The global financial technology (fintech) market has been attracting significant investment in recent years as venture capital (VC) funds, banks themselves, stock markets and others bet that the rise of innovative technologies like artificial intelligence (AI), the blockchain, cloud computing, "big data" analytics and so on could significantly disrupt the market place in future years.
Investors like to get in early before growth takes off to fully realize the benefits of their capital backing, which is why CNBC previously ran a hot European fintech start-up 2017 list of firms to watch, but equally investors like a proven business model, which reduces investment risk.
These bigger fintechs could leave incumbent financial institutions (FIs) as mere utility infrastructure providers or transactional businesses if they don't respond to the more nimble front-end fintech challenge. Others may carve out a niche for themselves doing back-end processing in a more efficient manner than FIs which may outsource to them to cut costs if they decide they cannot match their technological prowess.
In no particular order, and with extensive research into the subject area, the global disruptive fintech firms to watch this year are:
Circle (Dublin, Ireland)
Circle is a social payment app that uses digital currency payments based on blockchain technology to make sending money locally and around the world more like texting and emailing. It competes with Venmo, PayPal and TransferWise and uses artificial intelligence (AI) machine learning techniques in its operation.
Circle is headquartered in Dublin, Ireland, where it was founded in 2013 by internet entrepreneur and founder of Brightcove, Jeremy Allaire (pictured), and Sean Neville, a former principal scientist at Adobe. It has raised $136 million so far in four separate rounds of venture capital investment and attracted backers such as Goldman Sachs, Accel Partners, Baidu, CICC Alpha, and EverBright. Last year's $60 million fundraising was led by IDG Capital Partners and Breyer Capital and is intended to help its Chinese market penetration. It has offices in China, Boston in the U.S., in the U.K., South Korea and elsewhere around the world, reflecting the 22 countries it's in.
Circle claims it has exceeded a billion dollars in transaction volume and has grown its global customer base by 300 percent last year, although this will obviously be from a low base for what is still a start-up, albeit one experiencing strong growth.
Trov (California, US)
Trov has raised $91 million so far in four rounds of venture capital investment from eight different investors, including Anthemis Group, Oak HC/FT, Gordon Bell and Munich Re's HSB Ventures arm, which led the latest and largest Series D (late stage) $45 million round of funding in April 2017. Japanese insurer Sompo's involvement will ease Trov's launch into Japan.
The on-demand insurance platform is headquartered in Danville, California in the U.S. and will rollout in its home country this year, following earlier launches last year in the U.K., with AXA as its underwriting partner, and in Australia with Suncorp underwriting. It is effectively the customer acquisition agent.
Trov has been an innovator in the digital vault insurance field which allows users to enter details about their personal belongings to a mobile phoned-based app that links with partner insurers who can provide cover for a laptop, camera, sports equipment, jewelry, collective household goods or other items entered into the vault. The digital vault stores the data and can enable instant service, bespoke options and dynamic real-time pricing to be offered, which moves as the value of the asset rises or falls.
An in-app AI chatbot can handle any claims procedure. Many others are following Trov's lead with similar insurance technology (insurtech) products. This is a subset of the wider fintech market, using many of the same technologies. Smaller scale European examples include France's CBien and BuzzVault in the U.K. Lemonade (see slide 7) is another big, similar player in the expanding insurtech field.
Trov was founded in 2012 by Scott Walchek (pictured) and co-founded by Mark Dowds and Jim Gemmell.
Deposit Solutions (Hamburg, Germany)
Deposit Solutions has received more than 25.5 million euros ($28.5 million) in venture funding from well-known European and U.S. investors such as FinLab AG, e.ventures and Valar Ventures. The open banking platform is also backed by Peter Thiel of PayPal fame who joined the Series B fundraising last July when it was valued at more than 110 million euros. Greycroft Partners belatedly joined too. The Hamburg based, German fintech founded in 2011 has 110 employees and additional offices in London and Zurich. Tim Sievers (pictured) is the founder and CEO.
The offering is in essence a network of banks. Some institutions called "client banks" may want to shed excess liquidity from their books in this era of negative interest rates from the European Central Bank (ECB) where a proportion has to be kept, costing them money. Other "product banks" on the network will want to attract retail customers to their high-interest savings accounts or other products. The agent in between can be Deposit Solutions. The fintech takes advantage of a European regulatory drive for open banking and data and the freeing up of application programming interfaces (APIs) so that newcomers can enter the banking market as data providers, challengers or other players. Yolt is an ING-backed retail banking competitor, which is focused more on customer acquisition. It too hopes to take advantage of these new open banking and data API-led rules that threaten to revolutionize the sector. Deposit Solutions owns a similar business-to-consumer (B2C) ZinsPilot retail brand that will compete with Yolt. This year ZinsPilot surpassed 2 billion euros in savings deposits transmitted. Clients for its core business-to-business (B2B) bank network platform include Deutsche Bank; FFB, a subsidiary of Fidelity International; and Close Brothers.
