But while it’s easy to get morose, there’s still a great deal of optimism in the market. We asked four of Europe’s most active VCs to highlight specific fintechs they think will come out of the lockdown stronger, buoyed by a new landscape.
We had two simple rules: no listing your own portfolio companies, and no self-promotion!
Check out the VCs’ predictions and explanations below.
Rob Moffat, partner at Balderton Capital
Mobility-based insurtechs, including Cuvva and Bymiles
Consumers have been paying full whack on their car insurance (or maybe a token discount) for the last two months while their car is sat in their drive. They will look for usage-based insurance models instead when lockdown lifts. That also likely means flexible car-subscriptions like Drover will do well, as people will not be comfortable with public transport so will want a car, temporarily, until things settle down.
Digital share brokers, like Freetrade and Trade Republic
Increased volatility in share prices has already brought a huge number of new retail investors into the market. But this has long-term benefits beyond lockdown, likely translating into a new ‘generation’ of active traders and even a newfound cultural embrace of trading (Europe is far behind the US here). Europe’s “zero-commission” startups like Freetrade will want to retain these new users and sell them more lucrative products beyond basic single-stock UK trading, to ensure they monetise.
Catastrophe insurtechs, like Descartes Underwriting and FloodFlash
With some insurers trying to avoid paying up due to coronavirus, trust in the industry will continue to decrease. So businesses and consumers will look out for insurance which pays out automatically under certain circumstances. FloodFlash covers users in the event of a flood by triggering automatic payments once sensors in their property pick up water at a certain height. Meanwhile, Paris-based Descartes underwrites third-party brokers, providing sensor-driven risk-modeling around natural disasters to industries like agriculture, energy and entertainment. Their approach is parametric, meaning clients can trigger immediate payment if certain events occur.
Dr Ruth Wandhöfer, partner at Gauss Ventures
FX hedging and payments, like Ebury
Regtechs, like Apiax
Digital core financial platforms, like Nucoro
In this vein, UK-based Nucoro helps financial organisations to build out investment management propositions quicker and more effectively. It offers a range of digital tools as white-label solutions that enable advisers to onboard and engage with their clients more easily. This stretches from behavioural data analytics, portfolio configuration, compliance checks and management reporting.
Barbod Namini, Fintech partner at HV
HV Holtzbrinck Ventures lists some of Germany’s biggest startups in its portfolio. Its fintech investments cut across both business-to-business (B2B) and business-to-consumer (B2C) startups, but it is increasingly focused on banking software platforms.
Digital payment processors, like Marqeta and Mollie
Consumers in cash-heavy economies (e.g. Germany, Italy) have been forced to change their paying behaviour as many shops stopped accepting cash during the Covid-19 induced lockdown. If increased card usage persists post lockdown, they will experience a substantial boost in the form of hugely increased digital payment volumes. Publicly-listed companies such as Adyen, Paypal and Square could also ride this trend.
Core banking software, like Mambu and Thought Machine
The lockdown has made the need for a robust and modular banking infrastructure clearer than ever and has served as a final warning for financial institutions that were caught off guard and couldn’t offer their services to an acceptable standard. Coming out of the lockdown interest will further increase in core banking software platforms, geared to incumbents. Mambu and Thought Machine should see their client-base of banks grow, offering cloud-based, core banking-operating systems that they can migrate onto.
B2C insurtechs, like Getsafe and Lemonade (now in Europe)
Sharp downturns that result in job losses and businesses defaulting should result in a spike in interest in various types of insurance that alleviate the impact of such drastic events. The insurtech space as a whole should hence be a net beneficiary, as it sees increased demand. That extends to startups with their own insurance products as well as startups like WeFox and Instanda who serve to improve incumbent insurers and brokers. Indeed, incumbents will also be looking for ways to digitise their distribution channels to better capture the new demand.
Cherry Miao, Partner at Accel
Accel was the first Silicon-Valley fund to establish a physical base in Europe over 20 years ago. It raised a $575m fund to invest in European startups last year, backing the likes of Funding Circle, Monzo and Trade Republic in the fintech space.
Digital onboarding firms, like Alloy KYC
As banks and financial institutions globally shift to remote work, they’re accelerating digitalization plans in all aspects of their business. Alloy KYC helps banks and fintechs make more accurately and faster decisions on customer identity and trust during their KYC/AML and fraud management processes, and we believe that the move to remote work has only accelerated demand for their product. They’ve also done some fantastic work to accelerate American small businesses’ ability to access the Payroll Protection Program, and we think highly of Tommy and Laura as founders.
Consumer P2P payment apps, like Lydia
COVID has accelerated the move away from cash and towards digital payment methods globally for all age groups, and we’re seeing the impact of that shift most heavily in some of the most cash-heavy European economies. “Lydia” has already become a verb for French millennials, a story we’re familiar with from Venmo [the US mobile-app equivalent]. We think that once people use Lydia a few times and realize how its beautiful and simple interface makes payments easy and maybe even fun, they’ll never go back.
Savings aids, like Raisin
The COVID crisis was a great reminder to all of us of the importance of having an emergency fund socked away, and we think Raisin’s product is great for enabling healthy savings behaviors globally. In a volatile market and with more countries reducing interest rates to drive demand, Raisin allows consumers to take control of their savings. We’re also enthusiastic about their API-focused entry into the US market (the average American saving less than 9% of their annual income).