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Fintales with Griffin: Powering the proptech sector with embedded finance

In the very first edition of Fintales, we asked: how can banks help proptech companies provide fully compliant solutions to landlords and letting agents?

Portrait of Nkechinyere Ogueri-Onyeukwu
Nkechinyere Ogueri-OnyeukwuMonday 23 October 2023

Last week, we held the very first edition of Fintales with Griffin‍—‌a quarterly customer-focused interactive session on new developments and trends in the banking and fintech space. For our inaugural event, we teamed up with our partners at Lettspay to do a deep dive on how the property sector is dealing with increased regulatory enforcement.

As many landlords and property managers scramble to make sure their banking arrangements are compliant, can a new approach to banking technology help them meet their requirements and increase efficiency? This was the key question we set out to explore.

Here are major highlights from the event.

Keynote: Griffin's MLRO Alex Nash on risk, compliance and banking in proptech

The event kicked off with a keynote from Griffin’s MLRO (Money Laundering Reporting Officer), Alex Nash. Alex’s primary role at Griffin is to act as a focal point for all economic crime prevention activities we carry out as a bank.

He explained that the 5th Money Laundering Directive (5MLD), introduced in 2020, had notable implications for letting agents, ushering in increased scrutiny for the sector, and a subsequent shift in banks’ risk appetite for proptech providers and letting agents.

In 2020, the National Risk Assessment was introduced as a way to classify industries based on risk. Property businesses were tagged as "high risk", while estate and letting agents were considered "medium risk". The inherent risks associated with the letting industry included the concealment of beneficial owners, rapid fund transfers, and illicit property purchases. However, despite outlining these risks, the NRA admitted to not fully understanding them, further complicating the risk assessments that banks carry out on proptech companies. Many banks, wary of facing hefty fines due to lapses in money laundering protocols, have chosen to shy away from the property industry altogether rather than adapting their controls and due diligence processes to mitigate the inherent risk in this sector.

But risk in itself is not the enemy. As Alex explained, the core problem is that, as the rules have become more stringent, traditional banks are finding it harder to adapt their legacy systems to carry out the required due diligence checks. In many banks, due diligence on prospective customers is an almost entirely manual process‍—‌and so they see dedicating whole teams to deal with the specific requirements thrown up by the proptech industry as costly and ineffective.

Alex also explained the concept of "friction" in customer due diligence (CDD). While friction, in the form of comprehensive questions during onboarding or periodic reviews, can be essential for certain customers, implementing it uniformly across the entire customer base can be counterproductive. Using the right level of friction for different customer groups‍—‌depending on the level of risk they present‍—‌ensures a balance between robust risk management and a smooth customer experience.

He concluded by discussing simplified due diligence‍—‌a minimal-friction method used to onboard new customers. Simplified due diligence is primarily intended for new entries to existing, well-understood customer groups within banking entities rather than onboarding new external customers. He expressed strong reservations against its applicability for estate or letting agents in the UK, given their turnover and risk profile.


Discussion: On embedded finance and the proptech sector

Alex’s keynote was followed by a discussion moderated by Miroslava Betinova, Head of Fintech at Griffin. The panellists were Adam Moulson, Chief Commercial Officer at Griffin; Garrett Foxon, CEO and founder at LettsPay; Jamie Brind, Operations manager at KWMove; and Alex Nash, MLRO at Griffin. The session highlighted the challenges and opportunities posed by regulatory changes and how collaboration between different entities could provide solutions to these challenges.

Some key points from the discussion:

Regulatory shifts: Miroslava introduced the conversation with a reference to the Tenant Fees Act 2019, which mandates that letting agents must hold their client funds directly with a bank or a building society authorised by the FCA. This was a departure from previous practices where funds could be held using fintech solutions, such as virtual accounts provided by electronic money institutions (EMIs). Now that this regulation is being enforced in earnest, proptech companies like LettsPay have had to navigate the challenge of moving funds away from EMIs and into bank accounts.

Lettspay seeks collaborators: Garrett talked about how Lettspay’s partnership with Griffin was born. Griffin focuses on building banking technology solutions, but does not offer products directly to consumers. Instead, it develops products that can be easily embedded into other specialised systems, providing a modular and flexible approach to banking.

