FINTECH BRIEFING: Europe's fintech funding boom - BBVA ramps up open API platform - UK regulatory bodies push competition
Welcome to The Fintech Briefing, a morning email providing the latest news, data, and insight into disruptive fintech in the UK and Ireland, the Continent, and beyond, produced by BI Intelligence.
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EUROPE'S FINTECH FUNDING BOOM. The UK took £647.5 million ($901 million) of the £8.9 billion ($12.5 billion) that was invested in fintech globally last year, according to data gathered by Pitchfork on behalf of Innovate Finance. Five other European countries combined took £790 million ($1.1 billion).
- Two of the top 20 global fintech deals were from the UK. Challenger bank Atom raised £90milion ($125 million) and peer-to-peer lending platform Funding Circle raised £97 million ($150 million). Three other UK fintechs, all specialising in money transfers and FX, raised over £36 million ($50 million) each. These five deals highlight the three biggest verticals in UK fintech at the moment which together made up 74% of investment volume.
- Germany is becoming a major player. The Innovate Finance report revealed Germany received €751 million ($825 million) in fintech investment in 2015, second only to the UK in Europe. Over half of this investment has been in credit and lending fintech, and there is a growing focus on B2B fintech in the country, according to EY. Long seen as a conservative bastion of Europe when it comes to finance and regulation, it looks like Germany will be the first country where fintech is driven by corporate, rather than consumer, demand. There is also no obvious centre for fintech in Germany - as London is for the UK - so it would be wise to keep an eye on both Frankfurt and Berlin.
- Fintech funding by financial institutions is growing. 25 fintech-related deals had investment from corporate VCs last year, also according to Innovate Finance's report. The interest among incumbents in the banking industry towards investment in fintechs is a key indicator that they have accepted they cannot compete with fintech startups solely with in-house innovation.
BBVA RAMPS UP OPEN API PLATFORM. The Spanish bank has created the position Head of Open APIs and rehired a Simple executive to fill it. Shamir Karkal was CFO and co-founder of Simple, the digital-only bank BBVA acquired in 2014, and his first responsibility in his new role will be to build BBVA's Open API platform.
- BBVA is ahead of the game. The European legislation known as PSD2, which will confirm the introduction of the much talked about XS2A provision, requiring banks to open up their data to third parties through APIs, is due to become law in 2018. Banks will therefore have to build APIs to the prescribed standard by that date. Some banks are aiming to simply do the minimum to obey the law, but in building its Open API platform BBVA is actively embracing the opportunity it sees PSD2 presenting.
- Bank/startup collaboration is the key message. BBVA will begin by inviting a few selected partners in Spain into a closed Alpha to help with the development of the platform. This gives the partners, who will likely be in areas such as biometrics, P2P, and personal finance management, access to BBVA's huge resources, and BBVA access to innovative ideas and talent. It all adds further weight to the idea that the way forward in financial services is collaboration between new entrants and incumbents.
- The benefits of APIs are yet to be confirmed. BBVA is working on the principle that by building its platform alongside third parties it will avoid being disintermediated by those third parties in the future. There is no clear guidance from the EU on whether banks will be able to charge third parties for access to their APIs at present, meaning big banks currently building APIs and partnerships are doing so without knowing whether it could eventually provide direct revenue or a strong business opportunity.
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UK REGULATORY BODIES PUSH COMPETITION. Both the Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR) made announcements this week - UK Fintech Week - aimed at further increasing competition in the UK financial services sector. The UK was also found to have the most supportive regulatory framework among countries leading in fintech by Ernst & Young (EY).
- FCA to offer more services through Project Innovate. The FCA is a champion of innovation and its Project Innovate service is designed to help startups with new propositions navigate the regulation process. It also helps the regulatory body get processes in place to make it easier for future startups to ramp up and meet regulation requirements. They plan to expand the service to include a live testing environment (The Sandbox) where small firms can test new products, with real consumers and crucially, oversight from the regulator.
- PSR recommends banks sell stakes in payments systems. The major payments systems in the UK - Bacs, Faster Payments and Link are all controlled by Vocalink, a firm owned by a small number of large banks and other payment service providers. The PSR has recommended this situation end as it hampers competition. The idea that choice in infrastructure provider will make life better for service providers is valid, but exactly how multiple networks would work remains to be seen.
- Policy is a key strength for the UK. The UK's progressive and industry-led regulatory policy puts it ahead of the US, Germany, Australia, Hong Kong, and Singapore in creating a supportive fintech environment. In order to build and sustain a successful fintech industry, government bodies must be supportive and open to change or risk losing out to more welcoming geographies.
Around the world
Australia's nascent fintech industry gets a boost. The country has recently seen the formation of Fintech Australia, an industry body made up of startups, incubators and investors, and a separate government advisory group made up of names from established financial players. Australian banks have been relatively quick off the mark in innovation, but the country has lagged behind the UK and US in encouraging a startup market.
TransferWise partners with Number26. The UK money transfer service announced a partnership with the German digital bank enabling Number26's customers to leverage TransferWise's services within their existing app. Transfers will be available from the Euro into eight currencies (US Dollars, British pounds, Swedish krona, Indian rupees, Australian dollars, Hungarian forints, Swiss francs, and Polish zloty).
Stripe wants to help foreign businesses launch in the US. The new service, Stripe Atlas, will help successful applicants incorporate their company, open a business bank account, accept payments, and get tax and legal advice.