Reports - Sponsored by - Sifted
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Reports
Sponsored by
Questions? Feedback?
Would you like to partner with Sifted on
the next repport into your sector?
Or help us profile your emerging tech hub?
Get in touch with Christopher Sisserian,
head of Sifted Intelligence via chris@sifted.eu
FINTECH UNWRAPPED 1
2 SIFTED REPORTS
Fintech
every
y where
An unseen army of software startups is
democratising financial services.
From social media companies launching digital currencies to ride-hailing platforms lending to
their drivers, financial services have moved from something your bank does to a facility you can find
everywhere. The early revolution came from the payment platforms that made e-commerce viable,
most obviously PayPal. More recently, the consumer-facing digital banks delighted customers with
their neat design, excellent user experience, service perks and rapid onboarding. Alongside them
came an explosion of apps offering financial conveniences; from consolidating pension pots to
providing more accessible investing, or digitising invoices, giving consumers and companies alike
greater visibility and control over their finances. Today, thanks to a combination of Europe’s new
open banking rules, improvements in software Application Programming Interfaces (APIs) and the
harnessing of machine learning and analytics, a larger ecosystem of startups is bringing financial
capabilities to the wider economy.
Across geographies, fintech is becoming ubiquitous — but in different ways. Asia has produced
financial ‘super-apps’ led by the likes of China’s Ant Financial, Paytm in India and Gojek in Indonesia,
through which consumers do everything from food delivery to loans to booking on-demand
massages. In the US, the story is dominated by the plans of big tech companies — especially Amazon,
Google, Apple and Facebook — to move deeper into financial services. North America has also
produced the payments titans, like Square, Stripe and Toronto-based Shopify, whose infrastructure
has brought financial capabilities to millions of companies and merchants. Meanwhile Snap, which
counts Tencent as an investor, is currently showing signs of following the super-app model.
FINTECH UNWRAPPED 3
Europe has lagged behind Asia and the US across many tech sectors, but in finance it is hoping
for more than a bronze position, having produced trend-setting neobanks like Monzo and Revolut,
which are now taking their businesses global. The continent — particularly in London — is also
producing another set of startups whose contribution is lesser known, but whose implications are
far greater: we call them the ‘Fintech Enablers’ — software companies building tools to democratise
banking and bring financial capabilities to all companies.
The Enablers are liberating Europe’s incumbent banks from their costly legacy systems, allowing
them to focus more on customer service innovation. They help challenger banks come to market
faster by providing them with core chunks of the banking technology ‘stack’ — or all of it — such
as compliance, authentication and payment processing. Most importantly, by turning financial
services into modular software, the Enablers will let every company become a fintech of sorts, either
by vastly improving their own financial management, or by extending their value proposition to
customers in new ways. This report, sponsored by Plaid, provides a definitive breakdown of Europe’s
Enablers that are working behind the scenes to build the infrastructure making fintech ubiquitous.
THE EVOLUTION OF BANKING
TRADITIONAL MODEL
PAST 10-20 YEARS
EMERGING MODEL
Branches
and bankers Web
and mobile
Third party
applications
SOURCE: Plaid
4 SIFTED REPORTS
Contents
5
Covid-19: Digital finance, accelerated
From digitising invoices to the retail investment boom, the pandemic
is quickening the transformation of consumer and enterprise finance
10
Opening up finance
A Q&A with Eric Sager, chief operating officer at Plaid, on how fintech
innovation is democratising finance
13
Banking on software
How Europe’s incumbents are partnering with fintechs to divest of
their legacy infrastructures
19
Disrupters under the hood
White label banking services are democratising fintech, allowing
challenger banks to quickly set up shop
27
Open up: Europe’s activist regulators
How Europe’s regulators made open banking a reality - and where
they are heading next
32 Conclusion
Love the plumbers
FINTECH UNWRAPPED 5
Covid-19:
Dig
g ital finance,
accelerated
The global pandemic has forced citizens
and businesses to embrace digital financial
services at unprecedented speed, laying the
foundations for a new era in fintech.
6 SIFTED REPORTS
D uring the last European
and North
pandemic, the telephone came
American
digitise has had to remedy that
sharply. Companies pushed
through years of digital transition
digitisation because they want to
cut costs or accelerate cash flow.”
For the companies building
into its own for those who could in a matter of weeks as they shifted software that improves financial
afford it. But as Spanish flu spread, to distributed structures. management, the pandemic is a
so many telephone operators “We saw all the trends underway huge opportunity. In April alone,
became ill from working in close before Covid-19,” Michele Likvido, the Copenhagen-based
proximity that their companies Foradori, an investment manager automated invoice collection
pleaded with customers to only at European venture capital firm startup, took on 300 more
make emergency calls. BlackFin Tech, tells Sifted, “the customers and doubled its sales.
Fast forward to today’s pandemic is accelerating them.” “Our conversion rates from cold
pandemic, and our digital The pandemic has proven calls increased three times during
telecommunications to be an opportunity, even if the pandemic,” says chief executive
“We saw all infrastructure has under duress, to finally fix all of Max Frimmer.
been our saving the inefficient manual and even Digital invoicing is especially
the trends grace, allowing paper-based processes to which important at a time when many
underway millions of people companies were still often stuck. suppliers and partners are going
before to continue working “You’d be surprised how many bust — or are about to. French
and socialising, companies still have files full of software company Sidetrade,
Covid-19” which also digitises invoices and
albeit at a distance, different coloured papers in their
Michele Foradori and helping to offices, full of paid and unpaid cash systems, claims that unpaid
avert a complete invoices,” Foradori adds. “Suddenly invoices owed to its clients have
shutdown. Any business yet to companies see the value of jumped by 97.6%, from 19.3%
% INCREASE OF UNPAID INVOICES SINCE PANDEMIC
SOURCE: Sidetrade
FINTECH UNWRAPPED 7
FOUNDED: 2011
FOUNDERS: Daniel Klein, Jan
Deepen, Marc-Alexander
Christ, Petter Made, Stefan
Jeschonnek Consumers, too, are quickly 10% of consumers in Britain and
HQ: London shifting their behaviour. Their 17% in Italy have used online
relationship with cards is banking, contactless payments
TEAM SIZE: 2,000+
changing, with reluctance to use and wallets for the first time since
MONEY RAISED: €500m
shared chip-and-pin terminals lockdowns began. Chime, a digital
MARKETS: 32 including driving an increase in contactless bank, has onboarded record
Europe, US and Brazil payments. At SumUp, the London- numbers of customers, while
HOW MANY CLIENTS: Over 2m based software company that direct deposit volumes at Square,
globally digitises payments for SMEs that the US-based payments company,
are reliant on cash payments, vice increased threefold between
president for Europe Alexander March and April.
