2019: The Tipping Point? Fintech founders and leaders on funding, collaboration and trust
Introduction p3 Contributors p4-5 Opportunities p6-7 More or less
Fintech failure in 2019
Collaboration p12-15 Who is not being served by fintech?
Trust p18-19 Wishes p20-21
Not another trend report The best thing about The FinTech50, aside from the fantastic fintech businesses it showcases each year, is our community of founders, innovators, leaders, investors, advisers and all-round gurus. In these “interesting” times, we wanted to know what they were thinking about the issues shaping the space we inhabit. So for this first short report of 2019 (there will be more) we put 9 questions to 25 leaders in the European sector. Some are FinTech50 selection panel members; some are founders of FinTech50 listed companies, including those who made this year’s top five. Others are leading advisers to the sector. As well as seeking their views on topics such as collaboration, trust and who *isn’t* being served by fintech, we also gave them one wish for the year ahead (pp 18-19). In a complete 180° from FinTech50 selection, which involves a “lively” discussion amongst our panel, we spoke to contributors independently. This produced some gems (as expected), but it also revealed the underlying ying & yang of the fintech universe, where all things exist as inseparable and contradictory opposites. Three examples in this report:
The lack of differentiation The power of data
A wealth of untapped opportunities The misuse of data
The legacy trust in banks (to protect our money)
The emergent trust in fintechs (to deliver a superior experience)
Sincere thanks to all who took the time to contribute, and to everyone taking the time to read this. We look forward to bringing you more insights in 2019.
Julie Lake CEO/Co-Founder, The FinTech50 thefintech50.com FinTech? Fintech? fintech? We left it to our contributors.
Contributors Andrei Brasoveanu, Principal, Accel - London Ben Richmond, Founder/CEO, CUBE - London Bert Boerman, Co-founder/CEO - Governance.com - Luxembourg Charles Delingpole, Founder/CEO, ComplyAdvantage - London Daniel KjellĂŠn, Founder/CEO, Tink - Stockholm Fionnghuala Griggs, Co Global Head of Fintech, Linklaters - London Husayn Kassai, Co-founder/CEO, Onfido - London James Holland, Founder/CEO, Quant Capital - London Jamie Campbell, Head of Awareness, Bud - London Katharina Lueth, Head of Europe, Raisin - Berlin Mario Shiliashki, CEO, PayU Global Payments - Luxembourg Miro Parizek, Founder/Principal Partner, Hampleton Partners, Frankfurt Menno Van Leeuwen, Head of Business & Customer Development, MoneyYou / ABN AMRO - Amsterdam Nasir Zubairi, CEO, The LHoFT - Luxembourg Nicolas Meric, Founder/CEO, DreamQuark - Paris Nicky Cotter, ICON Corporate Finance, London Nicolas Cary, Co-founder, Blockchain Parul Kaul-Green, Head of AXA Next Labs Europe Richard Hay, UK Head of Fintech, Linklaters - London Richard Peers, Head of Financial Services, Microsoft, London Romi Savova, Co-Founder/CEO, PensionBee - London Santiago Tenorio, Founder, Voltrock Tom Moore, Partner/Head of Financial Services Group, Kingston Smith - London
Plus Additional contributors
â€œIn 2019 we may see a tipping point in broad consumer awareness of fintech, where the majority of new customers will choose solutions offered by fintech providers rather than incumbents.â€?