Lettspay is a client accounting system that helps letting agents manage client money. They had previously held customer funds with an EMI and were looking for a banking partner who could provide modern technology, seamless integration, and the versatility to meet the peculiar requirements of the sector. A key requirement for Lettspay was the ability to reconcile customer funds daily and programmatically open accounts for letting agents.

Griffin was selected after a long road of consultations with several banks. Garrett explained that the big draw of Griffin is that it has similar values to Lettspay in terms of being an open, honest organisation with a problem-solving mindset. Griffin also demonstrated willingness to do the hard work of understanding the sector and building a future-proof solution that actually worked.

Adam added that Griffin’s objective is to truly add value to a diverse range of industries. This means a deep level of collaboration with specialists, where Griffin gets to leverage its "superpower" as a technology-focused bank.

Leveraging expertise: Alex mentioned that the more the Griffin team researched the proptech sector, the more they were shocked at how badly existing banks were serving the industry. He explained that the current regulations combined with the typically conservative risk appetite of banks created a very difficult environment. He also emphasised that there is also a lot of misrepresentation and misinterpretation of the rules out there.

“We’ve deeply researched the rules, we understand how they work and we have a solution that we are sure will address the client money needs of the sector,” he said. To onboard clients in this sector, you need to carry out KYC (Know Your Customer) and CDD. He explained that Griffin’s onboarding product can be modified to cater to the unique CDD needs of letting agents (both small and large), such as factoring in whether they are HMRC-registered or not.

A modern business model: Adam outlined how Griffin “effectively provides components and platform pieces”. Banking can be quite technical in nature, with expertise hidden inside specialist teams. At Griffin, we build these specialist skills directly into our technology and offer them as tools to other organisations. We collaborate on system design, user experience design and the business model, because at the end of the day there's no point delivering a solution if the end customer isn't going to feel any benefit.

Seamless onboarding: Alex talked about Griffin’s purpose-built APIs and how they make the onboarding process seamless. Some traditional banks take as much as six months to onboard a customer, and key data is collected by emailing multi-page spreadsheets back and forth. In comparison, ours at Griffin takes days and is made possible by API integrations with leading databases and other state-of-the-art verification and risk assessment tools. This helps us streamline the process based on the customer’s industry, business model, and product set. We also collect the information we need via an online questionnaire to make the process as painless as possible.


Q&A session

The last part of the event was an open discussion session with thought-provoking questions from the audience. Here are some of the questions and responses:

Can Griffin do AML on international businesses as part of the process?

At the moment, no. We are a UK-based organisation and can only accept UK-registered companies right now. Support for international companies is definitely in our roadmap, but there are complexities that we have to be cautious about. If a company's director is overseas, that's fine; we can verify them and take that company on board‍—‌but right now we cannot verify companies registered overseas.

For opening a client money account with Griffin, will you require agents to be registered for anti-money laundering even though small agents don't have to be registered?

Yes, we will allow all types of letting agents to open client money accounts, whether or not they are registered with the HMRC. The difference is in the way they'll be able to operate those accounts. If you are HMRC-registered, we’ll allow you to onboard landlords yourself, and then we can take their information from you. If you aren’t registered, you can still apply and we will take you on as a letting agent, but we will handle KYC and CDD checks on landlords on your behalf. That’s the core of the unique approach we’re taking to solve this problem. It allows us to meet our CDD obligations as a bank while serving smaller agents. This is also an advantage of our modular platform‍—‌we can have multiple onboarding workflows tailored to the different clients in one organisation.

On the topic of client money accounts‍—‌are Griffin’s partners required to open operational accounts and keep their money with Griffin?

Yes, to offer client money accounts, we also need to open an operational account for the direct customer. There's a commercial reason for this‍—‌we pay interest on deposits we hold for our customers, which needs to be paid into an operational account for reconciliation purposes. This does not mean you have to hold all your funds with Griffin.

What do you say to people who call Griffin "the new kids on the block" and aren’t sure they can deliver?

Griffin’s built by a team with deep expertise in technology and banking. We’ve demonstrated this knowledge with what we’ve built so far, some of which is available in our sandbox. We have team members who have been leaders in global banks, and technologists who have built central infrastructure for AirBnB and CircleCI. It’s a perfect marriage‍—‌a fresh approach to banking technology coupled with experienced banking hands.