WHAT IT DOES: von Schirmeister has seen a “The speed of adoption of
Sumup is a payments noticeable trend. In France, cashless payment technology has
provider. The company contactless payments have gone increased dramatically in just three
enables businesses to from 46% of all card payments to months,” says Pär Hedberg, chief
accept card payments in executive of Sting, the Swedish
nearly 60% since the start of the
multiple ways.
lockdown, he tells Sifted. accelerator and incubator. “But
WHY IT’S INTERESTING: In Germany, the use of we need to move faster
SumUp is the only company contactless payments has jumped now, to leapfrog over
to offer an end-to-end after supermarkets and chemists credit cards to touchless
“The speed
EMV card acceptance of adoption
began asking people to pay by payment systems.”
solution built on proprietary
hardware.
card if possible. Major retailers and Hedberg believes that of cashless
small grocery stores have done the growth of e-gaming,
entertainment and
payment
the same, and even cash-loving
German consumers are switching sports will accelerate technology
to 38.1%, making for its busiest to plastic. the payment solution has increased
period since the financial crisis. The trend is global. In market more than the
dramatically
European software companies early March, the World Health current surge in online
are adapting their own offerings, Organisation (WHO) advised retail and food delivery. in just three
and pricing, to support rapid against using physical cash “Cards are a months”
adoption. In March, Sidetrade and recommended making stepping-stone,” agrees
Pär Hedberg
launched a free cash control contactless payments to reduce Dr Francesc Rodriguez
service for new clients that will virus transmission. Since then, Tous, a lecturer in
operate until the end of June. use of cash has fallen dramatically banking at Cass Business School.
“Typically, it takes 12 to 16 weeks — by as much as 90% in Spain. “It’s going to be more about
to implement our systems with In the UK, at the beginning of online transactions in a cashless
clients; we created one without the lockdown, ATM transactions were society, where there is no need
bells and whistles in one week,” down by as much as 62% year on for a card.” For most consumers,
says David Turner, chief marketing year, according to data from Link, the phone is replacing the card. In
officer. Once clients digitise, which runs the UK’s cash machine Sweden, Swish, the bank-owned
Turner says, they never go back. network. telephone banking app, has seen
If a system is easier, faster and At home, more people are a rise in users from 7m to nearly
cheaper to operate than one that paying for goods and services 7.5m — which means that almost
relies on vast quantities of paper, online to be delivered directly. all of the Swedish population old
no one will revert to their old ways. Research from Forrester shows enough to have a bank account is
8 SIFTED REPORTS
now on Swish. If we are using our consolidate their financial lives. also saving more, says Henrik
phones more for banking, we’ll London-based PensionBee, for Rosvall, Dreams’ chief executive.
likely use them for other financial instance, transfers old pensions “People who were saving for a kite
services too. The logic of having into a single online repository. surfing trip or yoga
everything in one place in a single Wealth management and robo- retreat last spring are
app, particularly at a time when advisory platforms can provide now setting up buffers,
“Everyone
life is exceptionally complicated, detailed savings projections and putting money aside is having a
is proving a winning formula with even guide consumers about for their children.” harder time
consumers. how much they need to put away Tara Reeves, partner
financially
Even Asia, ahead of Europe to meet specific future spending at Omers Ventures,
when it comes to moving from goals. Startups like Nutmeg pride thinks the pandemic since the
cash to digital payments, thanks themselves on far greater fee will lead to a number of pandemic,
to the ‘super-app’ phenomena transparency than old-school retail changes in the overall
particularly
led by WeChat Pay and Alipay, investment platforms. packaging of financial
has seen this trend accelerate There is growing demand services. “Everyone is those
during the pandemic. Consumer during the current crisis for clarity having a harder time approaching
attitudes and retail patterns may over our financial future, and tools financially since the
retirement”
be different, but the trend towards that help us to save and invest. pandemic, particularly
consolidating everything financial Young people are increasingly those approaching Tara Reeves
in one place may follow here. being helped to save more thanks retirement,” she says.
to easy-to-use savings platforms. “There are also signs that the bank
Stockholm-based Dreams, an app of Mum and Dad is taking a knock.”
ALL TOGETHER NOW
aimed at encouraging savings and She predicts that mortgage
Thanks to open banking investment, has seen an 11% jump lenders will have to change their
regulations (see last article in this in new users since March 1. Existing products to appeal to people in
report), there is now a community customers are also making more changed circumstances. Gifts
of startups helping users transactions, suggesting they are have been an important source
of capital for the deposits of first-
time buyers for some time — over
the last five years, 61% of first-
time buyers relied on help from
their families. But with less family
money available, Reeves expects
more first-time buyers to buy
with friends, and a ready market
of apps offering and managing
shared mortgages.
To her, one of the more
surprising effects of the pandemic
has been the surge in retail
investment in stock markets. A
report by the French stock market
regulator showed that retail
investors’ transaction volumes
Image: SumUp
have increased four times sinceFINTECH UNWRAPPED 9
it’s less surprising that low-cost 200 years.” When it comes to
investment fintechs, such as protecting personal data, most
Nutmeg, Trade Republic and individuals trust their bank more
Freetrade, have benefited. than any organisation other than
their employer.
