Startup Europe. Grown up reporting
Here, Sifted’s reporters — in partnership with Dealroom.co — dig into the data, strategy and challenges behind the most important European fintech startups.
We have picked companies based on the money they have raised, how quickly they are hiring and how formative they have been to the startup ecosystems around them.
(If there is anyone missing from this list, or anything is wrong in the numbers, please let us know by email at [email protected])
Please check out our jobs board to see some of the compamies hiring from this list.
Founder and chief executive Lex Greensill was a director at Morgan Stanley and Citibank before founding the eponymous firm in 2011. He subsequently received a CBE in 2017 for services to the British economy and is rumoured to spend the majority of his time on a corporate private jet shuttling between New York, London and his native Australia.
Former British Prime Minister David Cameron is an advisor to the firm, which is backed by SoftBank’s Vision Fund. In May the company raised a round of $800m from the Vision Fund which valued the company at $3.5bn — firm unicorn territory. In October it raised another $655m in new funding the same fund, bringing its total capital raised since inception to $1.7bn.
Greensill is a brilliant and innovative financier, but some also worry about his high tolerance for risk and use of complicated off-balance-sheet financing structures. There have been several scandals surrounding the company. Most recently a Greensill fund, managed by investment manager GAM, witnessed huge outflows earlier this year following a scandal related to one of its bonds, resulting in the funds’ assets falling from €2.1bn to as low as €391m.
Still, the company makes money. Revenue doubled to almost $275m in the last financial year and it made $50m in net profit, according to its Australian accounts. The company is not said to be gearing up to launch it’s first consumer-facing product, a mobile app allowing workers to be paid in advance.
In 2019 it launched a new $460m fundraising, giving the company a post-money valuation of $5.5bn, making it the highest-valued private fintech company in Europe. That was a 250% increase on its last valuation.
And now, after four bumpy years trying to capture the US market, Klarna has finally made inroads and is reportedly growing at approximately half a million customers a month.
It’s managed to entice a new millennial audience who love shopping online and would prefer — wouldn’t we all? — to pay later rather than today.
There are some concerns that the “pay later with Klarna” button is being overused by young people, who are getting into trouble with debt as a result, so the company will have to manage their image here carefully. They have won some criticism recently from Swedish politicians.
Also notable is that Calvin Broadus, better known as Snoop Dogg (or Smoooth Dog), the American rapper, is an investor and brand ambassador. One big question is if the company will stay European when it looks for an eventual exit, or follow the route of Izettle and Skype, who were bought by US giants.
Further reading: The Klarna founder’s secret of success (https://sifted.eu/articles/klarna-ceo-interview-siemiatkowski-islandski/)
But what it lacks in fame it really makes up for in profits. It’s one of only a handful of money-making fintech companies in Europe, with profits up 220% to £33.9m in 2018.
Co-founded by Rishi Khosla and Joel Perlman, OakNorth is a platform that leverages big data and machine learning to help banks around the world improve their lending to lower mid-market businesses. Its white-label software-as-a-service solution is being licensed to a dozen banks globally.
The platform proposition was proven via OakNorth Bank which launched in September 2015, offering loans of £0.5m to £50m to fast-growth businesses, targeting a market that has been largely underserved by traditional banks in the aftermath of the financial crisis. So far, it has lent £4bn and says it has only had two defaults and no credit losses.
Earlier this year, it secured an investment of $440m from SoftBank’s Vision Fund in 2019 — the largest investment of any fintech in European history at the time.
OakNorth’s chief financial officer Cristina Alba-Ochoa tells Sifted that in Europe there are a whole lot of “clueless fintech people” building businesses that are likely to become big losers and that their failure is “more likely than people want to believe”.
The cross-border money transfer company reported an annual post-tax net profit of £10.3m in the fiscal year ending March 2019, up 66% from the previous year. Revenues at the firm rose about 53% to £179m.
The company has a clever model (now replicated by many others) that means it doesn’t actually move money across borders, which would incur fees, instead maintaining separate pots for each currency, which it then disburses funds from.
The company was set up in 2011 by Estonian friends Taavet Hinrikus and Kristo Kaarmann, who saw an opportunity in high bank currency exchange fees. It now works with some banks, for example with France’s Groupe BPCE as well as fintech rivals Monzo and N26, which have integrated TransferWise’s software into their platforms.
Kaarmann, TransferWise’s chief executive, boasts that the company has become one of a “rare breed of unicorns” because it makes money, which is helped by businesses increasingly using their services.
