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Billon graduates from the sandbox with flying colours.

Robert Kaluza, Chief Operating Officer at Billon – a fast-growing fintech firm – explains how the Financial Conduct Authority sandbox programme has been integral to the company’s growth this year.

The equation is simple enough. The success of Old Street’s Silicon Roundabout has perhaps been the most exciting story to emerge from UK business in the past decade. London would clearly like to be the European hub for fintech start-ups, competing against Paris and Berlin in Western Europe, Stockholm in the North and Warsaw in the East.

This has posed a challenge to the regulators at the Financial Conduct Authority (FCA) who need to maintain high standards with space for fintech firms to run the trials they need while minimising the errors.

FCA Innovate was launched in October 2014 with its regulatory sandbox the most innovate feature. This provides support for innovative firms that are ready to test their innovation and be treated as if they are regulated firms. So far nearly 200 firms through three cohorts have applied to enter the sandbox.

Billon is a perfect example of an organisation which has benefited from this opportunity. It is aiming to transform a niche part of the payments industry. It is focused on distributed ledger technology enabling micropayments to be made which were previously unprofitable to process.

Robert Kaluza, the restless COO, is rightly proud it has just inked a second deal with Philip Morris, the cigarettes group, which brings distributed ledger tech to life. The technology enables clients to pay instant rewards and incentives – often very small individual amounts – to large numbers of suppliers, distributors and retailers who meet their targets.

Kaluza says, “Last week we paid £40,000 to 480 Philip Morris associates as part of their Polish incentives payments.” These people may have been drivers who hit targets for deliveries or shop assistants who guided customers to pick one brand over another. It is a system designed to nudge behaviours and reward, with rapid incentives, those who support the business.

This week the firm has signed a trial with the British arm of Philip Morris to provide incentive payments to 200 people. If it goes well, the pilot will be extended to 14,000 people thereafter. Incentives this quarter may evolve into other niche markets. The business is examining how its technology can provide a payments system for the fledgling e-sports market.

Underpinning its growth and success is a rigorous and robust platform, signed off by the FCA. Hence the importance of passing through the FCA sandbox initiative. Kaluza acknowledges the importance of working with the FCA programme and highlights the accounting and advisory support provided by Buzzacott.

“The FCA was very helpful. Having an individual who was responsible as our fixer for handling issues was excellent. So, what might normally be a nine-month regulatory process only took six weeks.”

Priya Mehta is a Director on the Buzzacott Financial Services team. “Sandbox is a clever initiative designed to provide a testing platform for business models to see how they would cope in the real market.” She says what particularly makes it stand out is the advice it gives on regulation and which facets of their business need to be particularly robust from a compliance perspective.

The FCA applies strict criteria as to companies it takes on. For instance, the product or service must be focused on the UK market; be able to highlight its point of innovation; be ready for testing; and be financially robust with contracted funders in place and identified. Businesses that go through the process must have a UK presence and local employees, fuelling and improving the fintech landscape domestically.

Billon may have its centre of gravity in Warsaw where most its staff are located, but its growing team in London Moorgate is indicative of a fintech success story in the making, aligning its future with this regulatory robust second home.

The core to the success is the support provided by the FCA on testing. So, when companies enter the process, they can trial their product and service without the threat of regulatory action being taken against them if something goes awry.

It is an attractive proposition, with the number of firms wanting to access the programme far outreaching the numbers that are accepted. Cohort One had 69 applications and ultimately 18 were authorised; Cohort Two received 77 applications and 24 are currently being tested. Cohort Three has just closed the door on its application process.

Priya says this has provided an exciting stream of new opportunities for Buzzacott to advise on. She says, “We are focused on assisting firms that are already authorised, to keep their ongoing compliance in good clean order. Lawyers and compliance consultants are better placed to do the work at application stage and we are better suited to support them once the process is complete.

The future looks equally bright for Billon. Our specialist research & development tax credits team is also helping the company to claim tax relief based on the innovative technology that it is developing. It is also set to launch a further significant funding round. To date, the business has relied on £4m of angel funds from various entrepreneurs and is now poised to go to the next level.

This article first appeared in the fifth issue of our firm-wide magazine, Beyond the Numbers. To download the full magazine, click here.

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