I received a long and lengthy article last week from Taylor Ryan, CMO at Valuer.ai (firstname.lastname@example.org). The link provides a comprehensive article on European FinTech developments. It's so good that I am happy to share it with y'all. Enjoy.
THE BEST FINTECH STARTUPS IN EUROPE
Government support for the financial sector and financial technology (fintech) is huge, not only because of its size (global funding = $111.8 billion), but it is growing at an unprecedented rate, partially due to technology, and more specifically, an increase in access to mobile devices.
In this article, you will find the answers to many questions. It covers why fintech sectors are so prevalent, how to regulate them, and why it is a great case for corporate innovation. Read on to discover the goals of European policy focused on fintech, and the opportunities new policy presents. We uncover why fintech is such an important sector for corporate innovation, and how startups are helping corporations to enter the new digital age. You will also find a brief overview of European investment in this industry and a general review of the market.
THE BEST FINTECH STARTUPS IN EUROPE [research by Louis Potdevin]
By country in alphabetical order.
Baningo-select is a multi-channel-solution that provides interaction between companies and their customers. By using innovative solutions, clients can become visible and easily accessible online. Baningo-select creates asimple, efficient, and fast way of communication for its customers.
Founders: Harald Meinl, Max Nedjelik
GiniMachine uses Artificial Intelligence and Big Data to change the banking world. They are using those tools to solve the traditional challenges in a new way.
Founders: Dmitry Dolgorukov, Ivan Kovalenko, Yury Zelensky
Qover is providing insurance products in real time for customers via an open API. They are pioneers in the domain of digital insurance.
Founders: Jean-Charles Velge, Quentin Colmant
TokenGet is a facilitating ICO/STO service, it can also BE used by persons who do not have a background in programming. They help companies to save money on ICO/STO to allows them to invest in other sectors such as promotion, events, and more.
Founder: Nashwan Khatib
Moj-eRacun is the largest network in Croatia for the exchange of electronic accounts and other eCommerce between the supplier and the customer, providing users with a rounded process from issuing, downloading to e-bookkeeping (Moj-DMS) and storing eCards in MojArhiv.
Founder: Marko Emer
Capital.com is an app using AI technology which helps clients to trade more efficiently by giving them personalized content such as financial lessons, videos, quizzes and more.
Czech Republic: Spendee
Spendee is an assistant that facilitates financial operations. It is possible to connect the application with bank accounts, electronic wallets, crypto wallets and manually add your cash transactions. Spendee also sends banking recommendations to its users.
Founders: Lukas Stibor, Jakub Sechter, David Neveceral
Denmark: Lunar Way
Lunar Way is a digital banking application. They believe that banking should be easy and accessible everywhere. They want to provide the best banking experience to their users.
Founder: Ken Villum Klausen
Xolo is the home of modern freelancers. At Xolo, their mission is to make starting and running a modern microbusiness 10 times easier. They save you time and money by making the hard bits of business like banking, accounting, and tax easy.
Founders: Erik Mell, Erko Hansar
Finland: B2B Pay
B2B Pay provides Multi-currency bank accounts for companies from 170 countries. Their elite clientele includes top e-commerce companies all the way to leading crypto exchanges.
Founders: Neil Ambikar, Kasper Souren
Qonto is a banking service specialized for entrepreneurs, especially for SMEs. Qonto wants to make business banking affordable and easy to use for everyone, especially entrepreneurs who do not want to waste time.
Founders: Alexandre Prot, Steve Anavi
Stocard is an app available on the Play store, Apple store and Windows store and it allows users of the app to turn their smartphone into a mobile wallet.
Founders: David Handlos, Bjorn Gob, Florian Barth
Elorus is a cash-flow and invoicing service for businesses. It includes some services such as registration and organization of customers and suppliers; detailed reports of incomes and expenses, liquidity, and taxes; and personalized display of documents and variations.
Founders: Pantelis Petridis, Giorgos Stratakis
Blueopes is a wealth management service, it helps clients to make an impact on the society and environment. It takes into account the risk estimation, impacts calculation, client onboarding, among other tools.
