european fintech trends 2017
TRANSCRIPT
European FinTech is on track for a record year
€500b
€1075b
€1650b
€2225b
€2800b
2013 2014 2015 2016 2017
£2,637m
£1,902m£2,160m
£1,415m
£924m
2013 2014 2015 2016 2017
136
193
284
375
466
DEAL #FUNDING $m
£4,096m (FULL YEAR RUN RATE)
CBinsights Europe FinTech Trends 2017
As EU FinTechs raise fresh funding
Private Equity $225m
Growth €110m
Series B $20m
Series C $40m
Series D £20m
Series A $11m
Series A $10m
Series D £20m
Series B €21m
Series D £20m
Series E £32m
Private Equity €30m
Series C £20m
Series A €10m
Venture €19m
Growth $40m
Series F $100m
Series A $10m
Series C €17m
BIMA
Series C €10m
Series B £15m
Crunchbase Pro
And big winners emerge throughout Europe
CBinsights Europe FinTech Trends 2017
$598m
$373m
$281m
$266m
$193m
$146m
Funding
$2.5b
$1b
$500m2
$2.3b
$500m
-
Valuation HQ
18%5%7%
9%16%
44%
UK Germany SwedenIreland Switzerland Other
EU FinTech Investment by Country
5
Intro: Key topics covered in this deck
Online Lending Banks & Neo-Banks
Banking APIs Asset Management Foreign Exchange
Payments Insurtech
Challenger banks continue to gain market share
6
Low NPS (a UK average of +2) encourage startups in the banking space
250k
500k
1.1m
30m
# Users
625950
3527
52-6-8-10-17-22-24-41-42
AVER
AG
E U
K BA
NK
Challengers still a long way from incumbent user base
Challenger Banks in Europe, Frontline Ventures
Online lending continues to grow, despite fears
7
2Q 15 3Q 15 4Q 15 1Q 16 2Q 16 3Q 16 4Q 16 1Q 17 2Q 17
£8.3b£7.5b
£6.4b£5.7b£5.8b
£5.1b£4.3b
£3.7b£3.1b
Lending reported by the the P2PFA
Funding Circle Statistcs
Regulation enables API centric banking
8
Railsbank
Global banking access
Banking OSBanking APIsFully licensed bank of banks
Asset management tech companies pursue partnerships
9
Robo-advisors pursue partnerships as scale is hard to achieve
Integration
Strategic investment
Competition heats up in foreign exchange
$185m
$116m$119m$100m
$24m $19m
$10m
Many well funded playersRevolut offers free FX
(subject to £5k per month fair usage)
And big exits take place in the payments space
11
Acquired for £9.1
Payments continue a wave of tremendous consolidation after the acquisition of £16b Visa Europe in 2016
Acq offer for $3.9b
Acquired for £700m
Acquired for $1.5b
12
Online Lending
13
LendingClub, stumbled and yet to recover
LendingClub Statistics
1.5 years after CEO was ousted for inflating loan originations,
LendingClub is yet to recover
Stock is down 75% since IPO, ± unchanged
for the past year
1Q 15
2Q 15
3Q 15
4Q 15
1Q 16
2Q 16
3Q 16
4Q 16
1Q 17
2Q 17
$464m
$573m
$631m$612m
$589m$569m
$556m
$482m
$419m$416m
14
SMB focused OnDeck also experienced an originations slump
LendingClub Statistics
OnDeck originations experience slump in 2017
Stock is down 75% since IPO, ± unchanged for the past year
15
US consumer online lending collapsed in 2016
LendingClub Statistics
Valuation drops from $1.9b to $500m as origination
volumes fall 45%
US online lending platforms suffer fall in volumes
US Consumer Loans by Online Lenders
2013 2014 2015 2016
However, US Online lending overall is growing since 2011
17
So who is winning? Goldman Sachs, SoFi
LendingClub Statisticshttps://www.ft.com/content/50c1faf6-6a3b-11e6-a0b1-d87a9fea034f
Time to €1b in loan originations
8 months 14 months 28 months 65 months 98 months
The UK is experiencing tremendous growth as well
18
3Q 15 4Q 15 1Q 16 2Q 16 3Q 16 4Q 16 1Q 17 2Q 17
£8.3b
£7.5b
£6.4b
£5.7b£5.8b
£5.1b
£4.3b£3.7b
Lending reported by the the P2PFA
Funding Circle Statistcs http://p2pfa.info/p2pfa-publishes-second-quarter-lending-datahttp://p2pfa.info/peer-to-peer-lending-data-for-second-quarter-2016
EU market leaders maintain market position (unlike in the US)
19
Jun 2017 Raise ₤32m to pursue
banking license
Jan 2017 $100m raise at $1b
valuation
