fintech disruption report q2 2105

F I N T E C H D I S R U P T I O N | O V E R V I E W

Fintech Disruption Report Q2 2015


2

“Silicon Valley is coming. There are hundreds of startups with lots of brains and money working on

various alternatives to traditional banking.”

Jamie Dimon, Chairman & CEO, JP Morgan Chase & Co


3

I N T R O D U C T I O N

Such a heavily regulated industry was always going to take a little longer to disrupt but banks as we know them will soon be no longer. Money is pouring into Financial Technology (almost $14bn investment in the past 12 months) and growth is expected to be 4x faster than the UK GDP. Disruption is occurring at multiple levels. When coupled with rapidly changing consumer behaviors and a significant uptake in interest from VCs, the face of finance is changing daily. With digital banking transactions now worth almost £1bn a day, the traditional banks are investing huge monies into innovation and new product development. But can evolve fast enough to survive, let alone thrive? This report provides an overview to the changing financial landscape, taking a closer look at a few of the digital investments made by the big brands and where the true Fintech disruption is coming from.


4

O V E R V I E W

In this disruption report we’ll take a look at 4 primary areas: 1.  Banks as we know them 2.  Digital banks 3.  Non-banks 4.  Fintechs


5

A F E W O F T H E B A N K S . A S W E K N O W T H E M T O D A Y .


6

“They’re big, they’re broken, they’re under-invested, they operate like a cartel should - they overcharge,

under-serve, and massively under-invest.”

Vernon Hill, Metro Bank


With a sharp focus on digital transformation, core business innovation, varied Fintech investments and most recently the creation of a £100m fund to invest in VC backed startups, Barclays are working hard to adapt. Being the first to open a cashpoint, launch a website and provide contactless cards, digital evolution is nothing new for Barclays. Their internal innovation program has led to the creation of bPay - a contactless wristband, Pingit – a mobile app for transferring money, voice-biometric tech which is being rolled across all 12m customers and video-based customer service for Wealth clients. And so on. A raft of solid product and service innovation, often years ahead of the competition. Equally impressive (in a comparative sense) is their focus on startups. In 2014 they launched the Barclays Accelerator which is a 13-week programme designed to accelerate startup growth. Run by Techstars, Fintech startups are given office space in London or New York and most interestingly, access to Barclays’ API and data. In addition to this, Barclays are also investors in the Accenture run FinTech Innovation Lab, another accelerator programme backed my most of the big UK banks.

B A R C L A Y S

7


Embracing the ‘failhard’ directive often adopted by startups, HSBC have been early entrants into digital innovation. Sadly not always successfully. Back in 2010 they ran the ‘First Direct Lab’ - a crowd sourced innovation lab - something now commonplace but certainly forward thinking in its day. Now it sits as an inactive and public forum where disgruntled users post negative reviews of new digital releases. 2013 saw another digital setback with the launch of their mobile app; criticism so fierce and ubiquitous that their CEO recorded a video detailing the roadmap of improvements. In 2014 HSBC stepped into the Fintech space with a £119m investment into the FinTech Innovation Lab albeit with the ambition to ‘improve its own IT systems’. The jury is still out as to whether this is the right focus for HSBC and certainly for a bank this size, it’s a surprisingly small investment into a space which will have such significant impact on their business globally.

“We are in the foothills of a revolution as Fintech

companies disrupt the traditional shape and

structure of banking giants”

Douglas Flint, Chairman

H S B C / F I R S T D I R E C T

8


Over the past 5 years Nationwide has made significant steps in their digital transformation programme – a new infrastructure, a new banking platform, a new data centre, a new payments platform and new web and mobile offerings. They’ve embraced the need to innovate with various initiatives include the launch of V.me in 2013 – a digital wallet available to all 6.5m credit and debit card holders. With a digital team now two years into post, Nationwide have developed a culture of lean and focussed development. Thinking like a startup, they’re concepting, prototyping and getting involved in new emergent tech. Their latest innovation - a smart watch app, has certainly helped raise their profile within a community that wouldn’t otherwise associate Nationwide with innovation. Finally, as with many of the banks, they’re keeping a close eye on the startup scene with an investment into Accenture’s FinTech lab.

N A T I O N W I D E

9


RBS is paying particularly sharp focus to the potential disruption from startups. Never a leader in innovation in 2013, two years behind First Direct, they launched what they called an ‘Ideas Bank’. The concept– ‘a place for RBS customers to share their experience & knowledge’ with the intention to crowdsource ideas. Sadly, as with the First Direct community, it has opened the floodgates to criticisms and negative, unmanaged criticism. As expected, they too have invested in Accenture’s FinTech Innovation Lab but interestingly they’re supplementing this with a new in-house centre for entrepreneurs and innovation. Based in Edinburgh it’s a physical environment encouraging and supporting fledgling businesses to share knowledge and gain expertise. Most interestingly they’re one of the few banks who have talked about seconding staff out to Silicon Valley to build new, local partnerships. Something we at Tällt manage for our clients and fully support. There’s hope for RBS yet.

“This industry will be completely different in five years' time.”

