Billion dollar enterprises

Less than two hours from Denmark is a wide range of FinTech startups that accelerated from nothing to being expansive neobanks with millions of young customers in a few years. In this report, we look at what has actually become of the European startups that Magasinet Finans has described over the past 3-4 years and that some of the members have visited.

By Nils Elmark, journalist and Fintech futurist, Incepcion in London / Photo: Nils Elmark and Bjørn Willum

​Two years ago, at the Old Street underground station in London, I was approached by a young girl who, with a charming French accent, asked if I would like to become a "founding member" of their new online bank, which they called "Tide". The bank was going to target small companies, its app was not quite ready yet, they also needed funding, but if I gave them my email address, I would be contacted later, Vironique explained. Since then I've kept my eye on Tide, and over the past year and a half, the almost-bank acquired 26 million pounds from various investors, and in mid-January this year, they had a major breakthrough when they announced a new strategic cooperation with another FinTech startup, ClearBank, with investments of another 120 million pounds.

The neobank Coconut went through a similar history. I met the founders Sam O'Connor and Adam Goodall around the same time as Tide. They had the same idea, but their focus was not on small companies, but freelancers without a registered company. There are over 5 million of them in the UK. Many of Finansforbundet's members have actually visited Coconut in London and over the course of two years, the young entrepreneurs have further developed their app, tested their financial services, which include automatic booking, and in December, they started a funding round on the crowdfunding site Crowdcube. Here, they acquired 2.2 million pounds in just six days and their startup now has a value of over 80 million kroner.

Slightly interesting: I met and wrote about Crowdcube's founder, Darren Westlake, in 2013 where he discussed his business idea and since then his site has grown to the biggest in Europe with half a million investors and 821 startup companies, who have collectively acquired what corresponds to 5 billion kroner in venture capital.

Coconut started in an incubator in Finsbury Square in London's tech environment and on the other side of the square in another incubator was the young Dutchman Ivo Weevers, who was working on the app Albert, where the target group was largely the same as the two other neobanks: entrepreneurs in the "gig economy". Ivo Weevers has since acquired about two million pounds in venture capital and in December, he was pleased to send out a press release that Albert had now been taken over by the major Spanish bank Santander for an unknown amount.

In other words, in 36 months a new generation of neobanks for small businesses went from the idea stage to almost operating. We cannot yet know what this will lead to, but now there are strong venture funds and companies behind all three neobanks, who usually excel at international ambitions.


Europe's leading Fintech "unicorn"

The investors behind the Berlin online bank N26, which Magasinet Finans described in a report in May 2017, have the same ambitions. N26 was established in 2014 by two Austrians, Maximilian Tayenthal and Valentin Stalf, based on the idea of creating a bank that would be on mobile screens throughout the EU. If we have a common European currency, why shouldn't we have a common European bank?

In 2017, N26 received the first 50 million dollars from Horizons Ventures in Hong Kong and the super-entrepreneur Peter Thiel from Silicon Valley. With new capital on the accelerator, N26 quickly moved into 16 European countries and got their first 300,000 customers.

Since then, N26 has received 160 million dollars from Allianz in Munich and 300 million dollars from one of the world's largest technology companies – namely Chinese Tencent – and now, in record time, has gotten into 24 European countries, has three million users and the next goal is the US. N26 has moved up as Europe's leading FinTech "unicorn" with a valuation of 2.7 billion dollars – which is starting to approach the market value of Jyske Bank.


Young Russians behind persuasive bank services

Few people are aware that N26 has actually started to recruit Danish customers. This is also true of N26's English counterpart and competitor, Revolut, which was founded in London in the summer of 2015 by two young Russians, Nikolay Storonsky and Vlad Yatsenko, and which has achieved star status in record time.
I met the Russians just after their start in the Fintech accelerator programme Level39 in the new financial district Canary Wharf. They were modestly funded with 10-15 million pounds – if that's modest – but a year and half ago, they started to seriously accelerate: First, they got 60 million dollars and last July another 250 million followed from DST Ventures in Hong Kong.

The investment was earmarked for American expansion. This means we're talking about a cash injection of two billion kroner over less than two years, which so far has resulted in three million online customers and a market value of 1.7 billion dollars. But Revolut's bank services are also persuasive – a general account gives access to 40 different currencies and the customers can move their money from one currency to another at an interbank rate. The accounts generally come with travel insurance, which turns off and on based on your mobile phone's GPS.


Neobanks storm ahead

A third of the new unicorns are TransferWise, which we have written and talked about over the last three years. The business idea behind TransferWise is foreign transfers, which they deliver 83 percent cheaper than existing banks. The founders are the same as the ones behind Skype, they made telephony free and now they will do the same for foreign payments as they did for foreign telephony.