Andrei Brasoveanu, Accel
Opportunities A late 2018 banking survey by consumer publication Which? placed a digital bank, Monzo, in top spot for the first time. A great achievement by a young business, and the win was all the more notable for being a survey not of industry ‘influencers’ but of consumers: over 4000 of them. In early 2019, Spanish Banking giant BBVA revealed that more than 50% of its customers now access products and services through remote electronic channels. Our contributors didn’t refer to these directly, but the theme of a tipping point emerged in number of responses. Some believe that “we are still in the innovation phase and will not see mass adoption until 2020.” Others (with reference to the crypto space) said that “very few products have been able to achieve widespread adoption or use.” With all of this in mind, we asked contributors to identify some clear opportunities for growth in 2019. “The financial technology market share is still tiny in the context of the overall financial services market. Hopefully, 2019 will be the year that FinTechs begin to make a meaningful impact on global issues such as financial inclusion.” Charles Delingpole, ComplyAdvantage
“The market is waiting for crypto products that can appeal to institutional investors. Several companies are working on this, including firms that have submitted applications to regulators to list ETFs. Regulated security tokens could even disrupt the Private Equity and IPO markets in coming years as founders may prefer to not dilute ownership where possible while connecting with their backers in a more meaningful way.” Santiago Tenorio “Fintechs partnering with established players. Fintech has come a long way - many of the larger players are considered institutions in their own right. Incumbents, having struggled to innovate internally, want a piece of the action and access to the technology. The combination of a large incumbent’s customer base and a fintech’s technology can be magical. The main question will be how are the rewards shared.” Romi Savova, PensionBee
opportunity to have consu (people who have bought such as current account) a apps from the bank prior By building features that l data from other banks, th acquisition for banking ap This elevates the need fo managing the relationship money. “ Jamie Campbel
“Extending service outside of the smar and Fintechs being multiple services.” Husayn Kassai, On
g presents an
umer levels: ‘customers’ t products from the bank and ‘users’ (people using to buying products). let users aggregate their he barrier for customer pps is much lower. or the bank to focus on p people have with their ll, Bud
es to later adopters, rtphone generation, able to offer
“The primary opportunity is automation. Large banks spend 20% of their operational costs on regulation compliance and risk processes, which is ripe for automation using AI. So the ability to automate processes leveraging AI achieving robotic transformation and robotic process automation is where there’s super opportunity.” Ben Richmond, CUBE “There’s lots of investment around the regulatory process, so startups have an opportunity to provide a better experience. We’ve seen a lot of proof of concept put into production in recent months - and investment in SEPA. Blockchain is a major part of this. So the three main B2B areas that we see for growth, where proof of concept is moving to real product, are AI, RegTech and blockchain.” Nicolas Meric, DreamQuark
“Most financial institutions are facing a margin squeeze due to increasing compliance costs on the backend and competition and transparency on the frontend. Cutting costs, particularly through the use of automation and regtech, are essential to ensure profitability and RoE.” Nasir Zubairi, The LHoFT “Workers with multiple paid activities, ‘slashers’, are the fastest growing segment in the European and US labour markets, representing 20-30% of the labour force. As employment becomes more flexible, decentralised and knowledge based, Fintech, Insurtech and digital health marketplaces have significant opportunities by creating technology and data-driven services for this market.” Parul Kaul-Green, AXA NEXT, UK “There are two large opportunities we see: European fintechs starting to look beyond Europe in terms of geographic scope - this has already started this year and we expect to see more of it. More co-operations of fintechs with large banks and other large partners that will allow them to scale quicker.” Katharina Lueth, Raisin
“The technology is there, so we hope to see more customer-centric financial products being launched, and hope this will be propelled by large organisations challenging their own organisational structures.” Daniel Kjellén, Tink
“The greatest growth opportunity will be around artificial intelligence and those working on data. This is currently a blocker for many in financial services. So those that are able to wrangle the data out to make something that AI can work through will be successful. This is currently difficult due to legacy architecture, silos, regulation and compliance.” Richard Peers, Microsoft
“More fintechs are entering the market which enables more customer-centric products, but also tougher competition.” Daniel Kjellén, Co-founder/ CEO,Tink
More or less? Is there room for so many innovators? Can they all find customers? Will they make it through the A round? We asked contributors if they expect to see more or less of the following in 2019:
Funding - more or less? Our contributors are optimistic. 70% expect levels of funding to remain the same or increase in the next 12 months, with the caveat (from some) that the focus will shift to later-stage businesses, where the “race to scalability and customer acquisition continues.”. VC Investors in the group were unanimously upbeat. However, 20% of contributors listed their top reason for fintech failure in 2019 as ... lack of funding. For PensionBee’s Romi Savova, “2019 could be the year the music stops and funding dries up for fintechs that have a disproportionately large burn rate relative to their revenue-generation capacity.”