With uncertainty comes a
TRUST PREMIUM
greater need for advice, argues
But this doesn’t mean paying Johan Näs, managing director
for financial advice is about to and partner at Boston Consulting
come to an end, warn some Group’s Stockholm office. It’s too
Tara Reeves,
Omers Ventures commentators. This is particularly soon to write off the banks, he
clear in conventional banking, says, and several seem to be doing
although the message is relevant well in the pandemic, particularly
the start of the pandemic, with for other financial services. A those who innovated and invested
over €3.5bn net flowing into recent survey by Forrester found in their customer service. One
equities. Some 27% of French stock that some customers are actually thing is clear: the pandemic is
market investors were new to the switching away from digital banks driving the expectations and
market or previously inactive. back to their original bank. “In needs of consumers ever deeper
New investors were 10-15 years difficult times, who are you going into the digital realm, unlocking a
younger than traditional investors to trust?” asks Forrester analyst huge fintech market opportunity
and below 40 years on average. Jacob Morgan. “You’ll trust a for the companies best positioned
Given this trend, however, bank that has been around for to compete.
NEW BROKERAGE ACCOUNTS
SOURCE: Andreessen Horowitz / Company Filings10 SIFTED REPORTS
Op
p ening
g up
finance
Q&A with Eric Sager,
chief operating officer at Plaid.
and Pandle, and, as part of its important and you are seeing that
expansion into Ireland, France, in the rise in traffic on fintech apps.
Spain and the Netherlands, will There’s been a massive migration
support integrations into banks that, in my mind, would have
including AIB, Santander and BNP happened over the next four or
Paribas. How does the company five years, but has been greatly
see Europe’s fintech ecosystem compressed. Behaviours are
evolving? How is the Covid also changing. For instance, until
pandemic influencing financial now, consumers have been very
behaviour? Sifted talked with reluctant to do their mortgages
Eric Sager, Plaid Plaid’s chief operating officer digitally. Because of Covid, they
Eric Sager about the shift to are discovering
open finance and how opening digital platforms
California-based Plaid is one up financial services further will now, and finding they
“There are
of the fintech infrastructure unleash a new wave of innovation can do a mortgage huge
innovators enabling the open — and give more people access application in 10 frictions in
banking revolution. Its platform to services they’ve been excluded minutes. Before,
financial
connects over 2,600 apps to from. there was this sense
11,600 financial institutions, of ‘If I don’t go to a transactions
Sifted: Right now, the
across the domains of personal branch, if I don’t get and practices
Covid-19 pandemic is upending
finance, payments, lending, help from someone
all aspects of our lives. How do which we can
wealth management and business to walk me through
finance. The $5.3bn fintech is
you see it changing fintech and
it all, how could I eliminate”
financial services?
highly regarded by the many possibly do a home
developers building the APIs that ES: The pandemic is definitely loan?’ Once you’ve done it, I have
are driving today’s boom in fintech accelerating the digitisation of a hard time believing anyone is
services. financial services. As branches going to go back to the world
Since coming to Europe via a are either closed or as people where you had to print out all this
UK launch early in 2019, Plaid has are more hesitant to go, digital paper and spend hours in a branch
picked up clients including Cleo solutions have become much more sorting it out.FINTECH UNWRAPPED 11
FOUNDED: 2013
FOUNDERS:William Hockey,
Zachary Perret
HQ: San Francisco
TEAM SIZE: 550+
MONEY RAISED:$310m
($5.3bn acquisition by Visa
pending)
FINANCIAL SERVICES LINKED:
11,000+
FINTECH APPS CONNECTED:
2,600+
MARKETS: The UK, Ireland,
France, Spain, the
Netherlands, the US and
Canada
WHAT IT DOES:
Plaid provides a global
network of financial data
and suite of APIs that
makes it easy to leverage the systems in place. For instance, On the consumer side, we
open banking and create I remember from my time working expected to see Europeans adopt
digital financial products at Square and BlueVine, how open banking pretty aggressively,
and services. much small businesses still use and that’s been borne out so far.
WHY IT’S INTERESTING: Excel to manage their finances. There was all this pent-up demand
It’s demonstrated one of Now, thanks to our money in and it’s clear from the data that
the most rapid rises in the Excel partnership with Microsoft, we’ve seen consumer
world of fintech startups. they can seamlessly update adoption taking off in
From a small startup in
“We see
spreadsheets with all their financial terms of the numbers
San Francisco, it’s now data, which is phenomenal. It has of accounts, percentage ourselves as
in the process of $5.3bn
been a huge hurdle, having to of people covered, the plumbing
acquisition by Visa, and
manually transcribe everything and there’s been huge that makes it
recently crossed the Atlantic
from paper statements into success of European
to make waves in Europe’s possible for
fintech space. spreadsheets, with all the back companies like Monzo,
and forth and a bunch of errors. Revolut, N26 and consumers
By building software that connects Starling. In some ways, to shop for
data and existing systems, we can it’s going faster than
How do you see fintech
take innovation to where people the US. Even countries
the right
innovations helping out on solution”
are. If they are using existing tools with affinities for more
the enterprise side? Financial
and benefiting from them, we in-person banking, like
processes are a huge workflow
want to help them there. Germany, are seeing changes now
and burden for many companies.
due to Covid, which might stick as
How do you see open
There are huge frictions banks are building more digital
banking playing out in Europe,
in financial transactions and solutions now.
both in terms of adoption and
practices which we can eliminate, On the regulatory front, Europe
regulatory support?
even by connecting software to has done a good job in enabling12 SIFTED REPORTS
open banking and the emphasis than just your bank, which could pieces, and give consumers
on consumer protection. We include investment accounts, debt greater control and visibility. For
see ourselves as the accounts and so on. It’s still very instance, it could unlock services
“A fully open plumbing that makes it difficult for companies to provide like financial nudges and analytics,
possible for consumers solutions in this wider financial such as saying, “Hey, you’ve got
finance to shop for the right space because it’s difficult to €1,000 in your cash balance, if you
ecosystem solution, from all the seamlessly integrate the data, as invest some in this money market
lets innovations they can these companies are not subject account by clicking here, you can
now leverage. You see to open banking regulations yet. be earning 4% interest”. It sounds
innovators small but done over millions of
this rise of new fintech
build players that have How would you see this shift
people over a long period of time, it
to open finance playing out, in
products grown because they are terms of its benefits?
