The Big Interview: Modulr founder and chief executive Myles Stephenson
Speakers at the event showcasing rising star Modulr, which was formed at the start of 2016, included FinTech Scotland chief executive Stephen Ingledew and Edinburgh Business School executive dean Heather McGregor.
But taking centre stage was the payment firm’s founder and chief executive Myles Stephenson, who looked at its growing role in the blossoming Scottish fintech scene – which has ambitions to become a top five global centre in the sector by 2020.
Modulr describes its offering as a new digital payment account for business, which provides an alternative to “incumbent error-prone, time-consuming and opaque traditional payment services (usually big, established banks based on legacy structures) and business platforms such as accounting and payroll software”.
Its milestones include inking a deal announced in February with software firm Sage to simplify the task of managing accounts payable and payroll payments for millions of UK businesses – eliminating manual payment processes.
Modulr has processed more than £18 billion worth of payments, and aims to reach 860,000 small and medium-sized enterprises (SMEs) through its client and partner network. In addition to Sage, Modulr’s partner-clients encompass travel specialist Paxport and Revolut, with the latter recently announcing the appointment of Martin Gilbert of Standard Life Aberdeen fame as its inaugural chairman.
The payments fintech has offices in London, Dublin and Edinburgh – with just over 140 staff in total.
Edinburgh is Modulr’s main development hub, with more than 60 staff currently. Indeed, at the end of October the firm announced the investment of the lion’s share of £20 million in the Scottish fintech scene. It said this was to drive disruptive innovation and help turn up the wattage on Scotland’s growing prominence as a tech hub – and create more than 50 highly skilled jobs in its Edinburgh office.
The firm also flagged up its aim to nurture new technology talent here by committing to hire graduates from Scottish universities annually for the next five years.
The £20m comes from Modulr matching the £10m it was awarded from the Capability and Innovation Fund (CIF) under the RBS Alternative Remedies Package, saying one commitment of the deal was that it would make its payment services available to about a million SMEs.
Stephenson said in April, when the CIF award was announced: “We want to make tired old payment technology a thing of the past for neglected accountants and SMEs.”
Modulr is part of Scotland’s community of fintech firms numbering 100, with 13 created this year alone, according to Scottish Enterprise. Edinburgh is home to names such as Nucleus, Money Dashboard, FreeAgent and Amiqus.
Its victory was helped by its status as a key financial centre in Europe and having been the backdrop for the creation of “very credible, large-scale” tech names such as travel giant Skyscanner, he adds.
There was also support from Scottish Enterprise and Scottish Development International, as well as the emergence of FinTech Scotland.
Stephenson believes the 53 jobs set to be added in Edinburgh are likely to grow closer to 100 “as long as we continue to grow and expand as we’ve done”, and the firm could well be approaching 300 employees in total by this time next year, with the Scottish capital experiencing the majority of that growth.
The entrepreneur founded the business after years in the payments industry, most recently at US payment giant Wex, where he was latterly head of the European arm. In 2012, it had acquired CorporatePay, which Stephenson had founded in a £27m deal. CorporatePay had become the largest privately held provider of corporate prepaid services to the travel industry in the UK.
Stephenson’s route to Modulr came about as he sought to return to something more entrepreneurial after nearly four years with Wex, which he said was getting larger and more corporate (“and quite rightly so”).
Prior to those roles he worked at payment services firm Retail Decisions, progressing from product manager, as it made the transition from offline to online, with his duties progressing to covering mergers and acquisitions and strategic investment opportunities.
He says his arrival there saw him leave one of the UK’s largest listed companies – Marks & Spencer – for one of the smallest.
Stephenson had joined the high-street bellwether via its graduate training scheme, which he felt would give him a good grounding. He spent five years there – during which he was exposed to some of its more entrepreneurial aspects, including running parts of the Irish operation that he “perhaps wouldn’t have done in the larger UK business”.
It led him into financial services, for example dealing with point-of-sale systems and how the business promoted financial products.It was a far cry from the academic path he had expected to take, having read biochemistry at Oxford, which he embarked on with a real passion for science.
The entrepreneur spent part of his education doing a research project in Italy. It crucially gave him insight into the contrast between working in academic research and in industry. He ultimately decided the latter was a better fit for his character. Indeed, growing up he was “always thinking about opportunities to build or sell things”.
As for why he chose biochemistry, it “probably was at the time one of the more up-and-coming and interesting areas” – just as fintech now finds itself cited as an emerging pioneer, seen as a key tool in boosting financial inclusion, for example.
The rationale for Stephenson creating Modulr many years later was spurred by pain points he had experienced with his work in payments – for example in technological integration and the limited potential of payment cards.
Modulr has raised £24.4m to date including £13.9m raised in February of this year between venture capital and private equity firm Blenheim Chalcot (which has also invested in ClearScore and Salary Finance) and scale-up stage investor Frog Capital. With the CIF, total investment amounts to £34.4m.
Stephenson hails a positive first three years for the firm, which recently announced that it has become a direct participant in the Faster Payment Service, with the company now one of just a few non-bank payment service providers to hold an account in the Bank of England’s real-time gross settlement system.
The move enables the fintech to process payments without going through a commercial bank, and removes the operational reliance on third-party bank systems.
Stephenson at the time lauded the “significant” milestone for Modulr, gaining greater control over its payments infrastructure. “It allows us to compete with banks, and bring greater value to our clients. This capability will support our rapidly scaling organisation as we migrate volume in the coming months.”
But what is the current priority? Nucleus floated on the Alternative Investment Market last year with a market capitalisation of nearly £140m. And Santander has snapped up a majority stake in UK fintech Ebury, which provides corporate banking services to SMEs that trade internationally, for £350m.
The Modulr boss states: “The priority for us at the moment is very much continue to grow and scale… making sure we continue to build out the business, we deliver on all the commitments we’ve made as part of the RBS Alternative Remedies funding.”
A key focus is getting deeper into the different industry verticals Modulr is starting to enter in the UK – and next year launching in Europe with a small operational centre in Dublin as it looks to “manage the issues and complications of Brexit… a big part of next year is starting to go international”.
As for pressure points, Stephenson sees the biggest challenge as being able to hire good people fast enough. That said, “we are really pleased with the traction we’ve managed to get [so far]… it’s been a very fast-paced journey.”