challenger banks in europe: challenge accepted
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frontline.vc
Challenger Banks in EuropeChallenge accepted
A GLOBAL PERSPECTIVE BROUGHT TO YOU BY:
8880
736259
50
352827
22191752
-6-8-10-17-22-24-41-42
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Low NPS creates opportunity for challengers
1Customer Loyalty in Banking, NPS Benchmarks, Net Promoter Score Ranking (Germany), Lloyds Annual Report, First Direct, NPS Benchmarks, Redpoint, UK Brand NPS
NET PROMOTER SCORE IS THE LEADING CAUSE OF BANK SWITCHING1
CHALLENGERSINCUMBENTS
AVER
AG
E U
K BA
NK
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Newly formed banks rush in
A new landscape: Challenger banking annual results , Zopa
VC BACKEDWITH BRANCHES ONLINE ONLY
£131b £25b£39b£53b £43b
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To capitalize on a £300b opportunity
Lending assets of the (UK) big 5 decrease 5% YoY
Challenger bank lending assets grow 30% YoY
Market cap of the UK big 5
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Challenger Banks
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Customers benefit from challenger efficiencies
switched from their bank in the past 12 months2
would consider banking with Google
financial products are not targeted at 18-34 year olds
A new landscape: Challenger banking annual results , The Pulse of FinTech Q1 2016 Review, CBInsights
59%
Bank ROE (return on equity)
Rates for Savers
Less Complex IT Systems
Simpler product set
Favorable regulation
Less costly real estate
No legacy compliance
40%
18%
Customer View
Challenger Effencies
36bps
108bps
Challengers Incumbents
4.6%
17%
Challengers Incumbents
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While digital challengers refine their business model
Interest rates
Product features
Ease of opening
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2
3
United Kingdom
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2
3
Germany
Fees
Ease of opening
ATM locations
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2
3
USA
Fees
Branch locations
Product features
Customer Loyalty in Banking
“Quite frankly I couldn't find a business model that was compatible with customer expectations"
-Carlo Gualandi, CEO
TOP 3 CUSTOMER PRIORITIES
AccountForeign
Purchase FeeForeign
Withdrawal Fee Monthly Fee
£1.25 2.75% £5
2.99% + £1 1.5% (min £2)
2.99% £1.50 £3
2.75% 2% £0-5
2.75% min. £1
2% min. £2, max £5
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And compete on fees
AccountForeign
Purchase FeeForeign
Withdrawal Fee Monthly Fee
Free in EU Free in EU -
Free £1.50 -
£1.25 + 2.75% 1.5% (min £1.99) -
2.75% 1%
0.50% 0.50% £5
Free 1.7% €0-5,90
Free Free -
Revolut Free Free-2% -
N26 Pricing, Money Saving Expert, Overseas Card Charges, Monese (subject to change)
CHALLENGERS INCUMBENTS
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Challengers acquire customers more efficiently
Neo Banking
FAST ONBOARDING BETTER MARKETING NETWORK EFFECTS
N26 Moneybeam
Monzo.me payments
Monese e-mail notifications
Performance marketing
Content marketing
Video KYC solutions
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PE backed challengers are lending off their balance sheet
£1.2b valuation at IPO
700k Customers Growing 40% p.a Lending £3.5b annually, +123% YoY £5b in deposits, +78% YoY UK based, w/ local branches Founded in 2010 $200m+ in private funds raised
Branch-based challenger Metro Bank valued at £1.6bn on IPO,, Shawkbrook 2015 Annual Report
£725m valuation at IPO
Lends to 60k SMEs and consumers £1.6b 2015 originations £80m profit before tax Total assets of £4b UK based, w/ local branches Founded in 2011 $200m+ in private funds raised
£650m valuation at IPO
Targeted towards SME’s Growing 42% p.a £300m in revenue £105m in operating income £78m net income Founded in 2009 £62m+ in private funds raised
£1.25b valuation at IPO
2.8m customers Mortgage lender Total customer balances +13% YoY Profit before tax £127m UK based, w/ local branches Founded in 2011 $200m+ in private funds raised
5 CHALLENGERS FOUNDED SINCE 2009 IPO AT £500m+
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While VC backed challengers pursue a marketplace model
Asset Management
Currency Transfer
And charge success fees for completed transactions
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The EU will roll out a major regulatory overhaul in 2018
Prohibition of card surcharges
PSD will now include one leg out (foreign) transactions
3rd party payment initiation, push vs pull
Security of online payments and account access
Extends the definition of payment institutions 3rd party account access
What is PSD2?