will have big effects because this is
how wealth is built. So far, nobody
and connect innovating in their own
right, and we are trying It will give people a much is giving the general consumer
the pieces” to play a small part in better grasp of their financial this type of advice. This kind of
their success by making health and allow companies to service would disproportionately
it easier for consumers to make provide more wealth-creating help people who have been left
that connection in the first place. services. As of now, it’s like we are out. There’s so much that can be
The next step for Europe, I think, going to a doctor and they are done to make finance fairer, but
is moving towards open finance, scanning 10% of us to work out it starts with having much, much
following the lead of Australia, your overall health. We’re building better information and much less
which has been really forwarding- a world where consumers can friction. As long as there’s friction,
thinking in this area. Open finance build a total picture. A fully open and as long as there’s information
basically makes any digital finance ecosystem lets innovators asymmetry or lack of information,
financial account open, rather build products and connect the you can’t really help people.
Plaid user flowFINTECH UNWRAPPED 13
Banking
g on
software
Incumbent banks have been on the
defensive, with fintechs offering more
appealing services and perks, and better
technology. To keep pace, Europe’s more
progressive banks are partnering up with
innovative startups that are liberating them
from cumbersome legacy systems and
infrastructures.14 SIFTED REPORTS
FOUNDED: 2013
ACQUIRED: 2018 (EQT)
Anders la Cour,
E
FOUNDERS:
urope’s roughly 6,000 banks IP disrupters like WhatsApp and
Laust Bertelsen
have watched on nervously Skype. “The banking industry has
HQ: Luxembourg
as challengers like Revolut, Monzo the same risk unless they invest
and N26 grow their market share. and offer more innovations,” TEAM SIZE: 200+
Incumbents are not at existential argues Stefano Vaccino, founder MONEY RAISED: $300m
risk: customers often use of Yapily. “They risk becoming (acquired by EQT in 2018)
neobanks as secondary accounts, a pure depositary. Innovative MARKETS: Global
to take advantage of perks applications will offer a new service
CLIENTS: Payments
like commission-free currency while the money sits on a current
businesses, banks
exchange or spending tracking. account, but banks don’t make
(incumbents and neos)
They also remain trusted, especially money from current accounts, but
in times of crisis, or when dealing from loans and added services.”
with complex or large transactions They also see that the innovations WHAT IT DOES:
like house purchases. Moreover, brought to market by the Fintech Banking Circle is a fully
Europe’s more imaginative banks Enablers could be useful to them. licensed bank able
are big investors in the fintech There are two ways for banks to to deliver financial
ecosystem, providing the capital avoid being left behind: one is to infrastructure at low cost,
and development re-imagine their own operations compliantly and securely to
payments businesses and
Europe’s more support that startups and architecture to be faster, more
banks - from multi-currency
need, and they are efficient and more automated; the
imaginative other is to expand what they can
accounts to fast access
investing in their
to loans, international
banks are big own digital offerings offer customers. An impressive
payments and local clearing
investors in in ways that mimic crop of European startups is to real-time FX.
helping them to do both.
the fintech what the challengers WHY IT’S IMPORTANT:
have brought to
ecosystem market, like NatWest’s Part of its mission is
SMASH THE STACK to lower the costs and
digital business bank speed of international
Mettle. Talent is also crossing the Banks are turning to startups commercial payments, and
aisle — note Barclays’ hiring of for help with overhauling increase accessibility and
former Starling executive Megan their own convoluted, clunky financial inclusion to the
Caywood. infrastructure, which is sucking digital economy for SMEs.
But that does not mean banks up massive financial resources. Banking Circle provides
can sit on their laurels. Their According to Euromoney, the the infrastructure that is
business is solid in areas that total cost of maintaining legacy currently supporting Stripe,
deliver them the least profit: systems, investing in new systems Alibaba and Shopify among
others.
current accounts. They see Big and paying IT staff amounts to
Tech companies over the pond between 15% to 25% of a typical
eyeing an entry into financial bank’s annual budget, with
services. As the circle of fintech incumbents ‘marooned in their had monolithic systems with an
innovation widens, there is a real own tech’. in-house server. The design of
possibility that banks will be the “Banking has been a tech-heavy these systems, especially the
‘dumb pipes’ on which era-defining industry for ages,” Anders la Cour, dependency and complexity
innovations are built, in the same cofounder of Banking Circle, tells that comes from years of system
way that telecoms companies were Sifted. “Their basic architecture upgrades, means that for a bank
to the streaming and voiceover- derived from a time when you today to deploy new software inFINTECH UNWRAPPED 15
an agile easy way and apply best Now, they are looking to the structured and unstructured data
practices is impossible.” Their Enablers as a kind of supermarket points about an individual, from
mindset has shifted over time as to help them re-imagine their board seats on other companies
they realised they could not fix this infrastructure and shift towards to personal associations with
alone and internally, says la Cour. software and cloud systems. The political figures, to produce a rich,
“Four years ago, a lot of banks maturation of APIs, in particular, real-time risk analysis; this was a
had this mentality that they could is helping liberate them from process that has traditionally been
do everything themselves, and their past technology stack. All done by large teams of human
didn’t need help from anyone, but told, the addressable market for researchers working manually,
many banks tried to overhaul their competitive, transferable banking sometimes via outsourcing to
legacy infrastructure and ended infrastructure could be as large as political risk consultancies.
