Technology has penetrated every aspect of the traditional financial services industry. Whether it be payments, mortgages, insurance or loans, no sector is exempt from the digital fingerprint of fintech.
Whether we access our bank account online, choose PayPal over Visa or use a peer to peer lending platform, Fintech has become part of our everyday. We expect it. We have come to rely on it and we are moving away from traditional banking models to satisfy our thirst for it.
2019 has been a hive of activity amongst this thriving sector and London is leading the charge. Back in April, it was estimated that London would overtake San Francisco as the fintech Unicorn capital of the world. At that stage, the globe had 29 fintech unicorns, nine of which were based in San Francisco, while London homed a competitive seven.
This rise to success has been a while coming. In terms of investment, London’s fintech sector received more venture capital (VC) funding than any other EU city in 2018. Indeed, these Silicon Roundabout companies secured 39% of all European fintech funding. Berlin came a not so close second with 21% and Paris came in third with 18%.
The UK as a whole
More widely, the tech revolution here in the UK has played a pivotal role in the growth of UK fintech. The wide availability of 4G and now 5G connectivity has meant that the digital banking phenomenon is more widely accessible than ever before. So influential, it has been predicted that by 2020, more than half of U.K. payment service providers will be digital-only.
Of course, this has massive implications for the U.K.’s traditional banking sector. Fintech has forced legacy banks to undergo radical digital transformations in both their products and services. The banking sector has had to wake up. Should these high street banks wish to attract and maintain a new wave of millennial custom they will have to acknowledge and respect these disruptors invading the space. 21st-century living means we expect to conduct our financial transactions in the same way we post photos, reach out to friends or apply for jobs.
For both private and enterprise customers the rate of change across the entire financial technology ecosystem has shifted our standpoint. Once an option, fintech is now a requirement.
2019 then, has been a noisy year. Week on week, fintech has dominated the tech news pages. We could publish a fintech story for every day of the year. This week then, we have chosen to dedicate this edition of Our Week in Digital to the booming fintech industry.
This week, among other things, young homeowners are given a 21st-century option to manage home finances with a new app. Peer to peer lender, Zopa secure funds to save its conditional banking licence and Birmingham launches a new hub dedicated to its growing fintech community.
Track announces full app launch.
Conditioned by transformative online products the current generation of young homeowners expects slick, on-line fintech. They have probably navigated the home-buying or rental process online. Therefore they expect the same level of 21st-century control once they get their feet through the door.
One company looking to address the out-dated methods of homeownership and finance management are Track. This week, Track has announced the full launch of its connected mobile app.
Managing home finance is tricky in the simplest of times, but the young homeowners of today experience added complications.
The number of first-time buyers here in the UK is at its highest in over a decade. Data suggests that the number of first-time buyer mortgages in September increased by 1.6% year on year. Although this shift is positive, a change in buying models means this group will experience challenges over and above those of the homeowners before them.
Astronomical house prices have forced these buyers to co-finance the purchase with partners, parents or friends. While shared finances among younger homeowners are common-place, they still have a desire to establish and maintain financial independence.
Startup, Track has endeavoured to build an app which recognises these characteristics of the young homeowner. It addresses the “complex ownership” model, whilst facilitating ‘together but separate’ finances.
The gap in the market
Byron McCaughey, co-founder of Track, commented that the app has bridged a gap in the market. Looking around, he and his fellow co-founder Henry Oakes found there were a plethora of Fintech solutions for managing other aspects of our financial lives. These include our current accounts, our pensions and even our credit scores for example. It became apparent that there was little to manage our biggest and most personal asset: our homes.
“We built Track to give young homeowners a sense of empowerment, ease and above all else, to take the emotional stress out of money management.”
Track has joined a new wave of hybrid fintech startups aimed at making the 360 property experience easier and more user-friendly. Dubbed, ‘Proptech’, Property Technology is a growing sector and uses tech to transform the property market in different ways.
These emerging products tackle the whole gamut of property ownership and home rental challenges. The market looks at investment, renting, buying, selling and now, with Track’s offering; modern-day finance management.
Track has recently received funding from Europe’s leading PropTech Venture Capitalist investors, Pi Labs and is currently crowdfunding on Seedrs. Pi Labs actively only invest in exceptional founders and inspiring technology.
With backing like this coupled with such an innovative, relevant and thoughtful product we are sure this is only the beginning of what will be an exciting journey for Track.
Zopa Group announces £140m fund raise.
Early this week, it was revealed that Zopa, Britain’s oldest peer-to-peer lender was hoping to secure a £130m capital lifeline to become a challenger bank. They aimed to do this before their conditional banking licence was due to expire on Tuesday.
The 14-year-old lender was the first such company to be granted a conditional banking licence by the Financial Conduct Authority in December last year. It was subsequently given a year to raise regulatory capital and prove it was financially strong enough to become a bank.
At that point, Zopa’s licence marked a turning point for the industry, which needed to evolve following the collapse of some smaller players and rising customer defaults.
