Digital challenger banks have raised more capital than any other FinTech vertical in Europe, totalling nearly $500m since 2015. Mired in controversy, acquisitions, mega-rounds, and mega-write-downs, challengers are now headline news in tech/business press on a weekly basis.
These European phenomena are enabled by new regulations that make it easier than ever to start a bank. Will this emerging breed of challengers displace high street banks? Read on to learn more about:
- NPS of European incumbents and challengers
An overview of online-only, VC-backed, and branched challengers — and who is funding them
- Regional and demographic customer surveys, bank ROE, rates for savers
- The fee structure of 8 challengers and 5 incumbents
Public challengers: Metro Bank, Shawbrook, Aldermore, Virgin Money
- An overview of PSD2, a regulation that enables digital challengers
- How incumbents BBVA and Santander are “fighting back”
- Standouts in UI and App store rankings
- Global mobile banking adoption
- Predictions for 2017
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2. 88
80
73
6259
50
35
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221917
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-6-8-10-17-22-24-41-42
2
Low NPS creates opportunity for challengers
1
Customer Loyalty in Banking, NPS Benchmarks, Net Promoter Score Ranking (Germany), Lloyds Annual Report, First Direct, NPS Benchmarks, Redpoint, UK Brand NPS
NET PROMOTER SCORE IS THE LEADING CAUSE OF BANK SWITCHING1
CHALLENGERSINCUMBENTS
AVERAGE
UKBANK
3. 3
Newly formed banks rush in
A new landscape: Challenger banking annual results , Zopa
VC BACKED
WITH BRANCHES ONLINE ONLY
4. £131b £25b£39b£53b £43b
4
To capitalize on a £300b opportunity
Lending assets of the (UK) big 5 decrease 5% YoY
Challenger bank lending assets grow 30% YoY
Market cap of the UK big 5
6. 6
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 Effencies
36bps
108bps
Challengers Incumbents
4.6%
17%
Challengers Incumbents
7. 7
While digital challengers refine their business model
Interest rates
Product features
Ease of opening
1
2
3
United Kingdom
1
2
3
Germany
Fees
Ease of opening
ATM locations
1
2
3
USA
Fees
Branch locations
Product features
Customer Loyalty in Banking
“Quite frankly I couldn't find a business model that was compatible with customer expectations"
-Carlo Gualandi, CEO
TOP 3 CUSTOMER PRIORITIES
8. Account
Foreign
Purchase Fee
Foreign
Withdrawal Fee
Monthly Fee
£1.25 2.75% £5
2.99% + £1
1.5% (min
£2)
2.99% £1.50 £3
2.75% 2% £0-5
2.75% min.
£1
2% min. £2,
max £5
8
And compete on fees
Account
Foreign
Purchase Fee
Foreign
Withdrawal Fee
Monthly Fee
Free in EU Free in EU -
Free £1.50 -
£1.25 + 2.75% 1.5% (min £1.99) -
2.75% 1%
0.50% 0.50% £5
Free 1.7% €0-5,90
Free Free -
Revolut Free Free-2% -
N26 Pricing, Money Saving Expert, Overseas Card Charges, Monese (subject to change)
CHALLENGERS INCUMBENTS
9. 9
Challengers acquire customers more efficiently
Neo Banking
FAST ONBOARDING BETTER MARKETING NETWORK EFFECTS
N26
Moneybeam
Monzo.me
payments
Monese e-mail
notifications
Performance marketing
Content marketing
Video KYC solutions
10. 10
PE backed challengers are lending off their balance sheet
£1.2b valuation at IPO
700k Customers
Growing 40% p.a
Lending £3.5b annually, +123% YoY
£5b in deposits, +78% YoY
UK based, w/ local branches
Founded in 2010
$200m+ in private funds raised
Branch-based challenger Metro Bank valued at £1.6bn on IPO,, Shawkbrook 2015 Annual Report
£725m valuation at IPO
Lends to 60k SMEs and consumers
£1.6b 2015 originations
£80m profit before tax
Total assets of £4b
UK based, w/ local branches
Founded in 2011
$200m+ in private funds raised
£650m valuation at IPO
Targeted towards SME’s
Growing 42% p.a
£300m in revenue
£105m in operating income
£78m net income
Founded in 2009
£62m+ in private funds raised
£1.25b valuation at IPO
2.8m customers
Mortgage lender
Total customer balances +13% YoY
Profit before tax £127m
UK based, w/ local branches
Founded in 2011
$200m+ in private funds raised
5 CHALLENGERS FOUNDED SINCE 2009 IPO AT £500m+
11. 11
While VC backed challengers pursue a marketplace model
Asset
Management
Currency
Transfer
And charge success fees for completed transactions
12. 12
The EU will roll out a major regulatory overhaul in 2018
Prohibition of card
surcharges
PSD will now include one leg
out (foreign) transactions
3rd party payment initiation,
push vs pull
Security of online payments
and account access
Extends the definition of
payment institutions
3rd party account access
What is PSD2?
