European FinTech Trends 2017

www.frontline.vc
June 2016
Sept - 2017

European FinTech is on track for a record year
€500b
€1075b
€1650b
€2225b
€2800b
2013 2014 2015 2016 2017
£2,637m
£1,902m
£2,160m
£1,415m
£924m
2013 2014 2015 2016 2017
136
193
284
375
466
DEAL #
FUNDING $m
£4,096m
(FULL YEAR RUN RATE)
CBinsights Europe FinTech Trends 2017

As EU FinTechs raise fresh funding
Private Equity
$225m
Growth
€110m
Series B
$20m
Series C
$40m
Series D
£20m
Series A
$11m
Series A
$10m
Series D
£20m
Series B
€21m
Series D
£20m
Series E
£32m
Private Equity
€30m
Series C
£20m
Series A
€10m
Venture
€19m
Growth
$40m
Series F
$100m
Series A
$10m
Series C
€17m
BIMA
Series C
€10m
Series B
£15m
Crunchbase Pro

And big winners emerge throughout Europe
CBinsights Europe FinTech Trends 2017
$598m
$373m
$281m
$266m
$193m
$146m
Funding
$2.5b
$1b
$500m2
$2.3b
$500m
-
Valuation HQ
18%
5%
7%
9%
16%
44%
UK Germany Sweden
Ireland Switzerland Other
EU FinTech Investment by Country

5
Intro: Key topics covered in this deck
Online Lending
Banks & Neo-Banks
Banking APIs
Asset Management
Foreign Exchange
Payments
Insurtech

Challenger banks continue to gain market share
6
Low NPS (a UK average of +2) encourage
startups in the banking space
250k
500k
1.1m
30m
# Users
6259
50
35
27
52
-6-8-10-17-22-24-41-42
AVERAGE
UKBANK
Challengers still a long way
from incumbent user base
Challenger Banks in Europe, Frontline Ventures

Online lending continues to grow, despite fears
7
2Q 15 3Q 15 4Q 15 1Q 16 2Q 16 3Q 16 4Q 16 1Q 17 2Q 17
£8.3b
£7.5b
£6.4b
£5.7b£5.8b
£5.1b
£4.3b
£3.7b
£3.1b
Lending reported by the the P2PFA
Funding Circle Statistcs

Regulation enables API centric banking
8
Railsbank
Global banking
access
Banking OSBanking APIsFully licensed
bank of banks

Asset management tech companies pursue partnerships
9
Robo-advisors pursue partnerships as scale is hard to achieve
Integration
Strategic
investment

Competition heats up in foreign exchange
$185m
$116m
$119m
$100m
$24m $19m
$10m
Many well funded players
Revolut offers free FX
(subject to £5k per
month fair usage)

And big exits take place in the payments space
11
Acquired for £9.1
Payments continue a wave of tremendous consolidation
after the acquisition of £16b Visa Europe in 2016
Acq offer for $3.9b
Acquired for £700m
Acquired for $1.5b

13
LendingClub, stumbled and yet to recover
LendingClub Statistics
1.5 years after CEO was ousted for
inﬂating loan originations,
LendingClub is yet to recover
Stock is down 75%
since IPO, ± unchanged
for the past year

1Q
15
2Q
15
3Q
15
4Q
15
1Q
16
2Q
16
3Q
16
4Q
16
1Q
17
2Q
17
$464m
$573m
$631m
$612m
$589m
$569m
$556m
$482m
$419m$416m
14
SMB focused OnDeck also experienced an originations slump
OnDeck originations
experience slump in 2017
Stock is down 75% since IPO,
± unchanged for the past year

15
US consumer online lending collapsed in 2016
Valuation drops from $1.9b
to $500m as origination
volumes fall 45%
US online lending platforms suffer fall in volumes
US Consumer Loans by Online Lenders
2013 2014 2015 2016

However, US Online lending overall is growing since 2011

17
So who is winning? Goldman Sachs, SoFi
https://www.ft.com/content/50c1faf6-6a3b-11e6-a0b1-d87a9fea034f
Time to €1b in loan originations
8 months 14 months 28 months 65 months 98 months

The UK is experiencing tremendous growth as well
18
3Q 15 4Q 15 1Q 16 2Q 16 3Q 16 4Q 16 1Q 17 2Q 17
£8.3b
£7.5b
£6.4b
£5.7b£5.8b
£5.1b
£4.3b
£3.7b
Lending reported by the the P2PFA
Funding Circle Statistcs http://p2pfa.info/p2pfa-publishes-second-quarter-lending-datahttp://p2pfa.info/peer-to-peer-lending-data-for-second-quarter-2016