Competitors emerge, raising £50m+ in funding in the past 12 months
₤9m Series B
₤2.5m Seed
₤21m Series C
€5.5m Seed
20
While some smaller players disappear
Lendico and Zencap displaced by auxmoney in Germany
Lendico, once valued at €140m, likely acquired for a nominal sum by
institutional loan investor
Zencap acquired for an undisclosed amount, recently reported poor loan
performance, roughly breakeven across the life of the platform
Rocket Internet Sells Stake in Lendico Startup Funding Circle buys German startup Zencap from Rocket Internet for European expansion plans
21
Consumer debt per capita smaller in EU than in USA
1Consumer Creidt & Payment Statistics, Philadelphia Federal Reserve, 2Irish Central Bank, Household Credit Report 2H 2015. 3The Money Charity, UK Lending Statistcs 4New York Fed: Quarterly Report on Household Debt and Credit. Consumer debt is ex-mortgages
$10,700
€3,500
£2,850
The average consumer debt per capita
Refinancing is the #1 use case for online lending
Online lenders have reduced operating costs
22
Savings stemming from lack of branches and more efficient collections
And significantly lower capital requirements
23The future of finance, rise of the new shadow bank. Goldman Sachs Research
Online lending to grow into trillion $ business
24
Projected Marketplace Lending Deals 2020
0
35
70
105
140
2012 2013 2014 2015 2016
China Origination VolumeUnited Kingdom Origination VolumeUnited States Origination Volume
300
250
200
150
100
50
Billi
ons o
f USD
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
YoY Growth in 2014: 167% YoY Growth in 2015: 200%+
Global Marketplace Lending: Disruptive Innovation in Financials, Morgan Stanley.Global Crowdfunding Market to Reach $34b in 2015, Mass Solution
• Morgan Stanely forecasts global originations will reach $300b
• This would suggest $1trln in loans outstanding in 2020
• Half of this growth has come from china, where there has been massive fraud
• Banks will acquire or build similar platforms
25
Banks & Neo-Banks
Neo banks offer a banking like service, but (often) do not offer the same guarantees and are not regulated as banks
26
Neo-banks are beginning to look like banks
Non-banks Banks
As neo-banks grow larger, they realise the quickest way to profitability is to become banks
New licenses!
“…You get a license to defy the laws of gravity…government guarantees, and ability to increase leverage…it is a license to print money.” CEO, Atom Bank
Challenger Banks in Europe, Frontline Ventures
27
While low NPS continues to drive growth
Challenger Banks in Europe, Frontline Ventures
CHALLENGERSINCUMBENTS
8880
736259
50
352827
22191752
-6-8-10-17-22-24-41-42AV
ERA
GE
UK
BAN
K
Net promoter score is the leading cause of bank switching
• It is cheaper, easier and faster than ever to engage in banking activities
• Existing low customer satisfaction creates an incentive to try new banks
• Bank partnerships (often) extend the same deposit guarantees for customers
• In the UK a number of ventures capital backed banks launch on prepaid cards
• Easier on-boarding
28
And a perfect storm emerges for incumbents
Digital challenger banks by total disclosed funding (€m)
MoneyConf, Madrid, Panel Discussion “How can banking become a level playing field”
Atom
Revolut
Tandem
Starling
N26
Monzo
Tide
Monese
Osper
Ffrees
Pockit
0 75 150 225 300
$3.5m
$8.5m
$11m
$16m
$16m
$45m
$52m$70m
$77m
$86m
$268m
Challenger Banks in Europe, Frontline Ventures
29
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 Efficiencies
36bps
108bps
Challengers Incumbents
4.6%
17%
Challengers Incumbents
30
Although N26 scales back on some free perks
MoneyConf, Madrid, Panel Discussion “How can banking become a level playing field”
Last year we did a “case study” on N26 in our “European FinTech Trends”. A lot has changed!