More fintechs starting up, consolidating / being acquired or failing? With just three exceptions, contributors believe we will see more fintechs consolidating / being acquired this year. In Frankfurt, Miro Parizek at Hampleton Partners believes that, “Accelerating digital disruption, driven by investment in chatbots, machine learning, artificial intelligence and blockchain technology, plus aggressive bidding from financial information buyers and growing interest from large banks and private equity bidders will drive up volumes and continue supporting M&A valuations in 2019.” Nicky Cotter at ICON Corporate Finance referenced strategic value, as illustrated by one of 2018’s mega deals. “Strategic buyers are often willing and able to pay more for a company than a financial buyer might be. For instance, PayPal’s $2.2Bn acquisition of iZettle delivered customers to PayPal as well as helping to offset the competition from Square, so it’s important for any business to understand their strategic value to a prospective buyer”.
Incumbents releasing their own versions of services proven to be successful by fintechs 2018 saw the notable launches of Marcus by Goldman Sachs and Mettle from NatWest via 11:FS. 84% of our contributors expect to see more in 2019 - not just as a result of internal product initiatives but also via partnerships / white-labeling fintech products - and acquisitions.
Key reason for fintech failure in 2019? Contributors expect to see more fintechs fail in 2019, citing lack of funding resulting from poor differentiation and a high level of competition. At Quant Capital, James Holland included rising salaries and skills shortages into the bundle of major pressure points. One contributor wanted to see more transparency in fintech business models. “There is still too much smoke and mirrors (and half-truths) in many Fintech offerings. An honest description of where the company really sits in the value chain would make a refreshing change. If you can’t do that, maybe you don’t really have a point of differentiation?”
Some also felt that consolidation or acquisition may, in some cases, indicate business failure if the valuation was considered low.
“Underfunding linked with high competition is a troublesome mix for fintechs, especially those just starting out. No matter how good the product, customers won’t buy from a fintech they perceive as being on a financial tightrope. While a start-up is attempting to differentiate itself from the competition, cash burn can be higher than expected, and the speed at which investment is generated slower, meaning ultimately the money will run out.” Tom Moore, Kingston Smith
Too much too soon? Blockchain’s Nicolas Cary: “Failure to find product market fit. There’s been too much too soon and very few products have been able to achieve widespread adoption or use. Also, I think in many cases, there’s been an overestimation as it relates to the pace of change and the capability of emerging technology.” “The main area for fintech failure we see is lack of profitability. A mass of players have entered the fintech space since 2015, many with business models completely dependant on continuous customer acquisition and scaling. Add to this high levels of competition amongst several players and little in differing USPs. This is coupled with massively increasing salaries in the tech space and a huge skills shortage. Businesses who want to remain solid need to focus on profitability not continuous growth.” James Holland, Quant Capital “Most will run out of funding. The winners will be the ones that can overcome all obstacles. Lack of funding will be the root cause of failure for many a great idea.” Richard Peers, Microsoft “Underestimated sales timelines / internal technology inertia and build vs buy preference” Contributor “Complexities and expense involved in remaining compliant with regulation we know that this is a huge problem (but we can help!).” Charles Delingpole, ComplyAdvantage
“Differences in maturity level and ability to scale usually mean one fintech startup relying on another for a critical piece of their service or product delivery could be risky. Nevertheless, partnering with other fintechs is usually the best way to provide end-to-end service and scale.”