Alison Rose, CEO

R B S

10


Metro, a relatively new challenger brand (founded 2010) have quickly established their presence in the London market. With differentiation centred on better customer service, they claim to be the new breed of high street banks. Offering free dog biscuits in store, they are a bank built wholly on new IT systems. And there’s definitely validity in their strategy, with customer numbers climbing every week however we would question whether they’re looking outside the bigger banks quite enough. They’ve introduced some innovation - a mobile login using a 4-digit pincode, a temporary card block function and a Square style B2B2C mobile payment solution – but they don’t seem as involved in the Fintech space quite as deeply as the other banks. How quickly the challenger becomes the challenged.

M E T R O B A N K

11


French bank Groupe BPCE and ICICI Bank India have launched Twitter transfer capabilities. Dutch banking ING Group has announced a €200 million IT investment with a focus on omnichannel.

A N D A W O R L D O F O T H E R S …

Australia’s Westpac Bank is rolling out a fingerprint sign-in for its new digital banking platform including a world’s first Samsung Galaxy S5 application.

Poland’s mBank has developed a way to perform online loan underwriting and credit scoring in 30 seconds. CaixaBank launched Europe’s first Visa contactless wristband, enabling payments at terminals in more than 300,000 businesses across Spain.

12


Whilst there’s certainly some interesting innovation afoot, banking is undoubtedly fast becoming commoditised. It’s not simply a matter of creating one or two new customer experiences each year, nor is it rolling out a business-wide transformational programme. Banks need to evolve and do this quickly. With new products, services, technologies and business models being thought up and launched everyday, the banking industry faces fragmentation and true disruption.

B U T I S I T E N O U G H ?

13


14

D I G I T A L B A N K S


15

“The banking sector has not yet felt the full disruptive force of technology, but It will”

Antony Jenkins, CEO Barclays


Born out of the frustration with banks, Simple is an US direct bank which, after over $15m of investment was acquired by BBVA in 2014. With ambitions to create an experience for customers unlike any other finance product, they’ve built in functionality which is simple (excuse the pun), personal and ultimately useful. Something often overlooked when obsessing about doing things different. After an 18-month redevelopment, they launched on a new infrastructure at the tail-end of 2014 and have since built a strong social presence and certainly look like an interesting one to watch.

Starting out as a mobile-based alternative to traditional banks, Moven - formerly Movenbank, is now positioned from a core banking offer to a mobile money service that ‘helps users spend, save and live smarter’. With an ambition of acquiring 50m users Brett King, CEO of Moven, recognises their route to scale is in partnership with the banks, not alone. To that extent they’ve established licensing deals signed with TD Bank in Canada and Westpac in New Zealand. Only last month, under a formal alliance agreement, did Moven and Accenture agree to collaborate on the development and selling of digital tools to banks around the world.

16


One of the more publicised and well funded banks is Atom. Founded by the same chap who set up Metro 5 years ago, Anthony Thomson, their positioning is ‘a bank that doesn’t act like a bank’. It appears they’ll be 100% digital, serving both a B2B and B2C market and will give focus to its smartphone interface. They’re built on the Agiliti platform – a retail banking technology specifically tailored to the UK market. Already 60 people strong, they’ve raised £25m and are looking to raise a further £75m before launch this summer.

Starling Bank is a relatively new challenger set up in London, by former Allied Irish Bank COO Anne Boden. Their pitch is to become UK’s first smart bank – customer driven and technology enabled. Having raised £4m to date and hoping to at least a further £12m and secure a full license before the end of 2015, Starling has faced a number of recent changes in its senior management including a number moving to Mondo, featured on the following page.

17


Described as a ‘full-stack’ and mobile-first bank, Mondo is not only busily writing their technology from scratch but simultaneously applying for a full UK banking license. Its founder Tom Blomfield, previously co-founder of GoCardless and someone who helped with the setup of direct competitor Starling, has recently completed a seed investment round with Passion Capital, signing a term sheet ‘in the millions’. Mondo looks like an interesting, innovative and attractive new disruptor with a broad feature set including the inevitable Apple Watch app in development already.

Currently operating in Germany and Russia, Fidor Bank is planning to launch in the UK once granted access to the payment system. It has recently been delayed with the big four – Barclays, HSBC, Lloyds and RBS, not accepting Fidor as a customer. Presenting itself as a ‘social media and Web 2.0’ bank, Fidor’s technology make it unique, allowing the public open access to its systems.

18


19

T H E N O N B A N K S


20

“$4.7 trillion in revenue for traditional financial services is at risk of being displaced by new technology

-enabled entrants.

First generation online financial services companies…traditional banks, asset managers and payment

companies are working to adapt to these behavioural, demographic and technologic realities.

We expect partnerships, acquisitions and competition will

be key to the way the vertical develops.

Goldman Sachs


C O R P O R T A T E A C Q U I S I T I O N S

21

It’s not just the banks investing, acquiring and moving into Fintech.


C O R P O R T A T E F I N T E C H E V O L U T I O N

22

With some applying for banking licenses, whilst other extend their core business.