v
Through on boarding and KYC services, others offer similar
experience
A fair usage policy on free perks
Increased competition on services offered
Fees for excessive ATM use (5+ withdrawals p/m)
Announced £50m Series B financing round at a valuation of £300m
Acquired 700k customers since launch 3 years ago
Offer free FX up to £5000 per month, powered by CurrencyCloud
Does not have a banking license
Upsell a small portion of users to their premium service for £7 that offers card + turbo transfers
Poor customer service
31
Revolut’s e-money account grows rapidly
Product is centred around mutli-currency accounts
https://www.linkedin.com/pulse/how-do-customer-support-painful-lessons-from-adomas-baltagalvis
32
Challengers status quo
Atom - focused on savers, no public
customer numbers
Expands to Europe after raising $10m
Series A
Launched Current account in March, no public figures
Pre-launch250k users, launching current account
Raised $14m Series A
Acquired Harrods bank, now with
£80m in despots
500k customers , banking license
33
Banking APIs
34Customer Loyalty in Banking, Earnix New Survey Finds That Open Banking is a Game Changer for Millennials
(Consumer banking data)
Banks FinTechs
APIs sit between banks and FinTechs, controlling flow of data
APIs
35Customer Loyalty in Banking, Earnix New Survey Finds That Open Banking is a Game Changer for Millennials
Open use of data (open banking) expected to have big impacts
80%
Expect an increase in competition as a result
of open banking
88%
Believe users will be accessing services
through an aggregator
In a survey of 300 European bankers
v
v
36
A number of regional champions have emerged
37Yodlee S-1
FOUNDED: 1999
ACQUIRED: 2015
Founded: 1999 IPO: 2014, 1999 MRKT CAP (IPO): $340m Acquired 2015: $590m ORGANIZATIONS: 750 REVENUE: $70m FLAGSHIP CUSTOMERS:
Banking APIs are a big business, pioneered by Yodlee
38
Asset Management
Robo-advisor assets under management are still small
39
Betterments AUM has grown from $3bn since Jan 2016 to $8.5b in May of this year. Small relative to incumbents.
European Champions
Growth slowing in recent years
40
“Stand-alone firms will need $16b to $40b of net assets to break even. Moreover, [Morningstar] estimates…$1000 cost to add a new account, after factoring in attrition, and up to a decade to recoup marketing costs.” - Joe Manseuto, CEO
The Pulse of FinTech Q1 2016 Review, CBInsights, Quote MoneyConf, Madrid, Panel Discussion “Distributed Money: The arbitrage game”, Does not compute, The Economist
“Products are extremely low margin. It will be harder than the airline industry. Competition is still increasing. People coming in with competitive pricing.” Tamaz Giorgadse, CEO, Raisin (cross boarder deposits)
Companies acquired for tech
41The Pulse of FinTech Q1 2016 Review, CBInsights
Banks move into the robo-advisor space
42The Pulse of FinTech Q1 2016 Review, CBInsights1UK banks set to launch robo-advisors, FT
4 out of 5 largest UK banks plan to launch their own robo-advisors
v
A challenging propositions for VCs
43The Pulse of FinTech Q1 2016 Review, CBInsights1UK banks set to launch robo-advisors, FT
Increasing competition
Long CAC payback times
Low Differentiation High capital
intensity
• Goldman Sachs Asset Management (GSAM) has 1trln in AUM.