Founders: Balázs Faluvégi, Miklós Kovács
Ireland: Assure Hedge
AssureHedge is a company that provides automated currency hedging solutions for international transactions. They help companies project their future income. They use a long process to minimize the risks for their customers using some mathematical algorithms.
Founder: Barry McCarthy
Satisfay is a mobile application that allows customers to pay in affiliated stores. Those with a smartphone, computer or tablet can receive the money instead of a traditional machine card. Thanks to this application it is also possible to pay online.
Founders: Alberto Dalmasso, Samuele Pinta, Dario Brignone
Mintos is an online marketplace for investments in loans and the European market leader by the volume of total loans funded (EUR 2.8 billion, July 2019). The company connects more than 150 000 investors from 70 countries with more than 60 alternative lending companies from all over the world through an innovative FinTech platform. Focusing on trustworthiness in their customer relations, Mintos provides its users with attractive interest rates, unmatched portfolio diversification possibilities and easy to use investment tools.
Founders: Martins Sulte, Martins Valters
Savy is a peer-to-peer lending marketplace that allows Lithuania’s inhabitants to borrow money directly from European investors without using banks. There is no interest and the investors are able to earn higher interest rates and can lend money online. Savy connects borrowers and investors, it is not a bank, the loan agreement is made directly between borrowers and investors.
Founders: Augustas Staras, Ignas Mangevicius, Vincentas Zabulis, Vytautas Zabulis
Koosmik is setting up a mobile platform to provide financial services through a simple all-in-one mobile interface to unbanked populations.
Founders: Grégoire Yakan, Matthieu Crance
Solfy is a startup that creates a new ecosystem around an application. Banks can provide loans to customers and can purchase goods using the application. In this process, merchants are financing the loan interest but it increases their customer loyalty and their visibility.
Founders: Andrew Basuyeu, Dimitri Zlobin, Elena Pristrom
BUX is making it easy and affordable for more than 2 million users across 9 countries in Europe to do more with their money. Currently, users can trade with BUX X which oﬀers short-term, leveraged trading, all powered by a vibrant community. Later in 2019, BUX will be introducing BUX Zero, which will bring commission-free investing to all, allowing users to invest in the brands and companies they care about through an intuitive, easy-to-use app.
Founders: Nick Bortot, Egbert Pronk
Blockbonds wants to give unlimited access to banking services for everyone in the world. They create their own payment system with an easy way for users to see their savings, payments, and investments. They have also created a financial platform: SPENN which provides services such as spending account, savings account, and real-time transfers.
Founders: Baard Bjerkaas, Jens Glaso, Jesper Ugland
BillTech is a new billing solution for Web 2.0 and SaaS companies. It works as an application with no monthly fees. There is also in real-time reporting, multiple billing types, technical and customer support.
Founders: Bartosz Petryński, Jędrzej Małolepszy
MagniFinance is a fintech that offers billing and document management solutions. They create invoices certified by the tax authority, and it is possible to organize financial information on the platform. There are some additional features such as banking transactions recordings for instance.
Founders: Andre Silva, Diogo Nesbitt, Jorge Rodrigues dos Santos
Pay-Me is a service for small and medium-sized merchants. It allows them to accept payment cards. Pay-Me is working in a lot of different sectors such as taxi and car services, hostels and insurance agents…
Founder: Vladimir Kanin
TradeCore is an innovative, solution for startups and existing brokers that helps them to operate and grow their brokerage. Broker IQ gives custom-crafted features to helps companies to grow their network and run their business efficiently.
Founder: Stefan Pajkovic
Datamolino is providing accounting tools for heavy work to firms. Those tools are supposed to help them to run their business comfortably, to reduce ineffective processes and to increase the impact of their work on their clients’ business decisions.
Founders: Andrej Glezl, Jan Korecky
Iconomi is a digital platform that allows every user to acquire and manage digital assets. There are some different tools adapted for different skill levels. Iconomi wants to give to their users an easy experience within the growing distributed economy.
Founders: Jani Valjavec, Tim Mitja Zagar
Coverfly is a mobile insurance application that simplifies all insurance operations for its customers. The customers have access to the best protection for the best price without doing anything. They are managing all the insurance contracts of their customers.