EU market leaders maintain market position (unlike in the US)
19
Jun 2017
Raise ₤32m to pursue
banking license
Jan 2017
$100m raise at $1b
valuation
Competitors emerge, raising £50m+
in funding in the past 12 months
₤9m Series B
₤2.5m Seed
₤21m Series C
€5.5m Seed

20
While some smaller players disappear
Lendico and Zencap displaced by auxmoney in Germany
Lendico, once valued at €140m, likely
acquired for a nominal sum by
institutional loan investor
Zencap acquired for an undisclosed
amount, recently reported poor loan
performance, roughly breakeven
across the life of the platform
Rocket Internet Sells Stake in Lendico Startup Funding Circle buys German startup Zencap from Rocket Internet for European expansion plans

21
Consumer debt per capita smaller in EU than in USA
1
Consumer Creidt & Payment Statistics, Philadelphia Federal Reserve, 2
Irish Central Bank, Household Credit Report 2H 2015. 3
The Money
Charity, UK Lending Statistcs 4
New York Fed: Quarterly Report on Household Debt and Credit. Consumer debt is ex-mortgages
$10,700
€3,500
£2,850
The average consumer
debt per capita
Reﬁnancing is the #1 use
case for online lending

Online lenders have reduced operating costs
22
Savings stemming from lack of
branches and more efﬁcient collections

And signiﬁcantly lower capital requirements
23The future of ﬁnance, rise of the new shadow bank. Goldman Sachs Research

Online lending to grow into trillion $ business
24
Projected Marketplace Lending Deals 2020
0
35
70
105
140
2012 2013 2014 2015 2016
China Origination Volume
United Kingdom Origination Volume
United States Origination Volume
300
250
200
150
100
50
BillionsofUSD
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
YoY Growth in 2014: 167%
YoY Growth in 2015: 200%+
Global Marketplace Lending: Disruptive Innovation in Financials, Morgan Stanley.Global Crowdfunding Market to Reach $34b in 2015, Mass Solution
• Morgan Stanely forecasts global
originations will reach $300b
• This would suggest $1trln in loans
outstanding in 2020
• Half of this growth has come from
china, where there has been
massive fraud
• Banks will acquire or build similar
platforms

25
Banks & Neo-Banks
Neo banks offer a banking like service, but (often) do not
offer the same guarantees and are not regulated as banks

26
Neo-banks are beginning to look like banks
Non-banks Banks
As neo-banks grow larger, they realise the quickest
way to proﬁtability is to become banks
New licenses!
“…You get a license to defy the laws of gravity…government guarantees, and
ability to increase leverage…it is a license to print money.” CEO, Atom Bank

27
While low NPS continues to drive growth
CHALLENGERSINCUMBENTS
88
80
73
6259
50
35
2827
221917
52
-6-8-10-17-22-24-41-42
AVERAGE
UKBANK
Net promoter score is the leading cause of bank switching

• It is cheaper, easier and faster than
ever to engage in banking activities
• Existing low customer satisfaction
creates an incentive to try new banks
• Bank partnerships (often) extend the
same deposit guarantees for
customers
• In the UK a number of ventures capital
backed banks launch on prepaid cards
• Easier on-boarding
28
And a perfect storm emerges for incumbents
Digital challenger banks by total
disclosed funding (€m)
MoneyConf, Madrid, Panel Discussion “How can banking become a level playing ﬁeld”
Atom
Revolut
Tandem
Starling
N26
Monzo
Tide
Monese
Osper
Ffrees
Pockit
0 75 150 225 300
$3.5m
$8.5m
$11m
$16m
$16m
$45m
$52m
$70m
$77m
$86m
$268m

29
Customers benefit from challenger efficiencies
switched from their bank in the past 12 months2
would consider banking with Google
financial products are not targeted at 18-34 year olds
A new landscape: Challenger banking annual results , The Pulse of FinTech Q1 2016 Review, CBInsights
59%
Bank ROE (return on equity)
Rates for Savers
Less Complex IT Systems
Simpler product set
Favorable regulation
Less costly real estate
No legacy compliance
40%
18%
Customer View
Challenger Efficiencies
36bps
108bps
Challengers Incumbents
4.6%
17%
Challengers Incumbents

30
Although N26 scales back on some free perks
MoneyConf, Madrid, Panel Discussion “How can banking become a level playing ﬁeld”
Last year we did a “case study” on N26 in our
“European FinTech Trends”. A lot has changed!
v
Through on boarding
and KYC services,
others offer similar
experience
A fair usage policy on
free perks
Increased competition
on services offered
Fees for excessive ATM
use (5+ withdrawals p/m)