Since applying for its banking licence in 2016, Zopa has raised £60m across two funding rounds from a mix of new and existing investors. It also hired several former banking executives to make a dedicated new bank board.
Fast forward three years to Wednesday, and it was revealed that Zopa has succeeded in its efforts and has raised £140m; its largest funding round to date.
Plans for the future
The additional investment is expected to enable Zopa’s banking entity to fulfil its regulatory capital requirements. This is a key specification for the lifting of restrictions on its bank licence. However, Zopa continues to hold its banking licence with restrictions and is working with the regulator to obtain its full licence.
Once Zopa gains its banking licence approval, it will move forward to launch its challenger bank alongside its peer-to-peer business. Within this it will offer a wider set of products to its customers. Zopa hopes to extend its portfolio and launch a fixed-terms savings account and a credit card alongside a new money management app.
Zopa’s move toward banking comes in the wake of increased concern from regulators over P2P lending. Zopa and a host of other P2P lending companies such as Funding Circle were believed to be challengers to traditional lending in the wake of the financial crisis. However, rising defaults and losses have triggered tough new rules with UK regulators clamping down on P2P lending.
Later this month, certain P2P investors will be restricted from investing large proportions of their assets in P2P. Companies will be required to give better information to customers and less sophisticated investors.
The evolution of P2P lenders
Since 2005, Zopa and other P2P lenders like them have enabled thousands of individuals and businesses to grow and evolve. Zopa alone has helped half a million people enjoy better value personal loans, grow their money and have redefined what customers have come to expect from their financial provider.
Additionally, the aforementioned Funding Circle has worked to finance the goals of over 50,000 UK businesses, providing them with loans to the tune of almost £6 billion.
With its speed, flexibility and competitive interest rates, Peer to Peer lending has provided lifelines for its recipients and the UK industry as a whole.
This landmark raise for Zopa and its pending banking licence could be indicative of the wider evolution of these financial services. It blazes a trail for others to follow in its footsteps, providing yet another obstacle for traditional banking models to overcome.
Birmingham launches new Fintech Hub.
This week, the Investment Association (IA) has revealed the first cohort of companies and tech communities set to be supported by the project.
The hub will provide a valuable support network for Fintechs based in the West Midlands. These lucky innovators will have access to a network of existing investment management firms and 5000sqft of co-working space.
The facility is a collaboration between IA’s FinTech hub and accelerator, Velocity, along with IA member firm, Wesleyan who are a specialist financial services mutual.
So, who are the Lucky 8…..?
Delta Financial Systems who are market-leading Fintech providers of pensions and retirement administration software for the SIPP and pension drawdown markets.
eXate enable firms to share data securely, through a digital Ink Bomb that allows those firms to destroy or revoke access to the shared data.
Fregnan uses advanced machine learning techniques to support unbiased, high-quality equity research for investors and fund managers.
GFA Exchange use AI to benchmark and monitor business performance, helping B2B lenders discover new opportunities, whilst reducing financial risk.
METCloud offer award-winning cybersecurity solutions. It harnesses sophisticated cyber defence surveillance, AI and Machine learning technologies to protect organisations operating within the financial services sector.
Moneyinfo is a private Fintech firm specialising in account aggregation client portals and mobile apps for the wealth management industry.
Silicon Canal; a Birmingham tech community to connect, promote and support the tech ecosystem in the West Midlands region.
And VendEx Solutions, Inc; the centralised hub for the financial services market data industry.
Tech in the West Midlands
These 8, progressive firms were chosen for Velocity Birmingham by the Velocity Advisory Panel comprised of industry experts. They are all key players in the growing tech ecosystem in the West Midlands. Indeed, Birmingham is one of the UK’s largest tech clusters outside of London and a thriving hub for both professional and financial services.
Chris Cummings, Chief Executive of the Investment Association has remarked;
“Just over a year after the launch of our FinTech innovation hub and accelerator, Velocity is going from strength to strength with the launch of Velocity Birmingham today” and that “through Velocity Birmingham investment managers can embrace the technologies of the future to the benefit of customers and the wider economy.”
Hastee snap up $270 In Dept & Equity for Fast Pay.
Following a period of rapid, early-stage growth London based, on-demand wages app Hastee has announced that it has secured $270 million in equity and debt financing.
Leading the equity portion of the round are self-described modern merchant bank, Umbra Capital. Their contribution amounted to about $20million.
Also on board are IDC Ventures, the capital arm of Grupo IDC, a Latin American Investment bank. There were, of course, other unnamed participants in the round.
This is the second round of external capital Hastee has secured since its 2017 inception. According to the company it raised a private $5.7million in spring last year.
The Hastee app allows workers to gain immediate access to up to 50% of their earned pay. According to the company, our nation has become reliant upon credit. Hastee is working to provide a responsible alternative to the astronomical and immoral amounts of interest charged by payday lenders, credit card providers and bank overdraft facilities.
