sometimes easier said than done, but you know, you’d never want to entail you, you’ll never get it perfect the first time anyway. We had to jump into it and try it out and see if you can make it work because you know, there’s going to be, you know, corporations, there’s always going to be a corporation you can go back to.
Julian Klymochko: Right.
Andrew Chau: And a lot of the time, it’s just a matter of, you know, being able to jump into something with two feet in.
Julian Klymochko: It appears like the two companies that you started; it was very formulaic. And your process in that you saw, you know, this opportunity, whether it’s someone with a business model overseas or in a different market and you transported it in, or you saw inefficiencies in the current market and how you could do it better. So certainly, I’m sure a lot of work went into those decisions prior to just jumping in, right?
Andrew Chau: Oh, for sure. Yeah, no, I mean, there is some thought behind you know, each of the businesses that you get into but it, you know, it was done, you know, when we were still working full time, it was you know, done, you know, I’ve got many, many stories, our founders sleeping on floors and borrowing beds and sharing beds and all that fun stuff. So, it’s just a matter of, and when I say jumping in, being able to, you know, eventually make that commitment, whether, but, you know, obviously still deliberately thinking about what to do. But I find that sometimes, you know, you can think about something for a very, very long time and not actually take action on it.
Michael Kesslering: And once you’re past the idea generation phase, and you’re starting to build a little bit of a proof of concept, how do you go about thinking, because you’ve done this twice, bringing on venture capital and when the right time is to do that and, you know, how you go about building that pitch to make it an appetizing investment from a VC standpoint?
Andrew Chau: Yeah, I mean, in our first business and all, that’s probably more relevant. If you’re a first-time entrepreneur, I mean, we bootstrapped for the first three years. We didn’t actually have any outside investment in those first three years. And really, we just, you know, pull together our money and just made it work, obviously, this does not apply to every business out there. Depends on the startup costs, depends on the amount of technology you need to build or the number of like scaling that you want to do. But I think, you know, when you are looking at investment, it’s really just a matter of, you know, what’s the upside and potential that you can build. I mean, in any startup, in any technology startup, at any stage. And people are investing in your current business, they’re investing in what it could become. And I think being able to paint that picture of what it could be is the most important thing and that storytelling component. Not really the story telling, but the execution that you’ve already done and how that translates into what it could become.
Julian Klymochko: And your notion for would be entrepreneurs to jump in and pursue the opportunity that they see. And, you know, it’s important to be timely. Like you guys really nailed the timing on skip because, you know, if you guys didn’t do it at some point, someone else would’ve or foreign competitors would have come into this market, that was really just where things were headed. And now there’s quite a few different meal delivery apps and obviously generating billions of sales. So, it reminds me of the Jeff Bezos quote, where he had, in terms of founding Amazon, regret minimization framework, where if you didn’t go forward, he viewed it as such a good idea. If you didn’t go for it, then even if he failed, like he would have regret not doing it for the rest of his life. So that notion of jumping in really resonates. So before letting you go today. Where can investors and listeners learn more or consumers learn more about Neo and what you guys are up to there, your story and the products that you offer?
Andrew Chau: Absolutely. Well, everyone can go to neofinancial.com. That is our website with all of our information. If you are Canadian, you can download our app on the Apple store or Google play store. If you’re American, you’ll just have to hold tight until we eventually make our way into the U.S., but for now Canadian only. But we’re available, you can open a bank account if you’re interested in hydro saving account, its great, credit card is great too, but yeah, that’s where we are.
Julian Klymochko: And anything we can expect coming from Neo in the future? Any product launches that you want to talk about, perhaps they’re exclusive, but you want to share them with our listeners?
Andrew Chau: I would say stay tuned for new products coming in the future. We’re not just stopping at cards and bank accounts. Let’s put it that way.
Julian Klymochko: Okay, great. So, we got more on the way from Neo Financials. So definitely check out the website, download the app and try it out, but thank you, Andrew, for coming on The Absolute Return Podcast, really enjoyed your insights and advice to entrepreneurs and really how you built these two businesses in a Western Canadian market. So, thank you for sharing that today.
Andrew Chau: Thank you for having me Julian.
Julian Klymochko: Alright, bye everyone.
Thanks for tuning in to the Absolute Return Podcast. This episode was brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at www.AccelerateShares.com. The views expressed in this podcast to the personal views of the participants and do not reflect the views of Accelerate. No aspect of this podcast constitutes investment legal or tax advice. Opinions expressed in this podcast should not be viewed as a recommendation or solicitation of an offer to buy or sell any securities or investment strategies. The information and opinions in this podcast are based on current market conditions and may fluctuate and change in the future. No representation or warranty expressed or implied is made on behalf of Accelerate as to the accuracy or completeness of the information contained in this podcast. Accelerate does not accept any liability for any direct indirect or consequential loss or damage suffered by any person as a result relying on all or any part of this podcast and any liability is expressly disclaimed.