Announced £50m Series B ﬁnancing round at a
valuation of £300m
Acquired 700k customers since launch 3 years ago
Offer free FX up to £5000 per month, powered by
CurrencyCloud
Does not have a banking license
Upsell a small portion of users to their premium
service for £7 that offers card + turbo transfers
Poor customer service
31
Revolut’s e-money account grows rapidly
Product is centred around
mutli-currency accounts
https://www.linkedin.com/pulse/how-do-customer-support-painful-lessons-from-adomas-baltagalvis

32
Challengers status quo
Atom - focused on
savers, no public
customer numbers
Expands to Europe
after raising $10m
Series A
Launched Current
account in March,
no public ﬁgures
Pre-launch250k users, launching
current account
Raised $14m
Series A
Acquired Harrods
bank, now with
£80m in despots
500k customers ,
banking license

34Customer Loyalty in Banking, Earnix New Survey Finds That Open Banking is a Game Changer for Millennials
(Consumer
banking data)
Banks FinTechs
APIs sit between banks and FinTechs, controlling ﬂow of data
APIs

35Customer Loyalty in Banking, Earnix New Survey Finds That Open Banking is a Game Changer for Millennials
Open use of data (open banking) expected to have big impacts
80%
Expect an increase in
competition as a result
of open banking
88%
Believe users will be
accessing services
through an aggregator
In a survey of 300 European bankers

v
v
36
A number of regional champions have emerged

37Yodlee S-1
FOUNDED: 1999
ACQUIRED: 2015
Founded: 1999
IPO: 2014, 1999
MRKT CAP (IPO): $340m
Acquired 2015: $590m
ORGANIZATIONS: 750
REVENUE: $70m
FLAGSHIP CUSTOMERS:
Banking APIs are a big business, pioneered by Yodlee

Robo-advisor assets under management are still small
39
Betterments AUM has grown from $3bn since Jan 2016 to
$8.5b in May of this year. Small relative to incumbents.
European Champions

Growth slowing in recent years
40
“Stand-alone ﬁrms will need $16b to $40b
of net assets to break even. Moreover,
[Morningstar] estimates…$1000 cost to add
a new account, after factoring in attrition,
and up to a decade to recoup marketing
costs.” - Joe Manseuto, CEO
The Pulse of FinTech Q1 2016 Review, CBInsights, Quote MoneyConf, Madrid, Panel Discussion “Distributed Money: The arbitrage game”, Does not compute, The Economist
“Products are extremely low margin. It will
be harder than the airline industry.
Competition is still increasing. People
coming in with competitive pricing.” Tamaz
Giorgadse, CEO, Raisin (cross boarder
deposits)

Companies acquired for tech
41The Pulse of FinTech Q1 2016 Review, CBInsights

Banks move into the robo-advisor space
42The Pulse of FinTech Q1 2016 Review, CBInsights1UK banks set to launch robo-advisors, FT
4 out of 5 largest UK banks plan to
launch their own robo-advisors

v
A challenging propositions for VCs
43The Pulse of FinTech Q1 2016 Review, CBInsights1UK banks set to launch robo-advisors, FT
Increasing
competition
Long CAC
payback times
Low
Differentiation
High capital
intensity

• Goldman Sachs Asset
Management (GSAM) has 1trln
in AUM.
• Betterment and WealthFront
have a combined $20b,
suggesting tremendous room
for growth
• Financial advisors have
historically struggled to build
tech, which could justify high
take out premiums
44
Wealth management attracts strategic investors
Blackrock makes
strategic investment into
scalable capital

₤15m Series B
45
Pensions largely untapped wealthhtech opportunity
Undisclosed seed
Automatic enrolment
+
Existing pension pots:
£2.4tn
Total pension assets in the UK
(2015)*
*Source: The Investment Association “Asset Management in the UK 2015-2016 report”

47
The FX market remains highly fragmented
Arma Partners FinTech Update Q1 2017

48
With a number of well funded players
$185m
$116m
$119m
$100m
$24m $19m
$10m
Arma Partners FinTech Update Q1 2017

49
Taking share from incumbents
2Q 2017 Earnings Presentation
Western Union sees declines in ofﬂine business

51
Acquired
for £9.1
Visa Europe
acquired for
€16.5b
Acquired
for £700m
Last round
valuation
$2.3b
2500 FTE
Acquired for
£1.1b
Market
cap £2.6b
Acquired for
€1.5b
€5.3b
market cap
High level of M&A activity

52
Strategic investment
from VISA
Plans to expand to
consumer lending
Strategic investment
in LendUp
Payment companies enter into the lending space
With better data, payment companies
are well positioned to make loans

