February 1, 2021

The state of FinTech: a recap of 2020 and a glimpse into 2021

2020 was a very challenging year for most industries, and FinTech was no exception. However, the FinTech industry seems to have weathered the storm that continues to ravage the globe. Below we discuss three of the main trends KAE identified as defining for the industry.

Maintained growth & consolidation

Following the outbreak of the pandemic, investment budgets were slashed in most industries as uncertainty began to overshadow strategic planning. Less so in FinTech. Investors seem to have retained their confidence in financial technology as global FinTech investment reached $44 billion in 2020 – an increase of 14% from 2019. Unsurprisingly, the US was the main catalyst of growth, attracting the largest share of capital with $22 billion – up by almost a third from the previous year. More surprisingly, although Brexit seems to have contributed to a 9% year-over-year drop in funding, the UK retained its position as the #1 destination for FinTech investment in Europe.

Consolidation has been an ongoing theme in the industry, and the new challenges of 2020 further accelerated this trend. While lesser known / emerging start-ups continued to struggle to convince venture capital investors, more established FinTechs secured investments of record high value. Visa’s $5.3 billion acquisition of data aggregation start-up Plaid (blocked by US regulators since) and SoFi’s £1.2 billion purchase of banking-as-a-service provider Galileo were prime examples of the high-value M&A activity that dominated the industry. Venture capital also continued to pour into FinTechs sitting at the top of the unicorn’s horn, with Stripe ($850 million), Chime ($700 million) and Klarna ($650 million) raising the highest amount of funding throughout 2020.

Going forward, with the growing size of such deals, regulators are likely to increasingly scrutinize direct takeovers – which could somewhat hinder the pace of consolidation. However, the industry seems to be ahead of the game, with some players focusing on incremental investment in their strategic partners (also referred to as “creep acquisition”) that are more likely to get the green light from regulators. The example of Visa’s ever strengthening partnership with and stake in Klarna is a template many other legacy players could try and emulate in 2021 and beyond, as they strive to maintain their stronghold over the industry.

Riding the waves of the pandemic

The accelerated pace of digitalization we saw throughout every aspect of our personal and business lives is one of the main reasons why the FinTech industry as a whole has withstood the challenges posed by the pandemic. As most of our activity defaulted to remote, FinTechs that cater to this new paradigm saw immense growth.

FinTechs offering online / mobile banking, payments, investment or lending to individuals and / or businesses saw record adoption rates and continued their shift from the periphery to the mainstream. In Europe, FinTech app usage grew by 72% in the direct aftermath of the pandemic outbreak, while the top seven digital banks in the US grew their cumulative user base by 39% throughout the year. Moreover, the boom experienced by e-commerce and m-commerce across the world also helped power the FinTechs that feed off these ecosystems.

While most of us will hope remote is not the new normal, digital is seemingly here to stay – offering a plethora of opportunities for FinTechs to capture. Payments start-ups Deserve and Plastiq, digital banks Upgrade and BlueVine, investment platforms Pagaya and EasyKnock and online lenders LendingPoint and C2FO are currently amongst the fastest growing FinTechs that are gearing up to challenge their more established peers as well as incumbents this year.

Logos sourced from relevant company’s LinkedIn page

Embedded finance

For some time now, offering financial services is not legacy banks’ prerogative anymore. However, businesses whose core focus is outside financial services, have traditionally relied on partner lenders / payment providers to satisfy their customers’ financial needs. Then came a new phenomenon: embedded finance, namely “nonfinancial companies offering financial products and services to their customers while retaining complete control over the customer experience” – a market tipped to be worth $7.2 trillion globally by 2030. So far, Amazon has spearheaded this space, recently extending its lending propositions to cater to not just its merchants but also consumers with its buy-now-pay-later offering. Shopify white-labelling Stripe’s payment acceptance engine is another successful business model others might want to follow. We expect BigTechs and other non-financial giants to join the game soon; and while payments and lending seem to present the clearest opportunities, other types of financial services are likely to be trialled too. FinTechs often have a niche technology that is superior to that of their partners, or offer a fitting complementary service. This represents a win-win proposition: software-as-a-service providers of the likes of Solarisbank, Railsbank, Modulr, Marqeta and Treezor will be more than happy to remain behind the scenes and capitalise on their partner’s vast customer base.

2020 was a tough year and 2021 did not exactly start off on the right foot either. Still, while the FinTech sector is likely to have its casualties, the industry will also produce winners. The flux caused by the pandemic is not just about its threats but also opportunities and their agility puts FinTechs in prime position to capitalize on these. 2021 is shaping up to be another interesting year for the industry.

