As the new member of the team, I launched myself in the mission of wrapping up the BlackFin Tech’s team view on the hottest trends hitting our industry in 2019. Boring part finished :-)
As global Fintech deals hit a record year with just a 6% increase in the number of transactions (10% in EU) and yet an 82% increase in the total amount raised (28% in EU), we couldn’t miss the opportunity to reflect on this hectic year and spot the hottest trends for 2019!
Here are the topics we think will characterize 2019 fintech and insurtech landscapes, and therefore those we will be following.
1. European Neobanks conquering the world
That’s the biggest question of 2019: will our European digital banking champions be successful in their global expansion? According to their own data, Revolut has over 3 million users, whereas N26 boasts of 2 million users. Even if European millennials are talking a lot about these neobanks, both still have the size of a traditional local bank… yet, their growth rates are tremendous, and they are spreading in many countries at once thanks mainly to their “technological portability”.
Taking advantage of their momentum across Europe, N26 and Revolut have both announced their ambitions to conquer the North-American market. Revolut landed first on the other side of the Atlantic, as early as September 2017 (however operations still to take place) , while N26, strong of the new $300M capital injection, will likely move around mid-2019.
Revolut started also looking East: last November, the British challenger acquired a license in Singapore and in Japan. Meanwhile, since may 2018, N26 has been backed by Tencent (the owner of WeChat): with its new ally, it will, for sure, look into developing its ties with Asia. In this tight game, local players are still fighting their battle to evolve into local winners playing hard like BNeXT in Spain or LunarWay in the Nordics.
Emerging markets are also under Neobanks spotlight and could likely become another area of growth for European neobanks. LatAm, for example, could be seen (again) as the Eldorado as it is still a blue ocean market for Neobanks (aside for some few local players gaining momentum and NuBank in Brazil) with great opportunities for business development.
After all, it seems that EU neobanks are more and more focused on running for a blind global growth (aka lose a ton of money) rather than on working towards profitability. “Perhaps it is true that there will always be money to fund burn. Or perhaps it isn’t. But even if there is endless capital, many founders and teams will wake up one day and realize that all of that burn they accumulated is now a hurdle they have to overcome. And many won’t overcome it.” Fred Wilson, VC and blogger, says.
International expansion is also on the agenda of BtoB neobanks, even if a consolidation there has yet to happen. For instance, Qonto, the French neobank for entrepreneurs and SMEs, has claimed to be looking at European expansion and this means facing local players such as Penta in Germany, Tide in the UK but also the B2C banks entering the appealing B2B fray, in which clients are more inclined to subscribe to paying accounts and offer higher retention rate… No surprise that Revolut launched its “Revolut for Business” offer 2 years ago!
2. PSD2 finally getting tangible
“Open Banking” has been the buzzword for quite a long time now. As PSD2 will be soon entering into force, 2019 will see even more startups providing API-based services and tools to facilitate the “atomization” of financial services. For instance, Particeep and Linxo (in France), Truelayer and Starling Bank (in the UK), Nordic API Gateway and Neonomics (in the Nordics) are developing new banking experiences and APIs marketplaces. 2019 will be a critical year for these companies and we will probably witness to a first — even if light — consolidation wave, with best-in-class players moving ahead of competitors.
In addition, thanks to these platforms, new business models will likely be flourishing to provide more value for both financial institutions but above all customers. Direct evidence can be found in the cross-pollination of RetailTech and FinTech: startups like Mishipay, Flux, Joko or Paylead are leveraging on API providers to offer new retail services to customers by connecting directly with their bank accounts.
Pulling and enriching users’ data will be then used to develop new loyalty programs, to digitise bills and to cater to merchants, malls, and card issuers with new data points on their customers. Other developments in this direction could be in the card issuing space (e.g. issuance of a card without liaising with a specific banking institution) as well as in the credit scoring domain.