53
Paypal moves closer to point of sale
Paypal launches credit card as
Apple, Samsung and Android
make progress in ofﬂine retail
“Cardholders can manage their accounts, redeem
Cash Rewards and make payments by logging into
their PayPal account, giving customers another
reason to access and use their PayPal accounts”

54
Out of 300m customers, 33m have
used amazon pay in 170 countries
Adding 1m customers per month
Over 50% are prime customers
Money 20/20 Europe 2017 - Day 2 Keynote -
14:00 Giulio Montemagno, Amazon Pay
“Online Giants are not sleeping…so who [are}
the giants? Is the European LendingClub? Or is it
Amazon…I think it is only a matter of years
before you have your bank account with amazon.
“
- Oliver Samwer, CEO Rocket Internet
Tech giants are also well positioned to compete

€500b
€675b
€850b
€1025b
€1200b
2012 2013 2014 2015 2016
£1,124m
£981m
£863m
£800m
£717m
55
2012 2013 2014 2015 2016
£345m £374m £406m
£467m
EBITDA
Revenue
12% Revenue CAGR
Worldpay acquired for £9.7bn
Worldpay ﬁnancials demonstrate consistent growth

2013 2014 2015 2016 2017
$88m
$129m
$13m$1m$13m
57
European insurtech accelerates from low base
6
11
23
30
39
DEAL #
FUNDING $m
$136m
(FULL YEAR RUN RATE)

58
A selection of new funding announcements so far in 2017
$10m Seed ₤2.3m Seed €2m Seed
€1.6m Seed ₤5m Series A €10m Seed
Price
comparison
Full stack
insurance
company
P2P
insurance
broker
Insurance +
connected
home
Health
Insurance
Robo-advisor
for insurance

59
Cybersecurity is one of most promising areas for insurtech
“Cyber crime costs the global
economy more than $400 billion a
year and the costs will continue to
grow” - PwC Insurance 2020 &
beyond**
Sources: *World Economic Forum – “Global Risks 2015, 10th edition”
**PwC Report “Insurance 2020 & beyond: Reaping the dividends of cyber resilience”
Cyber attacks are one of risk with
highest likelihood and highest
economic impact
59

Some interesting European Cybersec startups
Eliminates need for
passwords
Real-time cyber
threat identification
Stealth mode startup
which raised £14m
Managing
cybersecurity risk
Quantum-
computing, defence
grade security
Prevent sending
emails to wrong
people
Security
management
platform
Managing and
monitoring digital
footpring

Startups build on top of bank systems and are looking for partners
62
Startups partner with banks
Banks are partnering with
marketplace lending platforms1
1Proprietary Research, The Pulse of FinTech Q1 2016 Review, CBInsights
WiredCard supports Number26,
CurrencyFair and LinkedFinance
Bank Investments to VC-backed
FinTech Companies Q1’2015- Q2’2016
Goldman Sachs
Citi
Santander
Mitsubishi
JPMorgan
ING Group
Bank of China
China Development
Mizuho
Sumitomo Mitsui
0 2 5 7 9

63
US Based, 100k retail customers
$15m funds raised
Acquired for $117m
UK, Pre-launch
Banking license
$292m funds raised
Majority owned by
BBVA
Finish based
Founded in 2011
$5m in funds raised
Banks acquire tech companies

64
Case Study: Santander Bank
Agility
Risk Taking
Mindset
Customer Scale
Products
Infrastructure
Brand
Startups + Banks = Best of both worlds
Kabbage - Serving SMEs in the UK via 3m Santander SMB clients
ripple - Santander uses ripple for small sum currency transfer
Startups Banks

65Customer Loyalty in Retail Banking
Santander has simpliﬁed offerings, gone digital
Santander improves banking offering

Predictions for 2017-2018
67
Zopa or Funding
Circle ﬁnally go public
EU FinTech will see
its ﬁrst major
security breach
2017 will mark another
record year for online
lending volumes
3Q
15
4Q
15
1Q
16
2Q
16
3Q
16
4Q
16
1Q
17
2Q
17
£8.3b
£7.5b
£6.4b
£5.7b£5.8b
£5.1b
£4.3b
£3.7b

Predictions for 2017-2018
68
Consumer FinTechs
without strong organic
growth struggle
Challengers will
explore launching
credits cards
An EU bank announces
B2C lender, following
Goldman Sachs in USA

69
Twitter Medium Quora Twitter Medium

71
Expense management in 2017
Raises $2.2m in
Seed Funding
Raises $3.2 in
2nd Seed
Raises $11m
Series A

European FinTech Trends 2017

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