Founder: Vicente Arias
Trine is a fintech which supports renewable energy through crowd investing. Users have the possibility to select a project in which they are interested in and to make secured investments. This process gives money to entrepreneurs who want to start a new project dealing with renewable energies, it is a good way to invest in a greener world.
Founders: Andreas Lehner, Christian Genne, Christoffer Falsen, Sam Manaberi
Advanon is an application that allows small and medium companies to pre-finance their open invoices because sometimes they need to wait between 30 and 120 days to be paid. Those invoices are financed by some financial investors.
Founders: Phil Lojacono, Philip Kornmann, Stijn Pieper
Papara is an app that allows users to transfer money from their bank account into the application to pay in a few clicks with a phone number or a mail address without additional fees.
Founders: Ahmed Faruk Karslı, İlker Diker
Ukraine: Ninja Lender
Ninja Lender is an online marketplace in which users can sell their turned-down loan applications. It creates a new market with new customers and investors who look for new opportunities. This market is becoming huge with more than one billion applications.
Founders: Yaroslav Dubov, Dmitry Shurkayev, Valerii Yurikov, Yurii Fomin, Alexey Zinchenko
United Kingdom: Monzo
Monzo is a British online bank which offers a free current account with a master card to their users. It is possible to transfer money from a Monzo account to another one or a British account with a phone number or an e-mail. It is possible to pay in a foreign country without fees and to pay with a smartphone for instance.
Founders: Gary Dolman, Jason Bates, Jonas Huckestein, Paul Rippon, Tom Blomfield
THE BOOM IN FINTECH STARTUPS – WHY DID IT HAPPEN?
The actions taken by higher-ups after the European financial crisis in the 2000s created an incredibly fertile landscape for fintech startups. Those in control of setting the new standard were clear with their objectives and took actions to open up the market to more competition.
Photo from mint
The result? A lot of competition, just as expected. And while many have failed, there are many successful cases of startups with scalable models.
In some markets in the EU, in particular, the United Kingdom (23 fintech startups), Germany (7) and France (7), fintech startups have found great success.
The success case of N26
Take German startup N26 as an example. They recently closed a hefty deal of $300 million in their Series D, and they have successfully expanded their business across the border to Scandinavia and Poland. They recently announced an expansion to Brazil too.
But this is not the case for all startups.
While N26 was successful, how do smaller and younger startups expand cross-border? They may be successful in their own country, but how can they make sure that their service works without fault across all 28 Member States, and beyond?
Photo from N26
It is a challenge that the European Commission has taken steps to tackle. And there are startups aiming to bridge that gap. One example can be seen in the Nordic region. Keep in mind that is on a smaller scale, but the concept remains the same.
Nordic API Gateway is a Danish fintech startup that’s supported by the two large banks, DNB and Danske Bank. The Nordic startup is giving access financial data and account-to-account payments through one simple API that connects to all Nordic banks on behalf of consumers and businesses. Nordic API Gateway is building the eco-system of the future and infrastructure for companies from any industry that want to use financial data and simple payments to create new financial solutions in the era of Open Banking.
Photo from Nordic API Gateway
EUROPEAN POLICY IS CHANGING, BUT NOT FAST ENOUGH
In typical EU fashion (and the rest of the world for that matter), policymakers lag behind the fast-moving sectors as they continue to disrupt.
And no wonder. Creating an effective framework takes years. Especially in a culturally diverse landscape like the European Union where communication across borders is not the most straight forward. And add globalization into the mix, things start to get a lot more complicated.
In one respect it is positive as these newly formed businesses are able to bypass the established institutions and offer products and services to consumers that more established corporations cannot. They aren’t hindered by rigid regulations. But on the other hand, a lot of policy has become outdated.
The EU saves the day, or creates more problems?
So what has the EU done to mitigate some of these concerns? They have created an Action Plan that will increase innovation making it easier for scaleups and startups to expand abroad and increase competition while maintaining the integrity of the financial system.