up finding it too hard.” $500bn, according to CB Insights. Charles Delingpole, the founder,
“Legacy systems work differently started the company after seeing
and updating them is becoming banks pull back from remittances
harder,” says Evgeny Likhoded, to Somalia in 2015 due
founder of ClauseMatch, a to fears of fines, which
“Many
London-based regtech startup cut off vital remittances
that automates and streamlines to the region. He argues banks tried
2016
FOUNDED:
policy management and that banks were also to overhaul
FOUNDERS:Matty Cusden- regulatory change. APIs let new hesitant to seek out their legacy
Ross, Tom Reay, Veronique software interoperate with existing opportunities in eastern
Merriam Barbosa infrastructures. “Through APIs you Europe in the early 2000s,
infrastructure
HQ: London can get data from one system missing opportunities and ended
TEAM SIZE: Approx 30 in another. Previously you had because they feared that up finding it
to export and import that data,” the risks outweighed the
MONEY RAISED: Undisclosed,
says Likhoded. Gone are the days gains. While Delingpole
too hard”
but raised $7.5m in Series A
when banks look to one full-stack initially focused on Anders la Cour
and in 2020, Barclays took a
stake in the company for an solution for everything — “they’d fintechs, over time he
undisclosed amount rather have a number of solutions shifted to large banks, working
that talk to each other via API,” he with the likes of Santander, Bank
MARKETS: UK
says. of America and BBVA.
USERS: Around 300,000 on
Even sensitive and core back- A second operational shift for
Starling and Monzo
office processes could be better banks has been to reimagine their
DIGITAL RECEIPTS DELIVERED: done via algorithms and software workflows, including using artificial
Over 1.8m compared to banks’ conventional intelligence and machine learning.
approaches, and it takes the fresh Ky Nichol, founder of workflow
perspective of startups to design platform Cutover, identified
WHAT IT DOES: better workflows — even in areas financial services as having a ‘huge
Flux keeps a track of like anti-money laundering and gap’ in terms of orchestrating
payment receipts via its
terrorism financing, which banks, work and making it observable,
software platform by
intuitively, would seem to be the especially fast-paced work like
automatically linking them
experts on. ComplyAdvantage, a initial public offerings or foreign
to payment cards.
London-based fintech, has built exchange trading. There is also a
WHY IT’S IMPORTANT:
an artificial intelligence-based pressing need to optimise daily
By digitising receipt data
platform that crunches millions of workflows, for which people still
Flux allows customers to
access retail information
from their connected bank
accounts.16 SIFTED REPORTS
too often use Excel spreadsheets, not focus on giving customers
phone calls and emails. Cutover is the frictionless services they are
being used by clients that include accustomed to. Here too, Enablers
Barclays, Barclaycard, Tesco Bank are helping them by offering
and Nationwide. smarter software. London-based
A common criticism of Flux, which digitises receipts to
incumbent banks is that they do offer granular data on spending for
individuals and businesses, is one
example. “Customer confusion on
certain transactions is a problem
for banks, they’ll often have calls
from customers where they believe
Roisin Levine, Flux
FOUNDED: 2012 fraud has taken place because
the merchant data showing on
FOUNDERS:Evgeny Likhoded
and Andrey Dokuchaev their statement can be pretty whose value proposition is strong
confusing,” says Roisin Levine, for organisations encumbered by
HQ: London
Flux’s head of banks. Using a Flux- legacy infrastructure.
TEAM SIZE: 53 enabled bank card, transactions How banks engage with fintechs
MONEY RAISED: $9.3m can be presented in the banking is evolving, from incubators
INVESTORS: Techstars, app with a digital receipt attached. and accelerators through to
SparkLabs Global Ventures, By tidying up and enriching this venture investment arms, startup
Speedinvest, Deepbridge spending information, Flux is competitions and scouting
Capital, Index Ventures, reducing hassle for customers networks. Madrid-based BBVA
Talis Capital, Silicon Valley and banks, and helping banks add has won praise as one of Europe’s
Bank (venture debt) value through more personalised more innovation-centric banks; its
MARKETS: The UK and services like spending rewards. “A methods include an
Europe, APAC, US digital receipt tells a bank more open innovation unit
“Accelerators
than just the cafe you shop at, that works with fast-
NUMBER OF USERS: 1000+ at and labs
Barclays global bank alone it also provides the item level growth companies,
in the UK, plus more across information, like the fact that you and Open Talent, its help you to
Europe and the US often buy soy flat whites,” says startup competition bridge the
Levine. that helps it keep its
ear to the ground.
gap between
WHAT IT DOES: BBVA’s venture unit, their need
FRUITFUL PARTNERSHIP
ClauseMatch is a regtech Propel Venture and your
company providing Banks and fintechs have Partners, has nurtured
software as a service for closer ties than disrupters and financial infrastructure
solution”
both incumbents such as incumbents in sectors like retail innovators like Evgeny Likhoded
Barclays and neobanks like — they are interdependent and ChargeAfter, an Israeli-
Monzo.
each offers the other something American company that provides
WHY IT’S INTERESTING: that would be hard to build retailers with a single channel to
Working simultaneously themselves. This is especially tap into lenders. This gives lenders
with traditional and true in financial infrastructure, a chance to scale up — and gives
challenger banks
where banks are often the biggest merchants access to competitive
ClauseMatch allows them
market opportunity for startups lending options.
to focus on product by
powering compliance in
a changing regulatory
environment.FINTECH UNWRAPPED 17
Talent scouting
g
To spot Fintech Enablers, Royal Bank of Scotland leveraging the work VCs have done to filter the best
has developed a scouting strategy to identify from the rest. Even with that shortlist, a partnership
startups that can help it to develop new customer only makes sense if it meets a specific set of criteria.
solutions and solve key challenges in areas including “It needs to solve a problem that is a priority for us at
digitisation of customer interactions, payments, that moment, that can be implemented and that will
security, data analytics, payments, and on-boarding, ultimately benefit a customer. Those stars all have
as well as internal tools and colleague platforms such to align,” says Stewart. Some companies are exciting
as Zoom. “We shouldn’t try to build security or anti- but perhaps don’t cover the bases. Others fall by the
fraud tools when there are so many great companies wayside because the solution creates too many new
out there building that” says John Stewart, who leads problems.
the scouting teams globally. “While rarely offering Rather than looking for interesting ideas and
100% fit off-the-shelf solutions, these companies finding ways to syndicate them with the bank, RBS
have put thousands of days or hours of effort into has flipped the model to identify key problems in the
building solutions — which we can deploy”. bank or for customers, taking those as “the starting
RBS works closely with the venture capital point to do a matching exercise with our database
communities in Silicon Valley, Israel and the UK, of companies”.