May 24, 2018

Vantage: Starling Bank

Starling Bank, the challenger bank recently named as the Best British Bank of 2018, has CX firmly on its mind

Starling Bank, one of the UK’s first digital only challenger banks, is known for its fast service and straightforward banking. Julian Sawyer, Starling’s COO, explains how important customer experience is to the evolution of the bank from product development to business growth.

Tell us more about Starling Bank, including what makes your vision unique?

Starling is a completely different kind of bank. Back in 2014, during her role as Chief Operating Officer of Allied Irish Bank, our founder Anne Boden became interested in how financial technology could be used to help customers manage their money. She also came to realise that the only way to do this was to start her own bank. And so that’s what she did.

Anne brought together a team, all of whom recognised that after the financial crisis in 2008, so much had changed – but not in banking. Our vision is to ensure that banking goes through a revolution, putting customers at the centre of everything we do and giving them digital tools to help them manage their money, all from one app.

In early 2016 Starling secured funding of £48 million ($70 million). Later that year, we were granted a banking licence by the Bank of England, enabling us to build the UK’s first mobile-only current accounts. Less than a year after launching in the App Store in May 2017, we were voted Best British Bank and Best Current Account Provider at the Smart Money People awards. We currently offer mobile-only personal accounts and business accounts and have plans to launch a euro account in the future.

Starling Bank recently became the first mobile-only bank to offer a business banking account: in your opinion, what are the challenges associated with being a first mover in offering new types of customer experiences?

There’s no doubt that being the first to offer a completely new product presents challenges. As a first mover there is no previous example of process to follow, or previous mistakes to learn from. It’s also harder to anticipate customer response to a new product launch that they perhaps haven’t come across before or feels unfamiliar to them.

However, being groundbreakers is also very exciting. We have an incredibly talented team at Starling who are brilliant problem solvers. Our key to understanding customer response is our Community – the platform through which Starling customers can discuss new features, updates and tell us what they like and what’s missing.

To provide innovative solutions for businesses, we’ve tried to smooth out all the friction associated with traditional business bank accounts – customers can open a business account in 10 minutes, not 10 days.

As Starling Bank is at the forefront of digital banking, how and who do you choose to benchmark your experience against? Do you even believe benchmarking is important with Starling Bank’s current position?

Looking forward is always better than looking sideways. We’re the first mobile-only bank to offer personal accounts, business accounts, connect to the Current Account Switching Services (CASS), become a direct member of the Faster Payments Scheme and SEPA, use 100% cloud based technologies and gain approval for our Marketplace enabling API integration with third-parties. We are also the first and only digital bank to offer all of the following: Google Pay, Samsung Pay, FitBit Pay, Garmin Pay and in-app provisioning of Apple Pay. We’re creating our own benchmarks for the industry.

Based on your experience, what are the main pain-points that customers usually experience when banking online and/or via mobile?

Even the simple action of taking laptops out of the equation instantly makes digital banking easier. Managing your money from one app is transformative. All you need is your smartphone – no more card readers, spreadsheets or frustrating phone calls waiting to speak to your bank to cancel a card or tell them you’re going abroad. You can set up new payments, split bills, check your monthly spend, lock your card if you’ve lost it and send a message to our 24/7 customer service in-app, with only a few taps.

Are there any key trends and/or technologies that you feel will impact the customer experience element in banking (and any other industries) over the next year or so?

The rise of online banking and of digital challengers has already had a huge impact on traditional banks who are closing more and more branches every week. However this also means that there is a gap in service. Physical branches are closing, but the online services and banking apps are not being updated and improved at the same rate – not even close. Starling has been built from scratch by the digital generation – we are able to deliver the fast, intuitive, secure service that people are looking for. Our focus on faster banking, keeping customers updated on payments with features such as real time notifications, and an attention to detail when it comes to UX and UI is transforming the customer experience of banking. We expect these features to become the norm and as such we are raising the game for the other industry players or customer expectations.

In terms of specific technologies that will impact banking in the next year, Artificial Intelligence will be key. Further down the line, we believe that we will move towards a cashless society in which banking will become more invisible. For example, people will be able to walk into a store, do their shopping and be charged on their way out without having to queue and pay at a till.

About the Author:

As Chief Operating Officer, Julian Sawyer oversees business operations, including payment systems, card operations, customer service, human resources and supplier relationships. Julian worked as a management consultant at Andersen Consulting (now Accenture) and EY, specialising in large-scale transformation in the cards and payments industry.