But this Action Plan has a lot to unpack. It is filled with pages upon pages of directories listing how corporations should implement legislation to make sure they are in compliance.
And boy oh boy do these large companies have to spend a TREMENDOUS amount of time and resources to keep up with these legislative changes.
It’s a huge undertaking.
Companies spend hundreds of man-hours raking through legislation. And keep in mind, these legislative changes are translated in their own way across all 28 member states into local law (some stricter than others).
That is a lot of information to uncover. Especially so for large traditional banks who are often present in more than one country.
There are a few common “headaches” that pop up here. One being, “How on earth are we going to find the time to keep up with these changes?”, “How are we going to find the resources to make sure we comply with all these changes?”, and “How will uncover the impact on the marketplace as new market segments pop up?”
Young fintech companies have the upper hand here, they are not held back by the regulatory changes to the same extent. The changes that do apply are relatively quick to process, and they do not have to go through several levels of management or rigid internal structures.
A NEW FINTECH ACTION PLAN: THE OPPORTUNITIES
Fintech opens up new possibilities within consumer financial services that were not available a few years ago. It has opened up new competition, markets, and possibilities for the sector and regional economies.
It means more choice of financial services offered. And for businesses, it means the increased efficiency of operations. Yes, the technology is outpacing the legislation but the European Commission has taken action and created a FinTech Action Plan introduced in March of 2018.
The goals of the Action Plan in Europe:
- To increase competition and innovation,
- To maintain the integrity of the financial system, and
- To “harness the rapid advancement of technology for the benefit of the European economy, citizens, and industry.”
The 19 step plan addresses a number of issues, such as the protection and support of new technologies like artificial intelligence, cloud services, big data analytics and blockchain within fintech.
If you don’t want to get bored to death on the intricacies of European Legislation and its effect, skip to the next section on “The perfect industry for corporate innovation”.
But for those who are interested, you will find a few examples of what this Action Plan aims to create and some of the holes presented by the new plan.
THE BENEFITS OF A SINGLE MARKET FOR FINANCIAL SERVICES
These steps are, in large, connected to the Commission’s Digital Single Market Strategy, as well as the cybersecurity strategy of the EU. This new framework will bring positive supportive measures for young companies with innovative business models allowing them to clearly scale-up across European borders.
Photo from Medium
To give an example, an EU passport gives firms (that are authorized and supervised under unilateral operation conditions) the ability to more easily scale across the entire European Single Market. Even so, there are areas falling behind across this ‘Single Market’ for financial services.
To make matters more complicated, there is no legislation that covers fintech entirely. Instead, there are sub-categories all with their own rules. Below are two examples:
Solving the issue of expansion for crowdfunding services
There is not much in the way of a common framework for investment-based and lending or loan-based crowdfunding which in turn slows down the adoption of the Digital Single Market, and the ability to create cross-border solutions.
This makes it difficult for crowdfunding providers to scale as the supervision and regulation differ depending on the country. The fintech Action Plan aims to solve this problem.
The European Commission has proposed a framework that would regulate cross-border operations with a unified approach on how to supervise them. It is a given that this is a huge undertaking as it would mean providing a passport regime that all Member States would have to agree on. Considering the cultural differences between each country, it would be a lengthy and tedious process with a lot of back and forth.
PAYMENT SERVICE LEGISLATION
The Payment Service Directive (PSD2) is a hot topic within the financial community, and it is expected to create a lot of opportunities. PSD2 came into force in January 2016, with a deadline of January 2018 for implementing the new directive to international law.
The directive covers new innovative technology that, before this directive, was not subject to the same regulatory framework as other established financial service providers. What regulation was in place was somewhat outdated, too ambiguous and did not fit with the fast-moving market.
The introduction of new regulatory technical standards (RTS) that will come into force in September 2019, “banks will have to set up a communication channel” for third-party services (startups would fit into this category) to access their data.
This presents a multitude of possibilities. One example is the aggregation of that data through an open banking platform (remember Nordic API?).
Barclays became the first British high street bank to allow customers to view multiple banks transaction and purchasing history through their mobile app. And they aren’t finished. They aim to continue to add features to their app with the help of agile fintech startups.