Mario Shiliashki, PayU
Collaboration We asked contributors to consider collaboration: specifically the challenges faced by fintechs collaborating with incumbents, with other fintechs (a trend of 2018) and with Big Tech. The dominant themes were culture, time and cannibalisation, but not necessarily in that order. Our table (right) sets out the key challenges raised. Some contributors listed more than one. “Big Tech companies will be an important component of fintech growth and development, but they will also be targets for a large number of fintech companies for collaboration and innovation. This means that fintechs will face the challenge of distinguishing themselves when seeking to engage with Big Tech companies, and ensuring that the Big Tech company is able to justify diverting resources and time to focus on a particular opportunity that stands out as unique and worthwhile.” Fionnghuala Griggs & Richard Hay, Linklaters
Key challenges in fintech collaboration with Banks Aligning culture Length / clarity of procurement process Slow decision making Technical challenges / incompatability Difficulty / cost of securing revenue Margin driven down Funding and regulatory / legal compliance For Regtech, aligning stakeholders (ie in the case of 3 parties) Identifying a scalable solution / ability to scale Fintechs are time poor and money poor collaborating needs to be a “win win” Aligning/having a clear vision / value proposition Return on investment and contracting discretionary spend on technology - monetisation Trusting the quality of security Fear of cannibalisation / IP ownership Having a differentiated offering (to distinguish from other fintechs) Identifying the profit (for the Big Tech) Customer and strategy fit / an unequal partnership Who owns the customer The regulatory environment Lack of scale / funding (to pursue an opportunity) Finding the value add
with Big Tech
•••••• ••••• •••• ••• •• •• • •••• ••••• ••• ••• • •••••
••• •• •• • • • •
On collaboration Selected thoughts from contributors on the challenges of collaboration with incumbents, fintechs and Big Tech. CUBE’s Ben Richmond makes the point that there are “a lot of standards supporting collaboration for fintechs, but practically none for regtechs. Regtech is still very much in its infancy in that regard.”
With incumbents “Culture.” Menno Van Leeuwen, ABN AMRO / MoneyYou “Same as has always been - a really long decision making process. Fintechs need to navigate a complex organisation, find the right person and sponsor within the bank and have to be compliant with regulation needs. IT security, compliance. Most fintechs are SaaS companies - but there’s an increasing requirement for on prem solution for banks. If move from proof of concept to production, fintech has to go through complex integration - this maybe a challenge.” Nicolas Meric, DreamQuark “There’s an Interesting dynamic with regtech that’s different to fintech. With three critical stakeholders; bank (regulated firm), regtech provider and regulator, there is a need to join the dots between them. The Industry is starting to get that but there’s a long way to go to build out collaboration.” Ben Richmond, CUBE “Despite seeing an increasing collaboration between banks and fintech players, many of the legacy challenges still remain. To name a few: cultural differences, IT incompatibility, opposing organisational agility, ways/speed of doing business.” Mario Shiliaskhi, PayU “Dealing with legacy process and how the pie is shared. The banks think they have a right to the lion’s share. Some fintechs will accept this and others will walk.” Romi Savova, PensionBee
With fintechs “Fintechs are time poor and money poor. Collaborating with them needs to be a win win that doesn’t distract from the day to day too much.” Jamie Campbell, Bud “Fintechs are typically driven by dynamic entrepreneurs and management teams that have a clear vision of the direction of travel of their business and how best to achieve their strategic objectives. Aligning those management teams to collaborate effectively and to focus on the most significant opportunities will need to be a key area of focus if collaboration between fintechs is to succeed.” Fionnghuala Griggs & Richard Hay, Linklaters “The challenge is for each to stay focused on their core strength, while recognizing the true potential benefits of the partnership and staying flexible and agile enough to see it through.” Katharina Lueth, Raisin “Differences in maturity level and ability to scale usually mean one fintech startup relying on another for a critical piece of their service or product delivery could be risky. Nevertheless, partnering with other fintechs is usually the best way to provide end-to-end service and scale.” Mario Shiliashki, PayU
With Big Tech “Shortening the procurement buying cycle with better defined milestones.” Husayn Kassai, Onfido “Return on Investment, lack of differentiation and scale and crowding out by fintech models from large incumbents.” Parul Kaul-Green, AXA NEXT, UK “The main danger is Big Tech wanting to build solutions themselves.” Contributor “Getting the attention of big tech and then the fear of losing their intellectual property. This fear is not necessarily rooted in reality but it’s a general fear. Then if acquired or partnered – they will worry about loss of talent. The final challenge will be creating break out from whatever it is they do – i.e. how do I make myself visible within this larger organisation.” Richard Peers, Microsoft
“There is still a huge g fintechs can help add Emerging Markets w comes to consumer an lending, insurance, pa and basic banking ser Santiago Tenorio “FinTech is realistically failing to serve the mass market. Banking is still annoying, online fraud is pervasive, and doing basic things like saving, investing, sending and receiving money is still slow and tedious. The main things that frustrate us haven’t been solved.” Nicolas Cary, Blockchain
“Sustainable initiatives.” Menno Van Leeuwen, ABN AMRO / MoneyYou,
gap that dress in when it nd SME ayments, rvices.”