Using Hastee’s product, there is no possibility to enter into a negative financial spiral. There is no interest and the balance is settled in every month’s payroll. Hastee funds employee withdrawals on behalf of the company, with employers reimbursing Hastee on the “normal payday.” Acknowledging their responsibility to facilitate informed “borrowing’ decisions, Hastee also offer an extensive money management education hub for its users.
Workers can access their first withdrawal each month, up to the value of £100, free of charge. After this, withdrawals are subject to a small transaction fee of 2.5%.
Valued by its 400 customers and their teams, Hastee has experienced growth on a massive scale. CEO and co-founder James Herbert, has commented that Hastee’s revenue grew by 1100% between December 2018 to November 2019. Of course, results on this scale require a leap in team numbers. Hastee has grown its headcount from 19 last year to 48 currently.
When asked what Hastee plan to spend this round on, it confirmed that the majority of the funds will be used to support the withdrawals. However, the company does have global ambitions. The Hastee app is already live in parts of Europe, but it is the intent to also use the money to “increase the scale” of its app.
London may be the fintech capital of Europe, but that doesn’t mean that the rest of the world isn’t chasing its lead!
Cora, Brazil’s newest fintech startup has just raised its first $10million.
The round was led by some hugely impressive investment firms. The names of note are Kaszek Ventures and Ribbit Capital. This influential pairing adds notable weight. These two are one of Latin America’s largest and most successful investment funds and one of the most influential early-stage fintech investment firms respectively.
The Cora story and its founding fathers are perhaps the reason behind this weighty financial endorsement from two of the biggest investment firms in the space.
Cora founders, Igor Senra and Leo Mendes have joined forces before and in so doing have enjoyed success. They founded their first fintech; online payments company, MOIP in 2005, way back before fintech was even a big deal! That company sold to WireCard in 2016. Now after three years, the founders are ready to take on the fintech space once again.
Their initial business was built to service the small and medium-sized businesses that comprise roughly two-thirds of the Brazilian economy. This makes up some trillion dollars’ worth of transactions. According to Mendes, despite this, Wirecard directed that they should approach larger customers that didn’t have the same kind of demand for their services.
This hurdle led the pair to launch Cora, a Fintech designed to service the SMEs they know so well.
Highlighting the company’s passion, Chief executive, Igor Senra has remarked that;
“We created Cora to pursue our life purpose, which is to solve the financial problems faced by small and medium businesses. These businesses produce 67% of the Brazilian GDP but are totally underserved by the traditional banks,”
He goes on to say that “So far, large financial institutions have mainly built products that focus either on individuals or on large corporate clients and have totally ignored small and medium-sized enterprises”.
Cora looks to remedy these issues by saying; “We want to offer a high-quality, customer-centric suite of financial products that address the specific underserved needs of our clients’ businesses.”
The company is currently operating in closed beta and plans to launch its first product, a free SME-only mobile account, in the first half of 2020. It will then go on to release a portfolio of payments, credit-related products and financial management tools that are currently in the development stages.
So, as we draw a line under this week and 2019, what can we expect from Fintech in 2020?
Globally, the Asian fintech market is set to boom. Political and trade war complications may have caused some issues over 2019. However, experts suggest that 2020 will see the Asian market grow and compete with those of America and Europe.
Last week, we published our blog indicating what we believe will be the “Tech Trends to Watch” across 2020. These are echoed all over Fintech.
The Internet of Things (IoT) will penetrate Fintech. IoT development and the growth of wearable devices will contribute to the overall digitalisation of the ecosystem.
There is also likely to be a consolidation of services. As well as the birth of new startups we will witness a consolidation of companies from different subdomains. These team-ups will deliver on customer expectation. An omnichannel experience offered to customers within a single application or service.
We are also likely to see automation of the process across all subdomains. In an attempt to minimise the risks of human error, Robotic Process Automation (RPA) will be used to help companies set up automated processes. This negates the need for heavy involvement from development teams and IT departments.
Cybersecurity within Fintech will need to stand up front and centre. These technologies and the skills required by professionals to employ them are pivotal in keeping financial systems safe and secure. Cyber threats are constantly emerging and the tech these hackers are using to breach defences is mirroring these. Fintech is especially vulnerable. Companies will have to keep up with the tech if they wish to outsmart this growing army of cyber criminals.
Ever evolving, fintech will continue to dominate and be a major player across 2020. Indeed, we are already seeing a new wave of ‘sub-tech’ arms emerging from it….Regulatory Technology (Regtech), Property Technology (proptech) and Insurance Technology (insuretech) are just three of the areas we predict will form part of the omni-service experience customers can expect next year.
Here at Ignite Digital, we partner some incredible startups and legacy companies operating within the Fintech domain. Are you looking to make a change in 2020? If you are passionate about this dynamic and fast-moving industry we would love to hear from you. Reach out to our recruitment partners today.