Since early 2011, the company has added almost half a billion dollars in American venture capital, which the management has transformed into four million customers, who make monthly transactions of 1.5 billion pounds. TransferWise now operates at a profit and are subcontractors to a wide range of the new online banks, including N26 and Monzo. TransferWise is also available in the Nordic market and has just entered a cooperation with France's second-largest bank, Groupe BPCE. Finally, TransferWise has also started to offer their business customers the same experience as the other neobanks and the first Danish TransferWise customers have already received their plastic cards.

And these neobanks are not lone wolves. In the UK, about 10 online neobanks or "challenger banks" were fighting over young people's attention. A recent analysis showed that a colourful neobank plastic card was in the wallet of one in four young brits under 37 years old and 75 per cent of the rest of the millennial group expects to acquire an account in a challenger bank in the next 3 years.


The new pattern for the bank market

The emergence of the new banks represents an entirely new pattern compared to the established banks. They are all online and fed to mobile phones, their bank systems are in "the cloud" i.e. on servers that the bank does not own themselves. For example, the central bank system for the neobank Starling is on Amazon's servers in Dublin, right next to Netflix. It radically reduces the establishment costs and makes the new banks unbelievably competitive.

The new banks are also modular. They don't develop all their services themselves, but integrate with subcontractors. As mentioned, TransferWise takes on foreign payments for many of the new banks. The funding is also different. Most of it is raised from venture capital and the rest is acquired via crowdfunding. Revolut, Monzo, Coconut and Tandem have all acquired tens of millions on the two British crowdfunding sites Crowdcube and Seedrs. Tandem spent the money on purchasing the renowned Harrods Bank a year ago. Here was a neobank that swallowed up an old physical bank – not the other way around – and they had backing from 11,000 investors.

In other words, the new financial companies are completely different than the established banks. They are at Denmark's door, but are not here seriously yet, so it will be exciting to see what happens when a new generation discovers them. It will also be exciting to see what happens with the big tech companies, because they've also moved into the financial industry in the last couple years.

In 2017, we wrote about Alipay, which had just established itself in Europe to serve Chinese tourists. Since then, they've established themselves in 30 European countries, but we Danes can't use Alipay unless we have an account in a Chinese bank. But that may also change. On 14 January this year, Alipay got an "e-money license" in Luxembourg, which means that they're now actually open for Europeans to start using Chinese Alipay when they pay for their products. And Alipay is not a lone wolf. Within the last 12 months, Apple, Amazon and Google have all acquired a similar license.

Until now, all this has not had a major impact on Danish employees in the financial sector, but if the trends we are seeing in large European countries come to Denmark, we will experience a new generation of banks and customers that are not like the old ones. Is this realistic? Look at the music industry – 20 years ago, Shawn Fanning started moving music over the Internet with Napster. Now the music industry is in ruins and everything has become Spotify.

FinTech companies with strong momentum

Tide: Online bank for small companies. It was founded in 2015 by George Bevis and has since acquired £20 million from 4 investors. Today, they have 60,000 business customers and have just got together with another FinTech startup, ClearBank, in an investment round of £120 million. Valuation unknown.

Albert: Banking app for freelancers. It was founded in 2014 by the Dutch designer Ivo Weevers and has since received £2 million in investments from the same investors who were behind Skype. In December 2018, the big bank Santander was taken over for an unknown amount.

Coconut: Online bank for freelancers. Founded in 2016 by the auditors Sam O’Connor & Adam Goodall. The bank acquired £1.9 million in December 2018 on Crowdcube, it has about 7,000 account holders and a valuation of £10 million.

Crowdcube: Equity Crowdfunding (share-based) was founded in 2011 by the brit Darren Westlake. It has acquired £627 million from 695,000 investors for 821 startup companies. Crowdcube currently has a market price of £75 million with venture investments of £37 million.

N26: An online bank founded in 2014 by the Austrians Maximilian Tayenthal and Valentin Stalf. The bank has acquired £400 million in venture capital and has a valuation of $2.7 billion (18 billion kroner). It operates in 24 countries and has three million customers.

Revolut: An online bank founded in 2015 by the Russians Nikolay Storonsky and Vlad Yatsenko. It has acquired £260 million in venture capital and has over 3.7 million users with a valuation of $1.7 billion (11 billion kroner). Operates in 28 countries and is on the way to Asia and the US.

TransferWise: An online bank for foreign payments, founded by Estonians Kristo Kaarman and Taavet Hinrikus in 2011. They have acquired £397 million from venture funds and have a value of $1.6 billion (10 billion kroner). They have four million users and operate in 40 different currencies throughout the world.

Monzo: An online bank founded in 2015 by the 33-year-old super-entrepreneur Tom Blomfield, who was just honoured with an OBE by the Queen. The bank has received £211 million in venture capital and is priced at $1.3 billion (8.5 billion kroner). Monzo has over a million customers. Currently only operates in the UK.

Starling Bank: An online bank founded by Anne Boden in 2015 with £75 million in investments from venture funds. The bank has 500,000 customers and is probably halfway to Unicorn status. Has a growing profit as a white label bank for both new and established banks.


Fintech & IT