And this is just one example of many. The idea is that all data is available for use by approved third parties. And what new companies do with that data is where the most opportunity lies. Especially when it comes to the partnership between startups and corporations.
It comes with its own issues as experts are concerned over the potential security risks posed by these new communication channels. Hence, banks expect startups to be subject to tight security regulation to mitigate future cyber-security attacks.
BEYOND CROWDSOURCING AND PSD2: NOTABLE FINTECH LAWS
Crowdfunding and the payment service directive are just two examples of changes to take place, and issues still to be resolved.
Data and consumer protection also come under fire, especially the blind spot presented by big data. However, several legislative changes are to come in force to mitigate some of the concerns presented. However, that is not to say the Action Plan is not a positive step in the right direction, because it presents many positives.
For one, it is aiming to clarify the rules of cloud services to better facilitate its use. It is also promoting blockchain, increasing the knowledge of fintech with the EU Fintech Lab, and creating more uniform licensing rules making it easier for new fintech companies to operate.
“Regulatory sandboxes” will mean that supervisors that apply rules to Fintech firms will do so in a “flexible and proportionate way”. Because of this change, businesses are able to “test their models, products and services for a limited time without being exposed to red tape“.
THE PERFECT INDUSTRY FOR CORPORATE INNOVATION
Fintechs are the perfect case study for corporate innovation. Partnerships, mergers, and collaboration between the larger corporations and startups are taking place more than ever, and are better facilitated.
In short, corporations lack the ability to move at speed and with agility. Startups, on the other hand, live and breath this mentality. This makes partnership incredibly beneficial for both parties involved.
Through collaboration, startups are able to scale at speed, and corporations are able to release products at the same pace. And large corporations are not limited to one partnership/collaboration at a time, they are able to facilitate multiple partnerships at once.
NOT REINVENTING THE WHEEL, REINVENTING THE EXPERIENCE
These traditional financial service companies aren’t the tech dinosaurs that we so often like to assume traditional businesses are. The established financial industry is different. They are quick to adopt technology.
But this presents itself as a double-edged sword. Banks are creating a digital experience that presents a “wow” factor at first glance, but customer satisfaction is generally unchanged. Banks are great at updating old technology, but they aren’t creating anything drastically different.
Neal Cross, an industry expert, attributes this to banks heavy focus on the “sexy digital experience while not addressing the key customer issue[s]“.
It isn’t all doom and gloom though. A positive is that corporations are beginning to shift away from the mindset of startups as a threat, to one of an opportunity for collaboration. It certainly isn’t the end for these mammoth establishments. Rather, it is the end of corporations who fail to adopt a collaborative mindset, adapt, and embody flexibility.
LEGACY PRODUCTS AND STARTUPS
A large portion of fintech startup solutions are built from legacy products from established companies as startups seek to improve one or multiple elements of the financial process.
This means that the startup product itself is often a “front-end” customer-facing solution built on top of an already existing infrastructure of an established company.
In order for the product to work efficiently, the infrastructure of the established company must be properly updated and adaptive to the changing needs of digitally native consumers.
And while the larger corporations in the financial sector are quick to adapt to changing trends, their software is not always as adaptive.
While financial corporations struggle to create intuitive apps that meet the expectations of changing customers, startups can help. Don’t like the interface of a bank app? With PSD2, you can take the data you need and create a better digital experience.
HOW ARE STARTUPS HELPING CORPORATIONS?
Startups offer a tailored solution. In the mid-2010s, fintech startups focused on improving already existing single functions (legacy products) of their more established all-encompassing counterparts.
Fintech startups have shown that they have the ability to move quickly and with agility and that their focus can develop unhindered by legacy products. These attractive traits make partnerships all the more appealing.
For one, traditional financial service corporations have the advantage to partner with more than one startups with a higher chance that one will succeed.
Take Barclays as an example.
BARCLAYS IS SETTING THE TONE
It is no secret that large financial institutions cannot keep up with the pace of new and disruptive technology, or the continuously changing legislation on their own. To do both is a massive undertaking and requires outside help.
