What I learned in fintech and insurtech in 2019

What I learned in fintech and insurtech in 2019. Opinionated and probably 50% wrong:

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https://wagestream.co.uk/

The average person is still struggling to make ends meet, ten years after the last recession. This has a few consequences:

  • Employers are taking more responsibility for the financial wellness of their employees. The feature that grabbed the most attention in 2019 was income streaming: the option to get paid while you earn rather than waiting for payday. This sector took off in the US in 2019 (Earnin, Payactiv etc), UK is picking up (Wagestream*, Salary Finance), continental Europe still very early. However the scope here is much broader: financial coaching, budgeting, saving, investing, pensions, life insurance.
  • Gen Z are actively using apps to help them get control of their finances such as Cleo* and Yolt. These are enabled by open banking and aggregators such as Plaid, but what really matters is how they relate with their users: conversation, personality and intelligence. Features such as auto-save and overdraft protection are just that — features.
  • Regulators have killed off most of the last generation of payday lenders but the underlying sub-prime and near-prime need for credit hasn’t gone away. Credit card debt in UK and US remains very high, way higher than debt from any other source of short term lending such as Amigo Loans or Klarna.

Neobanks have had a massive 2019, despite a press narrative which has shifted from supporting the underdogs to looking for negative stories. Even the followers have had a big year, although consolidation eventually has to happen. In the end cost leadership will count.

European Insurtechs such as Zego*, Wefox, Alan, Cuvva and Luko have started to show significant traction and high growth, leading to some big funding rounds, although some way behind the big US players still.

Banking in the UK has seen AISP usage take off, but PISP remains nascent. PSD2 in other large European companies remains very early

We didn’t have a big fintech exit (other than Assurance multi-billion sale to Prudential) and valuations of public lending fintechs have continued to struggle (although payments companies have done very nicely).

Companies are struggling to get control of credit card spending in an era where invoices have been replaced by dozens of SaaS tools, Google/Facebook spend on cards, self-managed T&E and contactless payments. This has led to the rapid growth of dedicated spending cards such as Brex, Pleo and Spendesk; and of SaaS/spend monitoring tools such as Productiv, Pepper and Cleanshelf .

Clearbanc has taken off by offering easy credit to startups. To build a good credit model you first need $100M of losses…

VC firms seeing the sheer size of the mortgage market are willing to bet big that startups can disrupt it. The positives are that an underserved ’niche’ in mortgages can still be many billions of dollars, and that the cost inefficiencies are small in bps but high in €. The negative is the difficulty of getting to a competitive cost of capital, and that it takes years to demonstrate the performance of your new ML-powered underwriting model.

The least said about the politics the better.. .

Merry Christmas all!

*Balderton investments

Written by

Partner at Balderton Capital in London, working with Zego, Wagestream, Cleo, Carwow, Mojiworks, Primer, PlayPlay, Dream. Formerly Google & Bain.

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