I’ve just got back from the first ever Money2020 Europe conference in Copenhagen. The event is making a play to be the leading fintech — financial technology — industry get together on the continent.
The sister conference in Las Vegas is already well established and, thanks to that brand, Money2020 managed to attract an estimated 3,000 people to Copenhagen over 4 days.
There were banks, startups, unicorns, investors, smartphone makers, payment companies, and, uh, Google, however you categorise it these days.
In short, it was a pretty good cross section of the industry right now. Here’s some of the key takeaways I got from the conference:
The hype is dying down
Fintech is still “cool” but some of the more “Emperor’s New Clothes” aspects of the industry are being exposed. No longer can you take a snazzy app to a bank or VC and bag £10 million. Now you need to show a bit of traction.
What this means, in practice, is valuations are coming down in funding rounds. Execution is now more important than the idea. Proof of your vision working is more important for those looking to part with their investment cash.
I’ve highlighted before that the investment landscape is changing at the moment, with wobbling valuations. Index Venture’s Jan Hammer told me back in November that maybe we’d seen the top.
The key catalyst, at least in fintech, seems to have been the Square IPO back in November. By January shares were down over 30% and below the IPO price. That’s led to more scepticism among investors, as the New York Times highlighted a few days ago. So valuations come down as exit expectations look less realistic.
But this is not necessarily a bad thing.
The CEOs of Swedish payments companies Klarna, worth $2.25 billion, and iZettle, reportedly worth $500 million according to Bloomberg, both told me it makes things easier. Less hype means startups are less likely to disappoint.
Just because valuations are dipping, doesn’t mean funding is drying up either. While funding rounds have been slowing, the constant refrain I heard whenever I asked about investment was, as iwoca CEO Christoph Rieche put it to me: “Good businesses will always get funding.”
Online small business lender iwoca just closed a private round it’s not planning to announce. Rieche wouldn’t tell me from who or now much.
Forget killing the banks — it’s all about working with them now
Two or three years ago TransferWise was telling us that banks were terrible — high foreign exchange fees and low transparency — and customers should ditch them. That set the pace in the industry, with plenty of other startups basing their marketing on how terrible the banks were at what they do.
But now, it’s all about collaboration. US online lender Kabbage announced a deal to help Santander do fast online loans for small businesses. iwoca is working on similar deals with investor Commerzbank and talking to others. TransferWise has already integrated with Estonia’s largest domestic bank, LHV, and startup bank Number26 and is aiming for other tie-ups. JPMorgan is working with online lender OnDeck. There are plenty more examples.
Why the shift? For all the advantages fintech startups have — no legacy systems, smart tech, great marketing, buzz — banks still have one massive edge: customers.
The likes of HSBC, Barclays, and RBS have millions of customers. Fintechs have thousands. While they have been able to sign up plenty of early adopters, it seems they’re finding it harder to break into the mainstream — most people just don’t care or know enough about finance to make the switch.
Banks are also keen to collaborate — execs from ING, BBVA, and HSBC all backed the move — as it saves them having to build all these new solutions in house.
Another way this battle for customers is playing out is that bundling is the new unbundling.
What does that mean?
Well, the initial sell of many fintech startups was that they could be much better at financial services by laser focusing in on one area — lending, payments, transfers etc. That focus allowed them to deliver one service better than banks who have a wide range of priorities and services.
While it’s true that this approach had made many fintech startups better in certain areas, it creates a lot of noise for customers.
As Number26 CEO Valentin Stalf put it to me: “I don’t believe in having three different apps — one for credit, one for savings, one for managing your cards. I think you should have everything you want in one app and get everything that you need with one click.”
Number26 and other online-only banks are exploring marketplace models where you can buy in services from a range of providers — a bit like an app store for finance. Curve, a startup that lets you use all you different cards from one app-linked MasterCard, is looking at something similar.
The next big thing is ‘neobanks’
Number26 was just one of several startup, app-only banks in Europe — termed “neobanks” by some in the industry. Several are poised to launch in the UK this year and they all had a big presence at Money2020, with a lot of people talking about them.
Atom launched its app at the conference. Tandem announced it is giving away shares to try and get customers interested and co-founder Ricky Knox popped up on the keynote stage with the CEO of Commerzbank. Mondo’s Tom Blomfield made a flying visit to pop up on a panel. And I spotted Starling Bank’s Anne Boden roaming the floor and shaking hands too.
Financial management and AI are hot
Everyone is doing data analytics and in-app loyalty cards. Startups like Loot, Curve, Holvi (bought by BBVA), Pariti, so-called “robo advice” investment management platforms, all the neobanks, and more are all seeing that there’s an opportunity to add value and win customers with smart analytics.
Want to save for a holiday? Your app will tell you how much you need to put away each month, whether you’re on track to do that based on your current spending and upcoming bills, and advise you on the best place to put your money at that moment. At least, that’s the idea.
This plays into the “bundling is the new unbundling” piece mentioned earlier — if all your stuff is in one place, then you can see what’s going with your overall finances.
Is this a game changer? Probably not. The fact that every man and their dog is showing me these kinds of features means they’re probably not that hard to do so won’t prove a “killer app” to win customers in big numbers. Banks will likely just cherry pick all the best ideas and either copy them or buy a startup to do it for them, like BBVA and Holvi.
It feels like everyone is looking at artificial intelligence (AI) too. Throw a rock in the Bella Centre in Copenhagen this week and you’ll likely hit someone who’s building machine learning into their new app in one way or another. This often ties into financial management — a robot that learns your spending habits to try and rein them in — but not always.
AI expertise could be a more defensible advantage as I suspect getting that right may be harder than data analytics on your spending. We’ll see.
Payments startup? Good luck
The collapse of Powa Technologies, which burned through $220 million before the lights went out, has cast a pall over the payments industry. Many entrepreneurs in the space from across Europe that I spoke to bought it up as a chilling example of how hard it can be.
But while Powa shows payments is a tough space at the best of times, the reality is it’s only going to get harder.
The big boys are coming.
Google, Samsung, Amazon, and Alipay all had a big presence at the conference, with Alipay announcing a launch into Europe at the event. Apple was the only notable absentee among the big tech giants who are now starting to experiment with payments in one way or another.
Google has dabbled in payments before without much success but with Apple Pay gaining traction, it looks like the search giant and smartphone maker Samsung have a good chance to crack it now. Regardless if they do or not, I would not want to be an entrepreneur fighting in the same space as these giants, who can spend you out of existence in the blink of an eye. Good luck.