He set up his own financial services consultancy, Bluerock, which he ran for thirteen years before selling it in 2012. After many years as a consultant, joining Starling gave Julian the opportunity to put all his learnings into practice, to build a bank with an amazing team of true professionals. He enjoys working at a fintech business since he loves delivering things, making things happen and moving things forward at pace.

More about the Vantage Series:

This post is part of the Vantage series by KAE that provides a fresh perspective and hears first-hand from various players across the FinTech & CX ecosystem.

KAE will be posting a number of interviews with companies that share their candid viewpoints and to really get under the skin of the FinTech world and Customer Experience within various industries.

If you would like to share your views and participate in the Vantage series, feel free to reach out to us at Vantage@kae.com.

Written by:

Julian Sawyer

January 22, 2018

FinTech vantage: Bud

The technology platform brokering a new deal between people and their money. We find out more from Bud...

Bud is a technology platform that links financial services together and strives to make banking better. We recently spoke to Jamie Campbell, Head of Awareness, to help understand more about Bud and how the PSD2 regulation and the rise of open banking could impact FinTech companies like them.

1. Tell us more about Bud, including what makes the company and its vision unique. What do you think are the critical components that will make Bud successful?

Bud is a technology platform brokering a new deal between people and their money. From the start, we wanted to create a platform that allows people to use any financial services in one easy to use app or website – the steep innovation curve of FinTech creates more choice and more complexity in the market which we aim to solve.

Our platform is harnessed by banks to create win/win collaborations with FinTechs, that in turn, create great experiences for their customers. Banks want to build better relationships with their customers, FinTechs want to reach new audiences, and customers want hassle-free finances that look after their interests. Bud is the only platform in the world that connects those three things.

Critical components that go into making Bud are threefold:

Aggregation. Beyond simple account aggregation, Bud pulls together multiple data sources, financial and non-financial, to create a digital picture of an individual’s finances. We perform our proprietary analytics and programmes over this data which leads to the next stage…

Journey recognition. Using all of those data sources to piece together an understanding of what that customer is doing with their money and signposting key events where Bud can help limit fees or cover with better services. For example, this can manifest as bill switching, finding more effective ForEx, sourcing new investment options, etc…

Marketplace. The final component involves providing the customer with the most relevant product at the right time to take advantage of those events. We currently have close to one hundred partners with enough variety to ensure that we can serve customers across all areas of the financial ecosystem.

2. Where is Bud currently on its journey and what barriers have you encountered along the way?

Bud has been running for two and a half years and has proven its model, initially with a customer-focused product launched via the FCA sandbox, and now with distribution partners such as HSBC here in the UK.

We have also been lucky enough to be involved in a scheme set up by Nesta, the innovation charity. Their Open Up Challenge was a push to get companies, such as us, to develop open banking-based solutions for SMEs. Following a successful six month build, we were delighted to win. There will be a ‘Bud for Business’ proposition in the market soon – plenty of banks are interested.

We are fully regulated by the FCA and are growing massively. Last year we increased the team by 400% and we have just moved into new premises that will allow us to double in size. We have roughly twenty job posts open (so if you are a developer looking to work with an award-winning company in the FinTech space, get in touch).

The barriers that we come up against won’t surprise anyone. Regulation is a barrier for everyone entering financial services. Regulation is a part of the fabric of Bud, it’s integrated into our operating model. The fact that everyone at Bud understands where we sit with regulation means that we can innovate quickly and help our banking partners better.

3. PSD2 has been heralded by many as a pro-FinTech piece of regulation. Are there any parts of PSD2 that FinTechs need to avoid being tripped up by?

PSD2 covers account aggregation services and payment initiation services. The main areas to look out for are in getting regulated and having the insurance necessary to conduct the activities. For some companies, it won’t make sense to get licences of their own in this space and will look to firms like Bud to ‘borrow’ the service.

But PSD2 isn’t just pro-FinTech. For banks daring enough, it can be a huge asset to help develop new services and experiences for their customers. That’s what we have found with the partners we are working with: those with a strong strategy will perform well – bank or FinTech.

4. Where will the impact of PSD2 and open banking be most felt – will this be in the consumer or commercial payments worlds? Why do you think this is the case?

Open banking use cases I think are more developed in the retail aggregation world. But the commercial banking experience today is way below par, and most banks have SME banking high on their agendas for change. I think that the biggest impact will be in uncovering a market-leading SME banking experience as a direct result of innovations, brought about by open banking.

Ultimately, the impacts of open banking will be judged on data gained vs data lost in both aggregation and payment services. The immediate impact will likely be low, just like any adoption curve, but as people start to see, use and share more of the features open banking provides the uptick will become more dramatic.