13. 13
To increase competition, innovation and transparency
EXISTING BANKS PRIMARY
REVENUE STREAM IS LENDING
PSD2 LEVELS THE PLAYING FIELD
FOR DATA ACCESS, PAYMENTS
This could shift power toward digital players
15. 15
BBVA acquires a number of challengers
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
16. 16
Santander improves competitive position through product
Customer Loyalty in Retail Banking
Santander has simplified offerings, gone digital
18. 18
$500m+ has been invested into EU digital banks
Atom
Tandem
Starling
N26
Monzo
Monese
Osper
Ffrees
Pockit
0 75 150 225 300
$3.5m
$8.5m
$11m
$15m
$18m
$52m
$70m
$80m
$292m
CONSUMER CHALLENGERS
(FUNDS RAISED)
The Pulse of FinTech Q1 2016 Review, CBInsights
DIGITAL SMB CHALLENGERS
(FUNDS RAISED)
Fidor
Holvi
Tide
Kontist
0 1.25 2.5 3.75 5
$2m
$2m
$5m
$5m
19. 19
Consumer challengers
$300m in funds raised
$17m in funds raised
Harald McPike
QuantRes
$70m in funds raised
$80m in funds raised
$52m in funds raised
Pre-launch
Banking license
Pre-launch
Banking license
200k users
Banking linense
beta 85k users
Pre-paid card
Live 55k users
Banking license
$16m funds raised
20. 20
B2B challengers
Acquired by
Acquired by
3 minute setup
no monthly fees
finance tools
accounting
3 minute setup
no monthly fees
finance tools
accounting
Bank account for
freelancers
just launched
SMB bank account
Invoicing, accounting
connectivity
In beta
Bank account for
Targeting SMBs 3-30
pre-launch
1st digital bank in
Germany 100k+
Founded 1999
21. 21
Founders of challengers mix tech and financial services
CEO George Bevis
CEO Valentin Stalf
CEO Matthias Kröner
CEO Joshua Reich
23. 23
2017 Predictions
More “horizontal” banks will
emerge, catering to a
specific customer segment
Challengers in continental
Europe emerge
Early movers are rewarded
with customer acquisition
costs that defy gravity
As VCs struggle to pick the
winners, late entrants
struggle to get funded
Incumbents spend to
improve their mobile apps
More strategic investments
from retailers as banks
become loyalty schemes
25. 25
Mobile banking adoption varies across geographies
0
15
30
45
60
China
Singapore
HongKong
Spain
USA
Australia
Norway
Poland
Sweden
Russia
France
Italy
Germany
UK
Finland
Denmark
Netherlands
27%27%
32%33%
35%36%37%37%38%38%
40%
43%
45%
49%
53%54%
60%
% OF RESPONDENTS WHO HAVE ENGAGED IN MOBILE BAKING LAST Q
Customer Loyalty in Banking