London has become a global colossus for financial startups: the UK and Ireland accounted for more than half of Europe’s Fintech deals in 2013, with the capital taking the lion’s share of that. There are other pockets of Europe where financial startups also seem to thrive.
Many of these companies are working at the intersection of tech and finance. Some are aiming to market a product to everyone, some just to businesses, and some to the biggest banks and financial institutions.
What’s common among all the companies is that they’re actively making their own markets, fulfilling demand where there previously might have been none – especially since the financial crisis in 2008. But they’re all offering something new, exciting, and financially promising.
There are now a bundle of startups eager to try and capitalise on the cryptocurrency market. Eris is one of a number of companies, like Blockstream in the US, which aren't so interested in the cryptocurrencies as the ledger their transactions are recorded on: Blockchains. As Chief Operating Officer Preston Byrne puts it, 'Blockchain 2.0 has nothing to do with money and everything to do with data'.
Eris plans to market that Blockchain technology for businesses with a 'Distributed Application Software Stack'. The key point is that this could be a huge cost-saver in terms of corporate infrastructure. For a more in-depth look, check this from the company itself.
They received an undisclosed amount of seed funding in October 2014.
Based in Canary Wharf, Derivitec is another startup that doesn't have to worry about reaching a mass market: It's only aiming to reach people who work with derivatives.
The firm was set up in 2011 and provides cloud-based systems that help financial firms to manage their portfolio risk. It's set up by a team of quantitative and IT experts, several of whom have experience on derivatives desks at major banks. Here are the things they prioritise, in their own words
1.) Nothing to download.
2.) Agile updates. No need to wait months for your vendor to add new functionality.
3.) A host of machines at your disposal. A small fund now has ready access to the compute power of a tier one bank.
4.) How much you use just depends on what you need to run. You get billed for only as much compute as you need.
In the aftermath of the financial crisis, it's fair to say there have been plenty of new peer-to-peer lending platforms. Maybe more than enough. What makes Landbay fascinating and controversial is that it crowdfunds loans for buy-to-let property investors.
It claims to be able to diversify risk across a range of properties. Some are sceptical, but it's undoubtedly an innovative way to hitch a peer-to-peer platform to the UK's growing rental market.
They have raised $US2.9 million in funding from three investors, the bulk of which came at the end of 2014.
Fingenius lets major institutions save hundreds of millions of pounds on customer relations management, especially call centres. It's described as 'Siri for banks' by Crunchbase: the company has created advanced artificial customer relations, which are able to field a huge and complicated range of questions from customers without human input.
They're already working with companies like BMW and Panasonic, and are promising some pretty impressive software
Our system focuses on conversations as well as delivering the right answer. Through these conversations we can profile each user in an advanced way. This allows us to analyse personality, pick up sentiment and buying signals and enhance the sales process for the client.
UK-based Azimo, which raised $US10 million in March 2014, is one of the thriving small firms trying to make it easier and cheaper for migrants working in other countries to send money home. That's a massive economic trend and matters hugely to some developing nations, where remittances make up a big proportion of national income.
Western Union and similar services charge more: When we checked, WU's fee for a £100 transfer to Bangladesh was nearly three times higher than Azimo's. Senders can also pay through a Facebook app.
Beginning in the UK in 2008, Borro is an online pawnbroker (though it doesn't like the word), which also offers loans secured against luxury items. It's another firm with an air of controversy, piggybacking on the financial crisis and subsequent recession.
'We're about as similar to a private bank as we are to a pawn shop,' Borro founder Paul Aitken told Business Insider recently.
Interest on the loans typically runs up to 4% per month, much lower than the rate at a pawn shop, and the firm has netted a cool $US156 million in funding through four rounds.
Young people are avoiding credit cards, and that's a problem. Running small monthly debts are the usual way to build up a credit rating. That's important for things like buying a house.
London-based Aire is trying to build credit histories for people who are 'file thin': In current models, Aire says that missing data effectively counts as a zero rating for that part of a credit score, penalising people who have little, not bad, credit history. They call it 'credit scoring for humanity'.
Aire received an undisclosed amount of funding in a round last summer.
WorldRemit is another startup that wants to turn the world of remittances on its head. Ismail Ahmed founded the group while working and learning in the UK, and personally experienced the problems with remittance transfers himself: 'Studying in London, he needed to send money to family members in Africa. Every transaction meant an epic journey across the city to an agent who charged a small fortune in fees to send modest amounts of money.'
Receivers can take their money by phone, one of the massively popular payment systems in parts of Africa.
It offers a cheap and easy service and announced $US40 million in funding from Accel in March 2014. Remittances are a huge part of many developing economies, and the potential market for this sort of financial service runs into the many billions, if not trillions of dollars.
There's no shortage of startups in finance offering analytical data. But they're usually focused on analysing markets and assets. Essentia Analytics analyses a trader's own performance to try and identify behavioural patterns from past performance.
The firm has a coaching team which attempts to point out to investors where they have been going wrong. Clare Flynn-Levy set up the firm after 10 years as a fund manager, including a spell at Deutsche Bank. Here's how she described the business in a recent interview:
To date, decision-support tools in general have been focused on making decisions based on what other people in the market are doing. Essentia focuses on the trader or portfolio manager's own behaviour - after all, the one person whose behaviour you can control is your own. Not paying attention to it does not make sense, particularly in light of what we're learning about human cognitive bias. What Essentia does is make it simple to track and reflect upon your own investment process.
Funding Circle was out at the very front of peer-to-peer lending for businesses, and they have expanded rapidly because of it. It's another firm that has found an innovative way to thrive in very specific conditions that came about after the financial crisis.
Post-2008, small businesses in the UK have struggled to get loans through the banks they'd previously used: So Funding Circle set up an online marketplace for people to make their own loans to firms. You can adjust the level of risk you'd like to take (and therefore your potential return), and choose sectors and individual firms to lend to.
Funding Circle is now so prominent that they're on the verge of no longer being thought of as a small firm or a startup, though they're not yet five years old. So far they have lent out more than £300 million and raised $US123 million in equity capital to expand.
There may be a few eyebrows raised at the idea of a fairly large bank being an innovative startup. But in the context of UK banking, Metro Bank is one of the most interesting forces in years.
The bank was set up nearly five years ago, based on the US Commerce Bank model, and already has hundreds of thousands of accounts in London and south east England. They're aiming for a flotation eventually, and chief executive Craig Donaldson has talked about being a FTSE 100 company in just four years.
They're focused on a service-provision model, putting an extremely high premium on the ease of opening and accessing an account, opening hours and customer care. With UK confidence in banks extremely low, that's been a winning strategy for Metro Bank so far.
Nutmeg is pioneering online-only wealth management for anyone with as little as £1,000, widening a market that has been dominated by a small set of private banks in the UK. Like Funding Circle, they're on the verge of no longer being appropriate for a list of startups, despite the fact that they officially opened barely two years ago. The firm is still loss-making, but founder and former Barclays employee has his eyes on achieving a much larger market scale than existing wealth managers. Nutmeg raised $US32 million in a funding round last summer.
Here's a section from his talk with the Wall Street Journal:
'Previously private banking was only for the very rich', said CEO and founder Nick Hungerford. 'They had private bankers who would talk to them while out playing golf. It was very expensive and it was not accessible unless you had bundles of cash' ...
Transactions are all carried out free of charge. 'If that wasn't the case then someone with small amounts of money would end up paying most of it in fees.'