Look out for Brexit-based uncertainty though. TransferWise is a UK financial services provider the company relies on EU passporting rights to operate on the continent, although it is opening an office in Brussels and has applied for a Belgian banking license in order to hedge against a no-deal Brexit.
The company is backed by a number of high-profile investors, including British billionaire Richard Branson, Silicon Valley venture capital firm Andreessen Horowitz and Valar Ventures, the venture fund cofounded by Peter Thiel.
The company, which says it does not see profitability as a “core metric”, is pushing big-time for growth, splashing cash to launch a huge advertising campaign to build on its 3.5m subscriber base.
Led by founder Valentin Stalf, the bank in 2018 rolled out a #nobullshit advertising campaign in some of the 24 markets it is active in around Europe, with slogans such as “Nicht die Bank deines Opas” (“Not your grandad’s bank”) and “F¥€K Fees”.
It is also joining rivals such as Revolut in making a play for the US market, which is going to be no easy feat (other neobanks in the US have had limited success).
It’s been less plain sailing for N26 in Germany though, with the company coming under recent scrutiny from BaFin, the German financial authority, for falling behind on anti-money laundering processes.
Rivals, most notably Revolut, have also come under similar scrutiny. N26 is competing with the likes of Monzo and Revolut, but they all share a core long-term challenge: persuading customers to switch to them as their main bank.
Led by Mark Mullen, it’s not quite the same scale (yet) as Revolut, Monzo or N26 but raised a further £50m in funding in July 2019 in a round led by Spanish lender BBVA (which also led its last round of £149m in 2018).
Just as Nordic fintech Klarna is backed by Calvin Broadus (better known as Snoop Dogg, or Smoooth Dogg), the American rapper, Atom bank is backed by US musician will.i.am, the lead singer in the Black Eyed Peas.
Will.i.am is a strategic advisor and, apparently, provides “an external perspective on culture, philanthropy and technology”.
The company also does consumer loans and mortgages. In July it said that its total consumer and business lending was up by 76% to £2.4bn year on year, supported by growth in deposits from £1.4bn to £1.8bn. Atom says it gets applications of up to £20m in business loans and £10m in residential mortgages each week.
In 2018 Atom announced that it would partner with fintech startup Thought Machine to migrate all of its banking technology to a platform called Vault. The big question is if the bank can grow to join the ranks of the other fintech unicorns or if it will remain a second-order player.
Tom Blomfield, the chief executive, is hugely admired by other founders and across the European startup world.
Monzo has done a good job of removing the hassle from managing finances while also crafting an image as “ethical”, with features like an optional gambling block (used by 140,000 people) and customer-centric service —for example allowing users to get their salary a day in advance of being paid.
Despite its fans and unicorn valuation, however, the bank is renowned for its “disrupt-now-and-make-money-later” approach. Monzo’s losses climbed to £47.2m in the fiscal year ending February 2019 (compared to Revolut, for example, which reported a £14.8m loss for 2017).
The widening losses are driven largely by a near-tripling in personnel costs as the company increased headcount from 300 to 713. Blomfield says losses will likely rise further this year thanks to a £20m marketing drive.
But, while sceptics of its business model abound, there are some positive financial signs as well. Monzo says it has stopped burning cash on new customers because people are increasingly starting to use the app-based bank as their main provider (crucial for any neobank).
Monzo’s latest annual report said the proportion of customers depositing salaries reached 30% by the end of February 2019, up from 12% a year earlier. Total customer deposits rose more than sixfold to £461.8m, while customer numbers almost trebled to 1.6m.
The company’s “per-user contribution margin” — basically money made or lost on each customer — reached £2 by the end of February, from -£30 a year earlier. Earlier this week Monzo announced a £113m investment that valued the bank at just over £2bn.
Still, internal research at Barclays shows Starling is growing at a similar pace taking into account its belated app-launch. Meanwhile, First Direct, a digital division of HSBC that launched in 1989 has 1.45m users.
Led by Anne Boden, Starling can also claim a robust deposit base, having now hit £1bn in customer assets. That suggests a healthy number of customers are using the bank as a primary account rather than as an ad-hoc spending tool.
In comparison, digital competitor Revolut reported £902m in deposits last year — despite having six times the number of customers. Starling is also reportedly on-track to reach profitability by the end of 2020, a rarity amid the challengers.
Starling also has a thriving banking services division (making its infrastructure available to third parties) and also a marketplace for third-party financial products.