23

T H E D I S R U P T O R S


24

“Banks are now losing their monopoly on banking”

Francisco González, Chairman, BBVA


P A Y M E N T D I S R U P T O R S

Since 2007 the majority of Fintech investment has been put into payments, followed by personal finance, lending and Bitcoin. Some of the leading disruptors (using a number of signals including news volume, sentiment tracking, web traffic, market size, investment history & social chatter) include:

25


P E R S O N A L F I N A N C E D I S R U P T O R S

Helping people to better manage and grow their wealth through smarter technology has well and truly arrived. Without exception these startups are providing exceptionally simple interfaces underpinned by sophisticated technology.

26


L E N D I N G D I S R U P T O R S

With big data enabling almost instant credit risk scoring, the ability for individuals and small business to take out micro loans has never been so easy. As a result we’re starting to see a number of new companies experiencing exponential growth.

27


D I G I T A L C U R R E N C Y D I S R U P T O R S

With both on and offline merchants starting to accept bitcoin, consumers are benefiting from lower transaction fees and innovative payment options. We predict the interest in block-chain technology that drives bitcoin will move centre stage over the coming 12 to 18 months.

28


E M E R G I N G D I S R U P T O R S

Following a high profile 2014 and a number of awards to its name, Duco is a technology company providing hosted reconciliation services to a number of financial institutions around the world. In addition to Atsora (see below) Duco has also been selected as one of the seven Fintech startups in this year’s FinTech Innovation Lab London.

Atsora provides financial institutions with tools to help their customers plan and develop business models, monitor cashflow and growth based on financial data. Their goal is to give banks greater insight into their smaller customers in return tailor experiences to ensure SMBs have the best access to services and products from their banks.

With only €15k seed funding from Startupbootcamp, Creditable enables employers to provide small loans to their employees, easily, transparently and fairly. It’s a space banks have been reluctant to get into and with payday lenders getting such negative press, there’s a big opportunity for Creditable to dominate the space. 29


Founded in 2009, AMP provides alternative lending options for SMBs in both developed and emerging markets. Securing $5m funding at the end of 2014 they plan to use the money to further international growth and scale. AMP’s patented platform leverages principles from micro-finance, payment processing, data analytics and predictive modeling – together with more traditional loan underwriting principles – to originate and service loans across countries, currencies and banking systems with cost efficiency.

Wecash is a credit rating system using big data. With 8m registered users and by mining the data of 600m mobile internet users, their predictive risk models enable customers to sign up for the app and receive a credit evaluation within 15 minutes. Set up in 2014 Wecash has recently completed a $20m series B round, valuing the company at $100m.

Graduates of the APAC FinTech Innovation Lab, FinSuite develop patented technology that reduces the cost and time required to analyse business structures and financials on loan applications. The Melbourne-based company continues to develop innovative applications for the finance industry.

30


A competitor with both Stripe and Braintree, WePay facilitates payments for marketplaces, crowdfunding sites and Freshbooks. It now processes billions of dollars annually. In May 2015 WePay closed $40m in funding to deliver on its global ambitions, taking the money raised close to $75m to date.

In March 2015 Optimal Payments PLC announced that it was buying London-based Skill – a digital payments business which provides digital wallet solutions and online payment processing capabilities. On 1st June confirmation the deal has now been approved by the US regulators gives Skrill an enterprise value of EUR 1.1 billion.

R E C E N T C A S H I N J E C T I O N S

Already a recognised player North America, the Canadian multi-channel payment provider has just raised $13m in an oversubscribed Series A round. The monies will be used to accelerate growth, deepen its product offering and pursue strategic partnerships.

31


“I’ve been frankly confused by this fascination that everybody has with Netflix…Netflix doesn’t really have

or do anything that we can’t or don’t do ourselves”

Jim Keyes, CEO, Blockbuster


S U M M A R Y

There’s huge hype around disruption of banking coming from an attitudinal reluctance to accept the need to adapt. Having worked with and talked to a number of banks over the past few years we don’t buy that. For most it’s a lack of awareness of what change is occurring and just how quickly. As we’ve seen across many industries, banking is facing inordinate disruption – not from within but from thousands of exceptionally well-funded, ambitious and fast growth startups who are all pushing the frontier of new products, services, technologies and business models.

33


D E A T H B Y A T H O U S A N D P A P E R C U T S


Thanks to our friends at CB Insights who pulled together this illustration

D I S R U P T I O N F R O M M U L T I P L E S O U R C E S


“Adapt or perish, now as ever, is nature’s inexorable imperative”

H. G. Wells


37

T Ä L L T

Tällt helps companies innovate, evolve and stay relevant. Tällt Connect helps businesses understand the startup world better. We have researchers around the world who track innovation, trends and emerging threats. We then distill these into reports and dashboards for clients who use them in various ways:

M&A and Investments

Competitive Intelligence

Strategy & Innovation

Product Development

Marketing & Partnerships

To discuss how we can help your business please send us an email Matt Connolly, Founder & CEO at [email protected] or online at www.tallt.ventures


38

W W W . T A L L T . V E N T U R E S