The Startup tech businesses that are challenging incumbents
This year, PwC’s Global FinTech Report found that 88 per cent of global banks are worried about losing revenue to FinTech startups, and so they should be. Through transparency and personalisation, FinTech startups have introduced a different way of doing things that is fine tuned to the customer, encouraging them to turn away from legacy infrastructures. This, of course, hasn’t pleased the dominant players in finance, but in some ways, FinTech is fast becoming the saving grace of banking. According to PwC’s report, 82 per cent of banks are now looking to forge partnerships with startups, but who are the up and coming companies making the biggest impact?
Stripe is an Irish founded, US based FinTech company that grounds itself in code and design. It offers a similar service to PayPal, which would explain why it’s backed by PayPal founders Peter Thiel and Elon Musk. The company aims to set up the necessary infrastructure and security controls to process secure payment over the Internet. Stripe is suitable for both individuals and companies, claiming to be the best platform for running an online business. As testament to this, they raised $150 million in November 2016. Stripe is used to process payments in 25 countries, and notable clients include Target and NFL.
One of the more established players in FinTech is Nutmeg, a UK based business set up in 2011 that provides investment management services. Investments start from £500, and the more you invest, the lower the fee. Nutmeg is regulated by the FCA, avoiding some of the regulatory difficulties that have hindered startups in the sector. This month, the company teamed up with Fidor and Seedrs to make their products available to a wider audience. This represents the collaborative trend in FinTech in which businesses band together instead of with established banks.
Like Nutmeg, Stash helps users to manage their investments via smartphone. However, unlike Nutmeg, they pursue a ‘start small, think big’ ethos which allows customers to invest as little as $5. The service caters for modest budgets and those who are new to investing. This approach is clearly working, because the FinTech startup now has 300,000 users. In December 2016, Stash received $25 million in a series B funding round. Considering that the company was founded in early 2015, that’s an impressive turn around.
Headquartered in Atlanta and founded in 2008, Kabbage is a lending site for small businesses. Legacy banks are a hard nut to crack for SMEs, particularly when it comes to getting a loan. Startups like Kabbage offer an alternative, automated lending platform, connecting small businesses with funding opportunities. The startup earned a valuation of $1 billion last year, and has now teamed up with incumbent banking company Santander.
BillGuard works against hidden charges and fraud. The company was founded in 2010 to help users protect their money, and has recognised potentially fraudulent charges to the value of $60 million to date. Continuing the trend of alternative financial partnerships, BillGuard was acquired by peer to peer lender Prosper Marketplace for $30 million in 2015. The aim of the acquisition is to create ‘the ultimate financial well being platform’, keeping in line with the honesty and transparency of FinTech businesses.
Innovative FinTech businesses are clearly making waves in finance, but the way is far from clear. Unlike long standing banks, startups may find it difficult to establish initial trust with customers. As they don’t have the same history as legacy banking companies, it could be hard for them to stand on their own. The challenge for new FinTech companies is to break the traditional bond between customers and the banks they’ve been with for years. This isn’t so much of a problem when it comes to noncommittal millennials, but for the rest of the population it will be easier said than done. Regulatory uncertainty also put the brakes on FinTech expansion in 2016. However, if the growing influence and investment in startups continues at its current rate, then these potential problems will be overcome.