Opening thought: Fear and loathing in fintech
TransferWise co-founder Taavet Hinrikus must be smiling. Yesterday, The Guardian ran an expose of the huge profits banks make from international money transfers. The report included an internal Santander memo leaked to the newspaper that details how nearly 10 per cent of its global profits — €585m out of €6.2bn in 2016 — came from international money transfers, and that the bank charges six times more than newer rivals such as TransferWise.
None of the above will likely come as much of a surprise to readers of this newsletter, and it should be said that TransferWise isn’t the only startup undercutting the banks and Western Union (see my Azimo story). However, what I like most about the Santander memo is that it manages to capture what is happening in fintech in a single line:
The banking model is built on cross subsidization. New entrants can attack the most profitable slices without offering all services.
Of course, by ‘cross subsidization,’ what the Santander employee really means is cross-selling from one potentially loss-making banking service to a much more profitable one. What we are seeing — at least in the first phase — is startups unbundling financial services and in turn picking off the lower hanging and sometimes most lucrative fruit. But it won’t end there.
In an article I published this week on Meniga, a London-headquartered startup that provides digital banking technology to some of the world’s largest banks, I summed up how incumbent banks are being attacked on multiple fronts:
From having some of the most lucrative and low-hanging parts of their business unbundled by upstarts, such as TransferWise (money transfer), Nutmeg (savings), and PensionBee (pensions), to out right ‘challenger’ banks that are re-inventing the current account and will lend out customer deposits in the form of overdrafts, a business model at the core of traditional banking.
And then there is the biggest elephant in the room: big tech companies. If fintech is really about monetising access to a consumer’s financial data — access that the banks are being forced to provide by upcoming EU and U.K. open banking regulation — the likes of Google, Facebook, and, to a lesser extent, Apple and Amazon, can’t afford not to jump onboard the fintech train.
With all of that said, whilst fintech startups and tech companies clearly have the innovation and far less technical debt, the banks have the customers and sit on a goldmine of data. It really is theirs to lose.
Bonus: Which founder of a fintech startup recently told me I was too old to understand why users would want to interface with a chatbot to manage their finances?
Things I wrote
A VC once told me that fear was the best sales tool ever invented. That was in reference to the hockey stick growth his cybersecurity startup was seeing, thanks to a raft of stories in the media regarding high profile cases of companies being hacked. But might the same be said of banks and the pending threat of fintech? Arguably, they have much to fear.
Monzo, one of a number of so-called “challenger” banks in the U.K. aiming to re-invent the current account, has had the “restrictions” on its banking license lifted and says it will begin rolling out full current accounts to its pre-paid card and beta app users.
Forward Partners, the London-based VC firm originally founded by Forward Internet Group and Nic Brisbourne, has closed a new £60 million fund to continue investing in tech startups from idea to late Seed stage.
Fred Destin, one of European VC’s biggest personalities, is leaving Accel, the London-headquartered VC firm he joined from Boston’s Atlas Ventures in mid 2014, to focus more on Seed and earlier-stage investing.
Azimo, the U.K. money transfer startup backed by Rakuten, is rolling out a neat new feature that makes it a lot easier to send money through the app and should add additional network effects to help the London-based fintech company grow.
CheckRecipient, a London startup that uses machine learning to stop misaddressed emails, raises $2.7M
CheckRecipient is a London startup that uses machine learning to help prevent emails from being sent to the wrong recipient.
London-based Triptease, a startup that offers a SaaS to help hotels increase direct sales and therefore keep more revenue, has closed a $9 million Series B.
Vimcar, a startup out of Berlin, is developing a clever tech solution to help small to medium-sized companies manage their car fleets.
Iyzico, the Turkish fintech startup that lets e-commerce sites and other apps easily accept online payments, has closed $15 million in a Series C round.
Closing thought: Convergence
Scattered across my desk right now are numerous debit and credit cards, including those issued by startup banks Monzo (which was granted its full banking license this week!) and Starling. For all of the talk of digital money, it’s kind of funny that we are still being asked to carry around swathes of plastic.
That’s why I’m carefully watching how London startup Curve develops. The company, which I’m hearing is currently closing a decent Series A and already counts TranferWise founder Taavet Hinrikus as a backer, offers an app and accompanying Curve MasterCard that lets you link all of your other cards so you only need to carry one.
The startup recently added rewards in partnership with a number of leading high street retailers, whilst the bigger mission is to be the platform through which you manage all of your money, regardless of the underlying service provider. Fintech convergence, if you will. Or a form of re-bundling that puts the consumer in control.
That’s an idea being pursued by a multitude of fintech startups, including challenger banks and so-called personal finance manager apps. However, consolidating all of your plastic into one piece of plastic is a great start!
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