• Betterment and WealthFront have a combined $20b, suggesting tremendous room for growth
• Financial advisors have historically struggled to build tech, which could justify high take out premiums
44
Wealth management attracts strategic investors
Blackrock makes strategic investment into
scalable capital
₤15m Series B
45
Pensions largely untapped wealthhtech opportunity
Undisclosed seed
Automatic enrolment
+Existing pension pots:
£2.4tnTotal pension assets in the UK
(2015)*
*Source: The Investment Association “Asset Management in the UK 2015-2016 report”
46
Foreign Exchange
47
The FX market remains highly fragmented
Arma Partners FinTech Update Q1 2017
48
With a number of well funded players
$185m
$116m$119m$100m
$24m $19m
$10m
Arma Partners FinTech Update Q1 2017
49
Taking share from incumbents
2Q 2017 Earnings Presentation
Western Union sees declines in offline business
50
Payments
51
Acquired for £9.1
Visa Europe acquired for €16.5b
Acquired for £700m
Last round valuation $2.3b
2500 FTE
Acquired for £1.1b
Market cap £2.6b
Acquired for €1.5b
€5.3b market cap
High level of M&A activity
52
Strategic investment from VISA
Plans to expand to consumer lending
Strategic investment in LendUp
Payment companies enter into the lending space
With better data, payment companies are well positioned to make loans
53
Paypal moves closer to point of sale
Paypal launches credit card as Apple, Samsung and Android make progress in offline retail
“Cardholders can manage their accounts, redeem Cash Rewards and make payments by logging into
their PayPal account, giving customers another reason to access and use their PayPal accounts”
54
Out of 300m customers, 33m have used amazon pay in 170 countries Adding 1m customers per month Over 50% are prime customers
Money 20/20 Europe 2017 - Day 2 Keynote - 14:00 Giulio Montemagno, Amazon Pay
“Online Giants are not sleeping…so who [are} the giants? Is the European LendingClub? Or is it Amazon…I think it is only a matter of years before you have your bank account with amazon. “ - Oliver Samwer, CEO Rocket Internet
Tech giants are also well positioned to compete
€500b
€675b
€850b
€1025b
€1200b
2012 2013 2014 2015 2016
£1,124m
£981m
£863m£800m
£717m
55
2012 2013 2014 2015 2016
£345m £374m £406m £467m
EBITDARevenue
12% Revenue CAGR
Worldpay acquired for £9.7bn
Worldpay financials demonstrate consistent growth
56
Insurtech
2013 2014 2015 2016 2017
$88m
$129m
$13m$1m$13m
57
European insurtech accelerates from low base
6
11
23
30
39
DEAL #FUNDING $m
$136m (FULL YEAR RUN RATE)
58
A selection of new funding announcements so far in 2017
$10m Seed ₤2.3m Seed €2m Seed
€1.6m Seed ₤5m Series A €10m Seed
Price comparison
Full stack insurance company
P2P insurance
broker
Insurance + connected
home
Health Insurance
Robo-advisor for insurance
59
Cybersecurity is one of most promising areas for insurtech
“Cyber crime costs the global economy more than $400 billion a year and the costs will continue to grow” - PwC Insurance 2020 & beyond**
Sources: *World Economic Forum – “Global Risks 2015, 10th edition” **PwC Report “Insurance 2020 & beyond: Reaping the dividends of cyber resilience”
Cyber attacks are one of risk with highest likelihood and highest economic impact
59
Some interesting European Cybersec startups
Eliminates need for passwords
Real-time cyber threat identification
Stealth mode startup which raised £14m
Managing cybersecurity risk
Quantum-computing, defence
grade security
Prevent sending emails to wrong
people
Security management
platform
Managing and monitoring digital
footpring
61
Incumbent Response
Startups build on top of bank systems and are looking for partners
62
Startups partner with banks
Banks are partnering with marketplace lending platforms1
1Proprietary Research, The Pulse of FinTech Q1 2016 Review, CBInsights
WiredCard supports Number26, CurrencyFair and LinkedFinance
Bank Investments to VC-backed FinTech Companies Q1’2015- Q2’2016
Goldman Sachs
Citi
Santander
Mitsubishi
JPMorgan
ING Group
Bank of China
China Development
Mizuho
Sumitomo Mitsui
0 2 5 7 9
63
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
Banks acquire tech companies
64
Case Study: Santander Bank
Agility Risk Taking
Mindset
Customer Scale Products
Infrastructure Brand
Startups + Banks = Best of both worlds
Kabbage - Serving SMEs in the UK via 3m Santander SMB clients
ripple - Santander uses ripple for small sum currency transfer
Startups Banks
65Customer Loyalty in Retail Banking
Santander has simplified offerings, gone digital
Santander improves banking offering
66
Conclusions
Predictions for 2017-2018
67
Zopa or Funding Circle finally go public
EU FinTech will see its first major
security breach
2017 will mark another record year for online
lending volumes
3Q 154Q 15
1Q 162Q 16
3Q 164Q 16
1Q 172Q 17
£8.3b£7.5b
£6.4b£5.7b£5.8b
£5.1b£4.3b
£3.7b
Predictions for 2017-2018
68
Consumer FinTechs without strong organic
growth struggle
Challengers will explore launching
credits cards
An EU bank announces B2C lender, following
Goldman Sachs in USA
69
Twitter Medium Quora Twitter Medium
70
Appendix
71
Expense management in 2017
Raises $2.2m in Seed Funding
Raises $3.2 in 2nd Seed
Raises $11m Series A