3. Identity management and fraud detection hotter than ever (even of 2018)
Having a quick look at the headlines in the press is enough to understand that fraud remains one of the thorniest problem in the financial industry at large: increase in phishing and scams in Belgium, “Make Banks Act on Fraud” campaign in the UK led by The Telegraph, launch of a new official online platform in France to denounce scam and phishing, hacking of 380k customers’ bank details from British Airways… Everywhere, with the growth of e&m-commerce and the never-ending imagination of criminals, fraud is on the rise and costs millions to banks and e-commerce websites.
In 2019 we will see a further evolution in the management of fraud with huge progress brought by the latest AI and biometrics innovations. As said above, PSD2 is opening up manifold opportunities for e-commerce shops. Innovation, however, comes with new threats and new threats bring regulation. An example is PSPs’ need to systematically activate 3D Secure mechanisms, unless they can report minimum fraud rate. This could be a green field for all those players deploying AI and Machine Learning techniques to progressively spot and adapt to new fraud patterns, by creating faster and faster feedback loops and flexible scenarios. Regulation brings then innovation: the virtuous circle!
The boom of RegTech startups in the field of identity management is another answer to this challenge (with KYC remaining the thread to be untangled!). Startups in this field started combining AI with biometrics data to make connections and transactions more secure than ever.
At the same time, the topic of identity management will get a strong push by companies finally grappling with the effect of GDPR and the first large fines: by getting increasingly aware of the value of their personal data, citizens might see an interest in user-driven platforms that promise to give back control of their data.
4. Towards a home buying, selling & financing (r)evolution
A significant market is still waiting to be disrupted: real estate. Will 2019 be the year of a proptech revolution? Even if still in its early stage, the increasing interest of entrepreneurs for the topic has to be found in several trends we have been spotting:
- the need for a flawless way to negotiate a mortgage, with fully digital brokers like Pretto, in France or Habito and Trussle in UK.
- the rise of new ways to sell a home quickly, with “ibuyers” like Nested in the UK, Casavo in Italy, Prontopiso in Spain and Homeloop in France. With these players anyone can sell a property within a month by accepting a considerable discount. In the short future, these platforms could also become the new classifiers or tech-enabled estate agents adding as well financial products like home insurances and financing opportunities.
- the “breakdown” of mortgage as a product, catered by the need to finance down payments. Startups like Proportunity and Unmortgage in the UK or Virgil in France provide consumers with a way of financing the down payment (i.e. that portion of capital that the banks are not financing — generally between 10% and 20%) in exchange of an “equity share” of the consumer’s flat.
- the need for patching landlords experience and make rent hassle-free. Surfing on the democratization of micro-renting with Airbnb, many startups (like Rentify or Goodlord in UK) started to offer all-inclusive solutions to landlords to ease the overall renting processes.
- alternatives for tenants to guarantee their rent towards landlords. Many examples are to be found in the French market: Garantme, Unkle or Cautioneo.
These are, in our modest opinion, the boldest trends we will witness during the course of the present year. Further interesting trends we might spot along the way could be:
- new business models in consumer lending like the application of subscription models or alternative way of commissioning. Examples here are Alma in France and Viabill in Denmark.
- the rise of alternative pension products and services, revamping the focus towards baby boomers (rather than millennials and Gen Y). Notable companies playing in this space are Grandhood in Denmark and Abaka in the UK.
- a disruption wave in insurance with so-called parametric insurances and their zero-claim models that allows direct payout in case of casualties triggering specific parameters. Examples here are Descartes Underwriting in France and Floodflash in UK.
As you can see, we are much confident 2019 is going to be a year rich with innovations for fintech and insurtech industries. Being a fintech/insurtech specialized fund, we are very excited by what expects us ahead. However we are also aware that, even if innovation is warming up fintech entrepreneurs and VCs, signals from the market suggest “winter is coming” for the whole ecosystem. Palpable political tensions and long-time inflated stock markets are signalling potential tough years to come for venture capital.
2019 will see the beginning of the late 2018 capital markets debacle and therefore benefit of past positive trends, nevertheless, we believe 2020 could be marking a more significant slowdown. Let’s enjoy this warm year but be sure to bring with you also a hot coat!
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