Led by Nikolay Storonsky, the company has around 6m customers, up from 1.5m a year ago, and is adding around 16,000 accounts a day. It has around 1,200 employees compared to 400 a year ago.
The last fundraise, in April 2018, valued the company at $1.7bn but the company is expected to target a valuation of around $5bn to $10bn for its next funding round, which could be as much as $1.5bn ($500m in new equity and a $1bn convertible loan).
There are even reports that Japanese investment giant SoftBank might invest, although Storonsky refused to comment when asked by Sifted: “We speak with many big investors.”
However, amid this fast growth Revolut has also been stung by a series of negative articles pointing to teething problems at the bank and an allegedly toxic corporate culture. Tech publication Wired described a workplace where turnover and bad behaviour is rife, while The Telegraph newspaper in the UK said that the company turned off a system designed to prevent money laundering for three months in 2018, something that Revolut denies.
Still, public perception of the bank is improving and the growth numbers are nothing short of exceptional. One next big move for the company is formally launching a retail product in the US in the latter part of 2019. But further acceleration would come if the company bags a $1.5bn investment.
Now it is so much more, thanks in part to an acquisition-heavy strategy that has seen it expand into a wider range of financial products. In 2018, the company expanded into longer-term investments thanks to a partnership with Vanguard and in 2019 it bought pension specialist Fairr.
Raisin says it considered building its own pensions product but concluded it would take two to three years to do. Fairr, founded in 2013, has already developed a dashboard to make the complex German pensions system easier for customers to understand. Fairr was the second acquisition for Raisin in 2019, following the acquisition of MHP-Bank in March.
The company, which is led by Tamaz Georgadze, is feeling pretty plump with cash after raising €25m from Goldman Sachs in August 2019 on top of a €100m Series D round three months before. Business-wise, Raisin now has more than 84 partner banks from 24 countries and eight platforms covering all of Europe and the UK.
Frank Freund, cofounder and chief financial officer, told Sifted earlier in 2019 that the company was eyeing up the retirement market for potential businesses to buy next. One of the big questions for the company is how well it can execute on its acquisition strategy. The company’s US platform launch is also planned for 2020.
Companies pay GoCardless to collect direct debits from customers on their behalf. It then takes a fee of up to 1% from those transactions and in return also provides data to help businesses retain their customers for longer.
The company is processing $10bn in payments annually for more than 50,000 organisations in the UK, Europe and Australia (for example enterprise software company Sage, travel site TripAdvisor and fitness company Les Mills).
GoCardless’s cofounder and chief executive Hiroki Takeuchi is hugely respected in the London startup world, not least because of his return to the business following a life-threatening bike accident in 2016, which left him paralysed from the chest down.
The big question for the company is how its move outside the UK into international markets, notably in the US, will go over the coming year.
The fintech companies that provide the payment hardware and software can make a cut on each transaction and generally win pretty sticky customers, so competition is fierce in this lucrative market.
Three of the market leaders are Sweden’s iZettle, which was bought by PayPal last year, Silicon Valley’s Square and SumUp in the UK.
Of the three BBVA-backed SumUp has the lowest valuation ($1bn compared to $26bn for the listed Square and $2.2bn for iZettle at the time of acquisition) but it is still a big UK fintech.
Since it was founded in 2011 SumUp has successfully expanded into 31 markets and has over 1m customers, helped by a merger with Rocket Internet’s Payleven in 2016.
SumUp claims more than $200m of annual revenue and has recently made several acquisitions, including Danish company Debitoor and “multi-channel” e-commerce platform Shoplo.
SumUp now also does invoicing, bookkeeping, third-party integrations of payments and more. The big question is how long it can remain independent and if it can keep fighting with the bigger rivals.
Numbrs is one of a range of companies in Europe offering an app to aggregate customer’s bank accounts apply for bank accounts, credit cards, loans and insurances directly within the app.
The company now claims over 2m downloads and more than €10bn in managed assets.
The startup is backed by some big names, including former Deutsche Bank chief executive Josef Ackermann, and has relied more on private money than venture capital money. This has given it a lower profile, but the chief executive says that means they have the space to think more long term.
London & Warsaw, U.K. & Poland
Tel Aviv-Yafo, Israel
Please check out our jobs board to see some of the compamies hiring from this list.
NB The Dealroom data about employee growth is mainly from LinkedIn, and so is not perfect (people may not always update their profiles when they move jobs, for instance). But it gives some idea about the rate of change from 2018 to 2019. We have classed 0%-20% growth as “staying level”, 20%-100% growth as “growth” and 100% plus growth as “hyper-growth”.
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