5. What do you feel is the most important differentiator for FinTechs now and how will this change post PSD2 implementation?

The beauty of FinTech is that it has created massive amounts of innovation in each product vertical. Whether that is around access to credit, currency exchange, investing, insurance. New providers, freed from legacy systems, are able to leverage more flexible technology stacks to deliver far more personalised services. This kind of innovation is desperately needed in the market – people’s individual financial situations are almost limitlessly diverse and, if it is to meet this need, the market must be able to match this diversity with its offerings.

Post PSD2 differentiation will come in the form of data interpretation and activation; how FinTechs capitalise on this new data set. Whether that be in speeding up on-boarding processes, faster credit decisions, more accurate rates, more personal service. The value and differentiation will come from understanding a customer’s demands and using data to serve those needs in better ways.

6. How important do you consider open banking to be when it comes to building customer relationships? Why?

It depends on what side of the fence you sit. For a FinTech provider, PSD2 will allow you to build a relationship with customers that, in some cases, are not yours – or at least not in the traditional finance sense (they haven’t bought a product from you.) For a bank, it is an opportunity to get a richer picture of your clients and their finances, to offer real benefits and personalised assistance.

It will become more straightforward to shop around for products, right the way down to current accounts, so the focus for most businesses with high customer numbers will most likely be on keeping their customers. To do that, they have to create or deliver authentically useful products and services. Otherwise, people will find them elsewhere.

We are seeing banks adopting a new strategy: offering all services, including competitor products, to their customers. Currently it is regretful if your customer buys from a competitor. But in the future, what will be worse is if they buy from a competitor that is not in your ecosystem.

So, regardless of what you want your relationship to be like with customers, open banking will certainly play a role. If your strategy is to become the brand of choice that people do business with, you have two choices: build competitive services in-house or link those third-party services into your product. Personally, I think the answer is obvious. Different to what has existed in the past, but obvious.

7. What needs are Bud trying to solve for its customers and how will Bud’s value proposition address these?

For a while now, we have been comparing challenger banks and banks on level ground, but it is an unfair fight. I wouldn’t want a bank that has twelve million customers to duck and dive and move as quickly as a challenger can. That is not their role. But they can outsource nimbleness. They can bring in flexibility, technological excellence and the streamlined experiences that customers see elsewhere.

Bud’s role is as middleware for the financial services industry. We connect many products – all of which are suitable for every type of banking customer – into one platform that gets distributed to millions of customers via distribution partners.

8. How will you ensure your business model stands the test of time as competition grows?

Competition in the FinTech space is great for us. The more providers, the more complexity, the more our recommendation engine and marketplace becomes valuable.

The business model is relatively robust; we split marketplace affiliate revenue with our distribution partners and earn a licensing fee from them. And thanks to PDS2 it is understandable that the market will only get bigger. For companies wanting to sidestep into financial services, it has traditionally been challenging. Whereas now, by partnering with a company such as Bud, all of the regulation is taken care of, the services are integrated, and technical upkeep is sorted. It is an off the shelf product available to any company with a large customer base.

9. What is the one pearl of wisdom you would share with anyone starting their journey as a FinTech and why?

Understand the regulatory requirements that your product will need as early as possible. Work with the regulator so they can understand the model/product. It is the ticket to the game in the UK, so make sure you buy it before you compete.

About the Author:

As Head of Awareness at Bud, Jamie raises the profile of the company both in business development and marketing. He was Bud’s first employee and has helped transition the company from B2B to B2C. Previously, Jamie was a senior strategist in Advertising, working on brands such as Coca-Cola and Heineken.

More about FinTech Vantage:

This post is part of the FinTech Vantage series by KAE that provides a fresh perspective and hears first-hand from various players across the FinTech ecosystem.

KAE will be posting a number of interviews with FinTechs that share their candid viewpoints and to really get under the skin of the FinTech world.

If you would like to share your views and participate in the FinTech Vantage series, feel free to reach out to us at FinTech@kae.com

About the Author:

As Head of Awareness at Bud, Jamie raises the profile of the company both in business development and marketing. He was Bud’s first employee and has helped transition the company from B2B to B2C. Previously, Jamie was a senior strategist in Advertising, working on brands such as Coca-Cola and Heineken.

More about FinTech Vantage:

This post is part of the FinTech Vantage series by KAE that provides a fresh perspective and hears first-hand from various players across the FinTech ecosystem.

KAE will be posting a number of interviews with FinTechs that share their candid viewpoints and to really get under the skin of the FinTech world.

If you would like to share your views and participate in the FinTech Vantage series, feel free to reach out to us at FinTech@kae.com

Written by:

Jamie Campell