Barclays understands this dilemma all too well and shifted the focus of the 325-year-old bank to one that would maintain the integrity of the company, and ensure the continued success in the rapidly changing market.
It is a two-fold strategy, one to create a societal shift and secondly, to engage the ecosystem.
With their societal objective, they are helping the global fintech community. They are discovering players who are able to help Barclays adapt, and allow Barclays to bring these learnings to a wider audience and enable a shift in the culture and mindset of the ecosystem in which they operate.
With their global innovation platform, Rise, they have created a home for London based fintech companies. It is a platform in which startups have the ability to participate in co-working spaces, accelerator programs and are provided with the resources they need to grow within the fertile UK market and abroad.
Barclay’s has created an ecosystem in which both corporations and startups can benefit from this inclusive relationship. By linking startups with teams within Barclays, they are able to execute on projects because of the sharp focus and speed at which startups are capable.
THE TAKEAWAY FROM BARCLAYS INNOVATION EFFORTS
The right leaders within an organization are crucial to the success of innovation within a company. Corporations no longer have to view new technology as a threat, but rather an opportunity by which an ecosystem at large can grow to become inclusive, and where co-creation is seen as a chance rather than an intimidating prospect to the continued prosperity of an organization.
Both startups and corporations have much to learn from one another and to avoid these opportunities based on fear, valuable learnings will be lost. It is time to shift the mindset of corporations to one that will grow with the changing landscape.
External innovation, or outsourcing the process of finding innovative scaleups and startups is more effective as it allows startups to remain independent and continue their rapid growth without the hindrance of rigid corporate structure and strict European regulation.
And those who do not keep up in the digital era by adapting their business models will have a hard time surviving. Why? Because consumer habits have changed. They look for the ‘all-digital’ experience.
Customer expectations are evolving rapidly and will continue to do so. Traditional banks who are ahead of the curve noticed this shift and changed their tune to keep up with the incredibly agile startups and developing landscape.
BRAND LOYALTY IS NON-EXISTENT
We are so quick to adopt new technology and brand loyalty tends to hold little value. Instead, our generation seeks products that fulfill our continuously evolving digital habits.
And it means that the consumer experience is drastically changing. Entrepreneurs are noticing the gaps left by financial institutions and are tapping into a completely new market. For example, peer-to-peer lending services or crowdfunding sites like KickStarter and have opened up an entirely new industry. They are serving the underserved.
EUROPEAN INVESTMENT IN FINTECH
Globally, investment is on the rise. In 2014, the total investment in fintech hit $19.9 billion! Today, investment in fintech has risen exponentially to $111.8 billion.
That means a higher investment risk because of an increase in competition. The number of deals taking place is not increasing by a noticeable amount, but the total amount invested is going up exponentially!
This means that early-stage companies have a hard time securing funding. But it isn’t stopping corporations from partnering with startups and adopting the technology they have created.
Despite obvious concern over Brexit (will it ever happen…nobody knows?) the UK is still the market leader in Europe for fintech investment.
And as mentioned before, if you are an early-stage startup you will find it difficult to get funding as investors are looking to invest in safer and later-stage companies.
They are avoiding the more risky bets. And the younger businesses are struggling as a result. But the UK, despite the looming exit, they are working to build bridges across the pond in the fintech sector.
Because of the low operation costs of smaller and younger companies, they are able to react to consumer wants and needs at an unprecedented rate (now helped by PSD2), the likes of which established banks struggle.
Established institutions have a loyal customer base and strong institutional trust. This is the perfect opportunity for the increased partnership between startups and corporations. The problem then becomes, how do you make sure that the partnerships between the two entirely different entities are successful.
The collaboration between these new technologies, the established industry, and those regulating the industry (policymakers) will determine the overall health of the landscape in the future. The current landscape and digital experience will be very different from the one we see today. For example, a third of millennials believe that they will no longer need a bank in five years time. Instead, they will rely on the non-traditional tech startups to shape their “bankless” future.
The new generation of Europeans has become acutely aware of their financial position and security. And startups are arriving at the perfect time to cater to these needs.
Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...