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To increase competition, innovation and transparency
EXISTING BANKS PRIMARY REVENUE STREAM IS LENDING
PSD2 LEVELS THE PLAYING FIELD FOR DATA ACCESS, PAYMENTS
This could shift power toward digital players
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Incumbents fight back
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BBVA acquires a number of challengers
US Based, 100k retail customers $15m funds raised
Acquired for $117m
UK, Pre-launch Banking license
$292m funds raised Majority owned by
BBVA
Finish based Founded in 2011
$5m in funds raised
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Santander improves competitive position through product
Customer Loyalty in Retail Banking
Santander has simplified offerings, gone digital
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Investment landscape
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$500m+ has been invested into EU digital banks
Atom
Tandem
Starling
N26
Monzo
Monese
Osper
Ffrees
Pockit
0 75 150 225 300
$3.5m
$8.5m
$11m
$15m
$18m
$52m
$70m
$80m
$292m
CONSUMER CHALLENGERS (FUNDS RAISED)
The Pulse of FinTech Q1 2016 Review, CBInsights
DIGITAL SMB CHALLENGERS (FUNDS RAISED)
Fidor
Holvi
Tide
Kontist
0 1.25 2.5 3.75 5
$2m
$2m
$5m
$5m
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Consumer challengers$300m in funds raised
$17m in funds raised
Harald McPike QuantRes
$70m in funds raised
$80m in funds raised
$52m in funds raised
Pre-launch Banking license
Pre-launch Banking license
200k users Banking linense
beta 85k users Pre-paid card
Live 55k users
Banking license
$16m funds raised
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B2B challengers
Acquired by
Acquired by
3 minute setup no monthly fees
finance tools accounting
3 minute setup no monthly fees
finance tools accounting
Bank account for freelancers
just launched
SMB bank account Invoicing, accounting
connectivity In beta
Bank account for Targeting SMBs 3-30
pre-launch
1st digital bank in Germany 100k+ Founded 1999
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Founders of challengers mix tech and financial services
CEO George Bevis
CEO Valentin Stalf
CEO Matthias Kröner
CEO Joshua Reich
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Conclusion
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2017 Predictions
More “horizontal” banks will emerge, catering to a
specific customer segment
Challengers in continental Europe emerge
Early movers are rewarded with customer acquisition
costs that defy gravity
As VCs struggle to pick the winners, late entrants
struggle to get funded
Incumbents spend to improve their mobile apps
More strategic investments from retailers as banks
become loyalty schemes
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Appendix
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Mobile banking adoption varies across geographies
0
15
30
45
60
Chi
na
Sing
apor
e
Hon
g Ko
ng
Spai
n
USA
Aust
ralia
Nor
way
Pola
nd
Swed
en
Russ
ia
Fran
ce
Italy
Ger
man
y
UK
Finl
and
Den
mar
k
Net
herla
nds
27%27%32%33%35%36%37%37%38%38%40%
43%45%49%
53%54%60%
% OF RESPONDENTS WHO HAVE ENGAGED IN MOBILE BAKING LAST Q
Customer Loyalty in Banking
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Companies and tech that enable challenger banking
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Standouts in UI
ALL TIME ITUNES CUSTOMER RATINGS (DEC 2016)
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Twitter Medium Quora