Who is not being served by fintech? A lot of people around the world, say our contributors. Bud’s Jamie Campbell put the case that fintech “is addressing more of the market than traditional players, with companies like Monese serving audiences that larger players may deem “less desirable.” Winning the highest number of mentions were the “over 50s”: an underserved demographic often labeled (wrongly) as lacking technology skills. “There’s still a gap in the market for fintech startups serving mainstream users with quality, transparent and cost-effective products. A lot of the innovation in consumer fintech has historically been centered around urban users, millennials, or mid-to-upper incomes, while outside of these groups people still use traditional inefficient products offered by incumbents. Companies such as Monzo are filling that gap by addressing a broad audience with a core banking product that’s delightful and affordable, and we expect to see more such companies in 2019.” Andrei Brasoveanu, Accel .
“Over 50s is a growing segment. This is the iPad generation and there’s a lot to be done here to provide the right combination of technology and service.” Romi Savova, PensionBee “Regulators - there is a lack of awareness of the mounting pressure on regulators dealing with the regulatory tsunami; they also need solutions to help them cope. Everyone blames regulators without considering the pressure they’re under - this creates a fintech opportunity.” Nasir Zubairi, The LHoFT “Smaller financial institutions. A lot of Fintechs focus either on consumers to achieve large user numbers, or on large institutions in search of big contracts.” Bert Boerman, Governance.com “As overall market understanding of cryptocurrencies and ICOs and the related technology increases, and as the global regulatory position becomes clearer, these products may yet become an effective alternative asset class, capable of being accessed by mainstream users of financial services.“ Fionnghuala Griggs & Richard Hay, Linklaters
Trust Does it still matter, what does it mean, and who has it? Across the board there was complete agreement on two points: trust is still of paramount importance in financial services - and consumers continue to trust banks to keep their money secure. And their data? Against the industry trope of data as the new infinite fuel, many contributors raised the emergence of consumer concern: “Customers are increasingly going to want to understand what their data is being used for,” said one. For ComplyAdvantage CEO Charles Delingpole safety with money and data is “non-negotiable, even for early adopters. Fintechs are better at transparency, and customers trust them more to keep them informed if and when something does go wrong.”
