The Future of Banking
Fintech trends and startups that will change the way we approach banking
The banking sector as we know it is ready for disruption. Who needs huge transaction fees, mountains of printed forms and long waiting times in our digital age? Technology and startups are already changing and hopefully optimizing the way we approach banking and traditional banking services.
According to a BI Intelligence survey from 2017, “71% of millennials say it’s very important to have a banking app and 60% say it’s very important to have an app to make payments.” While many traditional banks are not there yet to serve this need properly, fintech startups from across the world are ready to fill the gap.
This week we looked at some of the biggest trends in the financial sector, to give you an overview and to introduce you to Europe-based startups that are innovating on top of these trends and that are already profiting from the underlying changes.
Lending marketplaces for SMEs
Instead of borrowing money from traditional banks, more and more SMEs are using online lending providers and lending marketplaces. Compared to traditional banks, these solutions are often a bit less bureaucratic and less time-consuming. Three startups that are innovating in that space are: Spotcap, which operates as a direct lender to SMEs (already secured over €100 million in funding), Bitbond, which is a Blockchain-based SME lending platform from Berlin, and Barcelona-based LoanBook, a marketplace which focuses on the provision of working capital loans and other types of financing to Spanish SMEs.
Consumer Credits and Credit Scoring
Also for consumers, online lending marketplaces become more popular. Do you have a stable income, own some real estate, do you have debts? These are probably the most important and most common factors for banks and other financial service providers when it comes to estimate the credit-worthiness of a client. But actually, there are many more factors or approaches. Kreditech, for example, also measures some data points from social media platforms in order to evaluate if you’re credit worth or not. The German fintech startup not only does credit scoring, but also offers consumer loans. Another fast-growing company in that space is Barcelona-based ID Finance. The most prominent ID Finance assets is probably the smart data online lending service MoneyMan. An online lending service with more than 3 million registered clients. The idea behind MoneyMan is to help people to solve their short-term cash flow needs by providing a fully automated loan service operating round-the-clock.
In the future, blockchain technology might have a big impact on the global banking system. The implementation of the distributed-ledger technology has the potential to play a major role when it comes to payments, settlements or compliance. The blockchain’s key properties of decentralization, immutability, efficiency, cost-effectiveness and security might lead to the technology’s adoption across the entire spectrum of financial services. Although it’s an exciting concept, there are not so many working use cases for it yet. One example of a European startup using blockchain technology is the Estonia-based Funderbeam. The crowdinvesting platform uses blockchain to secure issuing tokens, trading tokens, keeping track of investors (cap table management) and clearing the trades. This way, the blockchain carries many roles that in traditional stock markets are provided by many intermediaries. It is the trust that intermediaries should represent and the trust is now built in technology — blockchain.
Cryptocurrencies will change everything and will democratize and decentralize the whole monetary system as we know it. That’s at least what my taxi driver told me last week. Let’s hope he’s right, when we think of all the money that is currently getting invested in that field. In the physical gold rush times of the past, companies selling shovels and gold digging supply made a lot of money. Today, this is also the case with cryptocurrency marketplaces. No matter if prices go up or down, they win. The leading and most basic cryptocurrencies marketplace is probably Coindesk, which was founded in 2013 by the London-based serial entrepreneur Shakil Khan. Coindesk lets you buy and sell Bitcoin, Bitcoin Cash, Ethereum and Litecoins.
Saving up money
Saving up money can be hard, especially if you don’t have a big salary. But there are more and more startups that set out to help consumers save up money. They haven’t replaced savings accounts or piggy banks yet, but they are on a good way. You want to grow your savings as well? One of the newest and most promising startups in that space is probably Madrid-based Arbor. It’s an automatic savings app with the mission of helping users save seamlessly without impacting their lifestyles. Users control how and when they want to save. Arbor for example offers to round up all card and bank transactions to the next euro. All these little amounts are then going into the user’s savings account. With Arbor you can also just set up recurring savings transfers. For example by choosing to save up €5 every Tuesday. The Arbor solution integrates with the user’s existing banks which means they don’t even have to change banks.
Equity Crowdfunding for Startups and SMEs
Another alternative financing form which gets more and more popular is equity-based crowdfunding. Instead of raising money from traditional venture capital firms or getting a loan from your bank, you can offer some shares of your company through platforms like Seedrs, Crowdcube or StartupXplore. Of course it still needs some time and efforts to create a successful funding campaign, but some standard due diligence processes and most of the bureaucratic steps are handled by the crowdfunding platform. Most importantly to note is, that it’s not necessarily easier to raise funding via a crowdfunding platform, but in many cases it will happen faster compared to traditional fundraising.
International money transfer
Are you also annoyed of huge transaction fees and long waiting times when it comes to international money transfer? With Transferwise and other solutions, this is now a thing of the past. London-based Transferwise was founded by Estonian entrepreneurs in 2011 and today is headquartered in London. The fast-growing fintech company makes sending money overseas up to 8 times cheaper than traditional bank, and their borderless account allows you to manage money in 28 different currencies. The Transferwise team aims to provide the fairest, easiest way to manage your money internationally.
With mobile banking, you can do most of the things you can do with your regular bank account, but all on your smartphone. For example with apps like N26, Revolut or Atom. With those modern banking providers, opening a new bank account takes less than 10 minutes and can be done directly from your smartphone. Users receive a credit card to pay cashless or withdraw cash all around the world. They can block or unblock their card with a simple click and send money instantly to friends and contacts. And it’s no secret that the mobile banking space is really booming right now. Earlier this month the UK-based mobile bank Atom raised £149 million in funding led by Spanish bank BBVA. This week, the Berlin-based mobile bank N26 raised $160 million to accelerate growth in the US and the UK.
Conclusion — the future of banking
It’s of course hard to predict the future of banking, mostly due to the yet untapped potential of the blockchain technology. But with traditional banks and startups exploring innovative use cases of decentralized financial solutions, there will be certainly big changes coming, which will completely transform the way how consumers and businesses access/use banking services. And most likely it will not be the Deutsche Banks or BNPs of the world which will be leading that field in the future, but probably a fintech startup that is just getting started.