Barclays has created one bank’s insurance arm, and Cathay legacy and challenger banks, each
of Europe’s more prominent Innovation, led to investments getting different benefits. Flux, for
accelerator schemes — graduates in infrastructure innovators, instance, saw quick initial take-
believe it kicks the tyres on their including leading French up from neobanks like
product and allows them to engage blockchain company Stratumn. Monzo and Starling. “It is
“It is easier
potential users in a productive easier to do integration
development conversation, of new tech when you to do
MAKE HASTE SLOWLY
rather than hawking a product. are smaller and already integration
“Accelerators and labs help you to Far from being displaced by API-led,” says Flux’s of new tech
bridge the gap between their need fintech, incumbent banks are in Roisin Levine. Over time,
and your solution. It’s a friendlier, the middle of it: they are investors though, large banks
when you
more consultative process, rather in the fintech ecosystem, a huge became more interested are smaller
than a sales pitch,” says Evgeny market for startups and a trusted “because, ultimately, and already
Likhoded at ClauseMatch. foundation on which many apps this offers an amazing
API-led”
Ky Nichol at Cutover says that and products are built. Their customer experience”.
access to a top tier bank like problem, however, is that their At times, neobanks and Roisin Levine
Barclays, working with “forward- business is safest where it makes incumbents are using the
thinking technologists, helps them limited money. Fintech same software to solve different
batter the product from a prototype Enablers can transform their challenges. In compliance, for
into an enterprise solution”. business by slashing costs and instance, large banks have
Direct investments are another deconstructing cumbersome the manpower, but they use
way that banks are working with infrastructure, freeing up slower systems and have more
startups. BNP Paribas launched resources to invest in innovation fragmentation and coordination
an investment fund in early and a more customer-centric problems, whereas neobanks’
2018 to take minority stakes in approach. How will the ecosystem problem is a lack of manpower
startups, and another partnership play out in the coming years? or familiarity with compliance
between BNP Paribas Cardif, the First, Enablers will sell to both regulations. For incumbents,18 SIFTED REPORTS
FOUNDED: 2014
FOUNDER: Paul Taylor
HQ: London
TEAM SIZE: 340
ClauseMatch’s software centralises do, it could be worth it, since big
and organises to give visibility banks don’t change vendors for MONEY RAISED: £82m
and traceability. For neobanks, it around 17 years on average,” says INVESTORS: IQ Capital,
allows them to “do more with less”, Likhoded. Backed VC, Lloyds Banking
says Evgeny Likhoded. “Ultimately, Lastly, not all parts of the tech Group, Draper Esprit,
both are after peace of mind that stack will be outsourced. There is Playfair Capital
compliance documentation is no single rule on how much banks MARKETS: UK, APAC and US
done in a central way so you can should give to Enablers, and how NUMBER OF CLIENTS: 4 publicly
easily answer questions from much they keep in-house. Some announced
regulators and auditors.” startups are trying to build a
Second, some European cloud-native full stack approach;
WHAT IT DOES:
incumbents are still hesitant Thought Machine’s Vault product,
Cloud native core banking
to engage with startups. While for instance, is completely cloud
technology.
European companies sing the native, with no legacy or pre-
praises of a clutch of European cloud technology and each service FUN FACT:
banks that are actively seeking representing a key bank function. Founder Paul Taylor had
no experience in financial
out new collaborations through It is working with European banks
technology prior to the
accelerators, partnerships and including Lloyds, Santander and
business. He spent years
investments, the continent as a Sweden’s SEB, and recently closed
as an academic, working
whole is still lagging. “US banks an $83m funding round. in speech technology and
have already figured out where Other startups see banks taking then at Google.
the gaps are in their systems and a case-by-case approach to re-
are more opportunistic in using designing their infrastructure.
new tools, whereas European “We’ve turned off lots of legacy
banks are at the beginning of that solutions and kludges of banking systems, we realised a lot
journey,” says Evgeny Likhoded. spreadsheets, sharepoint sites, of banks are basically brownfield
The problem for startups is and fragmented communications sites with a mix of technologies
whether they have the funding that make it difficult to have a and in amongst that they’ve got
and patience to get through the structured and efficient way of some bits that are really cool,” says
sales cycle for a large bank. “If they working. But in terms of the core Cutover’s Ky Nichol.
Thought Machine teamFINTECH UNWRAPPED 19
Disrup
p ters
under
the hood
Fintech Enablers are not just helping
incumbent banks rebuild their
infrastructure; they are allowing consumer-
facing fintechs to come to market faster
and cheaper through white-label banking
services. Some are going further, creating
software that helps huge but often
antiquated industries like law and the
property sector to boost their financial
offerings.20 SIFTED REPORTS
T oday, a dizzying array of
companies offer financial
services, from challenger banks to
though. In the years to come,
Enablers will bring more advanced
financial capabilities across the
alternative lenders) are powered
by Enablers like solarisBank, as well
as niche expense management
Big Tech companies. That means economy, from the property and specialists like Spendesk and
consumers can borrow, store legal sectors to ride-hailing and credit providers like Wollit. Indeed,
deposits, spend, track finances mobility. In some cases, Enablers fintechs launched after around
and make payments with a will help companies manage their 2015 have been able to tap into
variety of apps outside their main own finances more efficiently than a community of infrastructure
bank. This is largely thanks to an their banks or internal finance providers — helping them
influential but hidden army of departments ever could, using save resources,
tech startups, which have created automation and machine learning minimise costs and
to manage payroll, expenses and get to market far
“Brand and
banking infrastructure that can be
neatly packaged and rented out. employee benefits, for instance. In quicker — reaching proposition
They are the innovators behind the others, they will allow companies customer-readiness are now
curtain who have turbo-charged to offer new services that add value in six months rather
more
the growth of popular consumer- to their customers; e-commerce than two years.
facing fintechs, helping them get platforms and ride-hailing services, “Once you’ve got important
to market far quicker than if they for instance, could lend to their the license and than tech
had to become a licensed bank merchants or drivers by leveraging platform, all you
spend”
from scratch. “Any new startup their intimate knowledge about need to worry about
can have the benefit of millions sales trends or working hours is the logo and David Chan
of dollars of investment for a low norms, respectively. getting customers,”
price; it should make any startup says open banking expert Rolands
bank capable of competing with Mesters. A few lines of code
THE HUMBLE PLUMBERS
either a Revolut or a Barclays,” effectively allows fintechs to build
says ComplyAdvantage founder So far, consumer-facing fintechs on regulatory-compliant current
Charles Delingpole. have been the main beneficiaries and savings accounts.