“Banks are still ahead fintechs when it come consumers trusting th money is safe with th However, fintechs ha opportunity, as consu increasingly no longe that banks have their interests in mind.” Katharina Lueth Raisin
“Trust doesn’t come in the form of big fancy sky scrapers now - it comes in a reliable and consistent digital experience. Do the services I work with make me feel valued? Do they have my back? I think trust is more important than ever.” Nicolas Cary, Blockchain
d of es to hat their hem. ave a great umers er trust r best
“Yes. Most people have never lost money through working with a traditional bank. This is captive trust – and it’s not necessarily positive. We’re still in the innovator space when it comes to challenger bank adoption- 2019 will take us through the early majority but it will probably be 2020 before we have mass adoption, as trust is established.” Richard Peers, Microsoft “Yes, trust still matters enormously to customers. Especially in countries where there are still huge underserved or unbanked populations, who may never have had a trusted relationship with banking institutions. There is a huge opportunity for fintechs to build trust with these underserved consumers who have previously been neglected. Mario Shiliashki, PayU For Nicolas Meric of DreamQuark there is work to be done. “People have realised that they trusted some big tech companies too much. If they’re not taking care of the customer enough, then trust fails and large carriers will lose customers and value. In 2019, companies will have to invest more into [providing] a private data experience and be more transparent about what they do with the data.” “Given significant recent data breaches, customers are much more aware that financial services organizations hold the keys to their personal data and want to make sure these institutions have adequate protections in place. From a fee perspective, customers are waking up to the fact that incumbent business models are built on hidden fees and demand more transparency.” Andrei Brasoveanu, Accel “Trust has been and always will be the most important thing in financial services. Because finance is intangible, trust is the key asset. Incumbents have trust by default, which they have built up over decades of existence. Unless they repeatedly damage it, they will continue to be trusted, especially for large transactions. Customers of fintechs cannot rely on legacy, so fintechs build trust in other ways, including transparency, fair pricing and social engagement. Overall, trust built through legacy is stickier and fintechs have to try really hard to gain and keep trust.” Romi Savova, PensionBee
You have one wish (go wild!) We gave every contributor one wish, with an invitation to “go wild!”. PayU’s Mario Shiliashki took us at our word: “My wish for 2019 and beyond, going wild here, is to build a world without financial borders, without complex trade tariffs and red tape for transacting across borders.”
People over tech “The sector becomes more customer led rather than tech led. The fintech model has to be simple and explicable for it to scale exponentially. Most players still confuse customers with jargon and unneccesary and excessive explanation of their platform’s tech capabilities!” Parul Kaul-Green, AXA NEXT, UK “A significant increase in female founders and women working in the sector.” Katharina Lueth, Raisin
“That we as a sector can tilt the gender mix of our customers to be more equal. Women can benefit disproportionately from “fairer money” and we should be all over this. Yet fintech users continue to be predominantly male. Let’s change this.” Romi Savova, PensionBee
The regulatory environment “Moving to a more regulatory-convergent landscape where regulation is recognised and passport more easily around the world.” Jamie Campbell, Bud “The challenge is for regulation to keep pace and innovate alongside fintechs, such that the legal system adapts and becomes better-equipped to facilitate new products and services offered by fintechs and by banks alike that leverage upon the new technology that has entered the market.” Fionnghuala Griggs and Richard Hay, Linklaters
Innovation in Collaboration “I wish for global Financial institutions to agree on common minimum levels of innovation budgets and empowerment of staff to work on innovation projects.” Bert Boerman, Governance.com “Banks become better at working with fintechs - quicker to take decisions and the [onboarding] process is accelerated so that it doesn’t take months to make a decision.” Nicolas Meric, DreamQuark. “Senior executives in banks need to recognise that reliance on manual processes to manage regulatory compliance is not sustainable. One wish is that they declare 2019 to be the year that they make big strategic decisions around their strategy for RegTech, because they know it will drive down cost, improve margins and diminish risk.” Ben Richmond, CUBE “Fintech and banking institution are merged and this creates a positive image boost for the community.” Menno Van Leeuwen, ABN AMRO/MoneyYou
Crypto future “Seeing crypto currency serving real use cases at scale, and helping more people around the world, as it’s been promised to do, which are not based on speculation or trading.” Nicolas Cary, Blockchain
“It would be great to have some crypto projects that actually had a meaningful impact on someone’s life for the better.” Charles Delingpole, ComplyAdvantage
Sustainability “Climate change - my one wish is that the financial services industry would put as much energy behind environmental sustainability and as it puts into onboarding, pfm and relatively mundane things. The industry needs to be more sustainable in a way that will ultimately affect us all i.e putting Capital to work to avert the more serious consequences of Climate Change.” Richard Peers, Microsoft “Participate in portable digital identity projects to help with the customer experience and speed of access to services.” Husayn Kassai, Onfido
Discover more about The FinTech50 2019 thefintech50.com t: @thefintech50 Contact Missive PR: Louisa (Excell) Merrett: +44 (0) 7976 233 051 Missive.co.uk