The “FinTech”: these start-ups who want to shake up the banks
Large operations are multiplying in FinTech. Yodlee, an American company founded in 1999 that is developing a solution for aggregating banking data – 40 million people would use its solutions worldwide – hopes to raise $ 75 million by going public (update: 500 million dollars according to the document submitted to the SEC in August, editor’s note). Lending Club, a peer-to-peer lending platform founded by Frenchman Renaud Laplanche, is already valued at over $ 1.5 billion and is also going to launch an IPO. All these companies have one thing in common: the desire to shake up the banking and financial sector with technological or usage innovations.
Crowdfunding platforms keep getting talked about. They allow start-ups to raise funds to start up while making themselves known to the public who have decided to invest in them, or to offer a donation in return. Two French nuggets – Squadrone System and Giroptic – recently panicked the counters on Kickstarter by collecting more than $ 1 million each, whereas they initially only asked for… 50,000 or 150,000 dollars. But innovations go beyond the sole framework of crowdfunders.
Concretely, FinTech are the technologies associated with financial services, whether for individuals (B to C) or companies (B to B). A vast notion that brings together firms or start-ups of all sizes with projects as different as each other.
For example, Stocktwits is a platform bringing together traders and investors to trade. It thus becomes possible to scrutinize what is said about each stock market title, or to discover the values that everyone is talking about and from which a trend emerges. If we leave the B to B sphere, we also find “disruptive” projects. GoCardLess, a London start-up, allows individuals to make automatic bank withdrawals between themselves. A process hitherto possible only for certain companies such as electricity companies or telephone operators who were the only ones authorized to connect directly to banks for such operations. Incubated at the Y-Combinator, the company raised $ 7 million in January.
“The first players to have launched into digital financial services are companies like Zopa (GB) or the lending company peer to peer American Prosper Marketplace Inc ”explains Nicolas Debock, director of investments in the investment fund XAnge, in charge of investments in FinTech.
In France, notably Afrimarket, a “cash to goods” money transfer solution, for a particular use, to Africa. A user can thus send funds directly to a partner merchant so that one of his relatives presents himself there and withdraws a particular good, after having been notified by SMS. Competition for historical services like Western Union.
Competition for the banks… Really?
The Lydia application makes it possible to reimburse relatives quickly by sending an e-mail or photographing a QR code, or to request a reimbursement by text. On the crowdfunding side, Union Loan, a peer-to-peer loan platform, crossed the 60 million mark in loans financed in January. As for foreign currencies, the French Weeleo wants to put an end to the traditional exchange offices and facilitate the exchange of currency between individuals via a mobile application. Founded by a former Ipag who, returning from Seoul, wanted to exchange his won without losing the exchange with the commissions taken by the traditional operators. It is now incubated at Paris Incubateurs.
But is the banking monopoly really threatened? Although these start-ups are dusting off the modes of operation, the banks still retain a largely dominant position, sometimes overwhelming. “Among these new players, some will rely on banks and others will compete with them” summarizes Nicolas Debock. This French fund, a subsidiary of La Banque Postale, has already invested in six FinTechs across Europe (The currency cloud, Smart Angel, Side Trade, KisskissBankBank, Harvest, Fidor Bank) and should sign with a seventh within a few days. . Nicolas Debock also nicknames young shoots that rely on traditional banking services – like No Bank (Compte-Nickel) – “banking MVNOs”.
“Ultimately, the job of banks is to be intermediaries, but the web is a disintermediary machine and this is how crowdfunding services, peer to peer lending ”he explains. For Yann Ranchere, director of investments at Anthemis – a fund dedicated to FinTechs launched in 2010 – the relationship between banks and FinTech is double-edged: “They often work in collaboration but FinTechs aggressively challenge the economic models of banks”. But it is clear to him, “we are in the presence of a breakthrough innovation,” he says, citing peer-to-peer lending and the Nickel account as an example.
Investments in FinTech have tripled in 5 years
Some FinTechs develop a service so complementary to traditional banking services that they end up being bought out. This is for example what happened to the American Simple, bought by the BBVA bank in March 2014 for 117 million dollars. And his colleague Santander launched on July 2 a $ 100 million investment fund dedicated to FinTech.
But at the same time, the power of banks could be strengthened because FinTechs create an ecosystem around them. “FinTechs generate a total reorganization: banks become platforms on which start-ups are grafted” explains Yann Ranchere, from Anthemis. Example: Leetchi, backed by Arkéa. There is therefore an arm’s length relationship. The evolution of the market will tell in what direction.
In any case, annual investments in FinTech have skyrocketed over the past five years. From 2008 to 2013, they went from $ 928 million to $ 2.97 billion, more than triple, according to a study published by Accenture. And the trend should not be reversed as they are expected to reach between 6 billion and 8 billion by 2018. “Over the past three years, global investments in FinTech have grown four times faster than global investments. in venture capital ”explains the study.
A trend which is mainly explained by the needs required to comply with the new regulations that banks must respect and the cost reductions in the sector, according to the firm, which also mentions the evolution of consumer behavior.
London, European FinTech Capital
Despite everything, some actors prefer to remain independent and become more and more powerful, like Lending Club. Another market is emerging: that of short-term financing of the cash flow of SMEs. “Companies like Finexcap, Invx or Iwoca are embarking on this new class of assets” comments Nicolas Debock.
And France in all this? “We are seeing more and more French cases go through, we are not lagging behind! »Launches this former Unilog. He explains that, of course, New York and London are the historical places of finance and that it is therefore logical that European FinTechs are particularly concentrated in the City.
In Europe, two countries stand out in particular: the United Kingdom and Ireland. In 2013, they alone represented 69% of funding, or $ 265 million. Main beneficiary: London. The historic financial center of the Old Continent already has 135,000 people working in FinTech according to the study. However, Silicon Valley takes the lion’s share with 32% of investments in the sector, far ahead of Europe’s 13%. But, “with the relaxation of European regulations, having a banking license in one of the countries of the European Union allows you to launch your service throughout Europe” according to Nicolas Debock. What to balance the accounts?
Adeline Raynal and Olivier Harmant