We are only in phase one, of the Enablers and their behind- Aside from the ease and
the-scenes technology. By practicality offered by the Enablers,
simply plugging into banking their success has also been fuelled
infrastructure, fintechs have by a fundamental shift in mindset
gotten cheap and quick access around building technology
to flexible back-end solutions, on from scratch, says David Chan,
top of which they have built their chief executive of Monedo, a
products and services, focusing buy-now-pay-later digital lender.
more on the user experience. “Ten years ago, the mentality
Enablers take on the role of was to build everything yourself.
safely storing and moving users’ But, reinventing the wheel on
money on behalf of fintechs everything doesn’t make sense
and can absorb complex, costly anymore. Brand and proposition
workflows that come with building are now more important than tech
a financial offering from scratch, spend,” he says.
like regulatory compliance. In doing so, several newcomers
Today, major fintechs like are already threatening the
David Chan, Monedo
Smava (one of Germany’s largest margins of incumbent players.FINTECH UNWRAPPED 21 Exp p lainer To store and move users’ money, you must connect Therefore, fintechs must either build their own APIs to into a bank or licensed entity like the Bank of England. do this or plug into a software partner that provides Fintechs have several options here: ready-make banking APIs. They can then build on top 1. In some countries, fintechs can obtain an of that. e-money license and then use a licensed bank to 2. A more simple route is to use Banking as a Service house their users’ money (known as an ‘agent bank’). (BaaS) platforms, which offer the full banking stack; But most agent banks do not yet have the tools to some even have their own bank licenses (as shown divvy up users’ funds into thousands of individual on the left-hand side below). They are the “mother” accounts, which is what gives us payment capabilities. group of Enablers, offering multiple features. Once the fundamentals are sorted, the trend is can use Enablers that specialise in single areas like for fintechs to stitch together different software payment upgrades or ‘data as a service’ (see below), providers that offer best-in-class add-ons. Here, they and which serve banks too.
22 SIFTED REPORTS
infrastructure eventually,”
TO BUILD OR NOT TO
Ozcan tells Sifted. “But this has
BUILD
compliance-related consequences.
Despite the benefits brought When you change tech stack,
by the Enablers, some experts you expose your system to
believe they only help fintechs up vulnerability. Fraud attacks sky-
to a certain point. Pinar Ozcan, rocket at this time.”
professor of entrepreneurship at Meanwhile, business banking
Oxford University’s Saïd Business app Tide has been criticised
School, says that outsourcing by some pundits for “not really
infrastructure means fintechs competing” with serious banks,
have less “agency” over their tech says one source, because they’ve
stack and lose “flexibility” in their outsourced their tech stack and
product offerings later down the depend on ClearBank (a leading
line. Enabler) for their banking license. Pinar Ozcan
“A lot of fintechs, because As a result, open banking
they have limited resources, first expert Mesters says that “it’s still
focus on the customer-facing pretty tempting to build your own is the smart way forward.
technology and make the user [infrastructure]” — especially for “Investors say, ‘We like that you
interface as good as those with big ambitions that don’t didn’t try to build your own core
simply want to be acquired. banking system’. Investors that
“A lot of possible, but then
in the back end they Nonetheless, the consensus really understand banking won’t
fintechs rely on third parties, remains that fintechs should opt see value in just a random tech
rely on third which gives them for pre-made banking software stack,” Tide chief executive Oliver
parties in less control,” Ozcan until they have proven their Prill tells Sifted. He adds that
told the Financial business model and have pulled Tide builds where they feel they
the back Times. in investors with deep pockets. can “differentiate”, for example
end, which Ozcan also tells RBS’s now-defunct neobank Bó proprietary features like its VAT
gives them Sifted that once and Starling are some of the only pots, automated invoicing and
fintechs reach a neobanks known to have built in-app credit access, but that “it
less control” certain size, it’s their own stack from the outset. doesn’t make sense to build a
Pinar Ozcan incredibly expensive Moreover, as Enablers get ledger or accounts” — or to get its
to leverage third better, the temptation to avoid own license.
parties (they typically charge per taking on the complexity and Meanwhile, even big banks are
user). As such, many larger fintechs heavy lifting of testing, legal and starting to use certain Enablers
have been forced to build their compliance work becomes even to outsource and update their
own tech stacks retrospectively stronger, especially for smaller own infrastructure. For example,
once they are up and running. fintechs. “We can do current London-based startup Thought
This is the route Monzo went accounts for 10p, instead of Machine has won clients like
down, forcing them to eventually £45,” points out Railsbank chief Standard Chartered, Lloyds and
undergo a difficult migration onto executive Nigel Verdon. Sweden’s SEB (as well as new
their own systems. For its part, Tide is resolute that banks like Atom Bank) by offering
“The most aggressive, most its “horizontal platform” approach, them a cost-effective, secure,
competitive fintechs need to made up of infrastructure cloud-based “core system-as-a-
pivot and build their own native providers like Clearbank and Xero, service”.FINTECH UNWRAPPED 23
FOUNDED: 2015
FOUNDERS: Jakub Zmuda,
Martin Threakall, Myles
Stephenson, Ritesh
economy, whether for their own cloud-based software.
Tendulkar
efficiency gains or to create One beneficiary could be
HQ: London customer value. the property sector. Currently,
TEAM SIZE: 190 The most obvious sign of paying rent to an estate agent is
MONEY RAISED: £53.3m the blurring boundary between a clunky affair, entailing several
(including £10m grant from financial services providers has direct debits and tracking so that
the Banking Competition been the Big Tech brands. Apple money can be redistributed to
Remedies’ Capability and has launched its own native landlords. “This involves a huge
Innovation Fund) credit card in partnership with number of payments, and lots of
Frog Capital,
INVESTORS: Goldman Sachs. Amazon offers flow, complexity and inefficiency,”
Blenheim Chalcot, Highland loans to distributors by working explains Myles Stephenson, chief
Europe with Bank of America. Google has executive of Modulr, the payment
MARKETS: UK (with plans to announced plans to enter current services business. Four years ago,
launch across Europe soon) accounts in the US, in partnership the property industry showed little
with banks and credit unions. Uber awareness about how software
NUMBER OF BUSINESSES USING:
has announced a mobile wallet could remove all these frictions.
100+
and debit card for its drivers, “Now, rental platforms are slowly
so that earnings can be paid waking up to an opportunity”,
faster and employees get easier propelled by the emergence of
WHAT IT DOES:
Modulr is a payments as a access to overdrafts. Rather than cloud-native, software-based
service provider API which building the banking technology property platforms that can
enables non-banks to themselves, the ride-sharing giant integrate into payment processors.
process payments. partnered with Green Dot Bank “These [new platforms]
to secure faster development and are letting agents “The ability
FUN FACT:
Modulr have processed ‘best-in-class’ infrastructure. manage tenants
“The ability to leverage banking and, rather than
to leverage
over £30bn of payments to
date. infrastructure can now be seen as payment processes banking
another part of your stack,” says being separate, they infrastructure
Tom Mendoza, deal partner at EQT can integrate it,
can now
Ventures. “One out of every six allowing agents to
EVERYONE’S A FINTECH be seen as
calls I have with founders I think, manage payments
While fintech companies were ‘if you use this infrastructure, more effectively,” another part
the first to engage and profit from you could extend the product’.” says Stephenson. The
of your stack”
the Enablers, they are by no means Angela Strange, general partner general corporate
the only beneficiaries. Anywhere at Andreessen Horowitz, stated back-office function is Tom Mendoza
that money moves or needs in a recent article that in the “not- embedding fintech too,
managing, software can help; too-distant future… nearly every using cloud platforms to deliver
from law firms overseeing M&A company will derive a significant salary and supplier payments, he
and house purchases, to general portion of its revenue from adds.
corporate back-offices managing financial services... even those that Another example is Shieldpay,
salaries and supplier payments. have nothing to do with financial a digital escrow account which is
The Enablers are helping unleash services”. The coronavirus helping a wide range of businesses
a new era of ‘embedded fintech’ pandemic will only quicken this manage large transactions — a
that brings financial capabilities transition as companies are forced process that is often complex,
to companies throughout the to shift away from desktop to inefficient and even stressful.24 SIFTED REPORTS
Tom Squire, the company’s group ‘whole-of-market’ experience,”
BAD NEWS FOR BANKS?
commercial director, saw first- he says, pointing to the likes of
hand the problem of limited funds If every tech company can turn WeChat in China as an example.
visibility for large transactions itself into a bank, many are asking “Now the floodgates have
while working in M&A. “You what’s the point of the banks? Are been opened,” concludes Oxford
go through months of work in they going to get crushed by the University’s Ozcan. “These other
putting together a deal, making likes of Amazon and Facebook players provide much more of a
sure you know exactly what’s moving into financial services? threat [than most fintechs].”
happening on the day, but when “Banks have a terrible customer But, it’s not all bad news.
it comes, it’s completely opaque. experience problem. They are While large banks are in one
It’s a case of calling up the bank failing to innovate, and they are sense threatened by the rise of
and asking, ‘has the money struggling with their tech stack the Enablers, there is also an
landed’, talking to the lawyer because it’s built on legacy rails,” opportunity for them to do some
who is saying ‘the money hasn’t says Tom Mendoza. “Then you have enabling themselves, creating new
landed’. It’s just horrendous.” this new wave of financial services business lines by selling back-end
Other sectors using Shieldpay for companies that are winning services to power other financial
larger-ticket transactions include market share because customers institutions.
used-car websites, art galleries want better alternatives. Now, you Goldman Sachs and JP Morgan
and high-end fashion stores. have fintech infrastructure players, have already begun building out
A broader benefit to the tools these Enablers, you will see more specialised “banking-as-a-service”
brought to market by the Enablers fintechs taking market share from (BaaS) platforms. Societe Generale
is the ability for European SMEs incumbents, but also non-fintech has also got ahead by acquiring
to build out their business across technology companies offering an existing infrastructure
a continent that remains highly financial services like Apple, Uber player in Treezor (which powers
fragmented in terms of payments and Lyft.” over 30 fintechs). Meanwhile,
infrastructure, adding complexity Alessandro Hatami, a former Norway’s DNB is experimenting
for any company building a Lloyds executive, predicts
regional footprint, that the “real losers [of this
according to Banking trend] are big banks”. Hatami
If every tech
Circle’s Anders la Cour. ultimately foresees Amazon
company can “Digital technology offering a financial marketplace
turn itself opens the world for for loans, savings accounts and
you as an SME, but to mortgages, plugging into other
into a bank,
take advantage of that banks’ products like a “Spotify”
many are requires scale. If they for banking. Unlike comparison
asking what’s go to a large bank, sites like MoneySuperMarket, an
the point of they get the standard Amazon marketplace would allow
solution and won’t users to seamlessly sign up for
the banks? get the attention they products within the platform.
require. The paradox “That will damage banks.
is that the digital world has made There’ll be a much easier interface
it easy and seamless for the for customers and the only
consumer, but the [payments] differentiation will be the rates. A
complexity behind the curtain is non-banking entity like Amazon
Alessandro Hatami
still there.” will run it for most people in aYou can also read