Ripple (San Francisco, US)
Ripple is a payments-focused blockchain technology fintech that has raised $93.6 million so far in consecutive angel, seed and Series A and B venture capital (VC) fundraising rounds from Core Innovation Capital, IDG Capital Partners, Santander InnoVentures and SBI, among others. It was founded in 2012 by Arthur Britto and Chris Larsen (pictured R, with CEO Brad Garlinghouse). Larsen previously co-founded and led Prosper, a peer-to-peer (P2P) crowdfunder.
Ripple started out as a payment protocol offering retail payment, foreign exchange (FX) and other end uses, but wants to grow effectively into a global network that can serve corporates, banks and others that need to transfer money globally. It uses blockchain technology, which is best described as a distributed ledger secured by mathematical algorithms that provides a record of events for multiple parties. Applications are numerous for the still evolving technology but include settlement, data storage for insurance claims, diamond authentication purposes, trade finance and payments. The ledger can be public, open source and available to all, as per the original bitcoin (BTC) cypto-currency ledger, or it can be a private "permissioned" chain that enforces standards and vets and manages invited participants.
There are many other blockchain ecosystems such as Ethereum and the Linux-hosted Hyperledger project and consortia such as R3. All of them rely on distributed ledger technology (DLT), which is the formal name for blockchain technology.
Ripple might eventually rival SWIFT for international cross-border payments, and is certainly gunning for this pivotal position in world finance. But that organization has its own global payments innovation (gpi) DLT Proof of Concept (PoC) third stage project, which is trying to catch up, to protect its incumbent position as the processor of global cross-border payments.
SWIFT's DLT PoC has its own rival collection of partner correspondent banks and uses Hyperledger instead of the Interledger blockchain variant system that Ripple replies on. Who attracts the banks and volume is likely to be the winner.
Onfido (London, UK)
Founded in 2012 by Husayn Kassai, Eamon Jubbawy and Ruhul Amin (pictured), three entrepreneurs from Oxford University, Onfido now has 145 employees. It exists to deliver identity verification to banks and others that need to on-board customers or staff in a compliant manner but don't want the expense of face-to-face meetings or complicated paper-based systems to prove compliance with money laundering, tax, employment and other such rules.
Onfido says it combines identity document uploads, facial recognition, geo-location checks and AI machine learning techniques to aid automation in order to authenticate that users are who they say they are, in an inexpensive manner.
It has raised £30.45 million so far in sequential seed, angel, and Series A and B rounds of investing and attracted money from Salesforce Ventures, IDinvest Partners, Talis Capital and Brent Hoberman, a co-founder of U.K. dotcom pioneer Lastminute.com, among others.
Lemonade (New York, US)
This insurance technology (insurtech) specialist has raised $60 million from Aleph, Sequoia, Allianz, XL Innovate, General Catalyst, GV (formerly Google Ventures), Thrive Capital and Tusk Ventures since its foundation in 2015. It was officially launched last year in its home state of New York, U.S., where it is now licensed to offer insurance policies to home owners and renters. California and Illinois have since followed and new markets likely await.
Lemonade is a licensed insurance carrier powered by AI automation and analytics and behavioral economics. It seeks to replace bureaucracy and brokers, some of whom invest in it, with bots and machine learning, providing instant online or mobile services and zero paperwork. It takes a flat fee and gives back any unclaimed underwriting profits to non-profit causes that policyholders care about. It uses technology in a similar manner to Trov (see slide 3), but initially at least is aiming for a different end use and target audience. However, there is nothing to stop diversification and encroachment into other potential rival's segments. The CEO (pictured) is Daniel Schreiber.
Next Insurance (Palo Alto, US)
Next Insurance is another insurtech that might end up competing with Lemonade and Trov (see previous slides) but for now is focusing on the small-to-medium business audience instead. It provides tailored, personalized policies based on an easy-to-use online or mobile customer interface that prioritizes a good user experience (UX). This is enhanced by predictive capabilities that utilize "big data" analytics, AI and other technology to target policies, prices, automation and service.
Founded in 2016 in Palo Alto, CA, by a team of serial entrepreneurs comprising of Guy Goldstein, Nissim Tapiro and Alon Hur (pictured), the commercial insurtech is already licensed in all 50 U.S. States. Its first six months of sales delivered 5,000 policies and over $1 million in revenue so far.
Investors have put in $48 million, with Ribbit Capital, TLV Partners and Zeev Ventures stumping up the seed money, followed by $35 million in a Series A (early stage) fundraising on June 20 from SG Ventures; Nationwide; the insurer Markel; and American Express. Munich Re's HSB Ventures arm led this latest round.
The combination of good UX and technology, in order to garner customers and data that incumbents do not possess the systems to gather, allied to insurance partners to actually deliver the policies, is what investors are betting will bring volume to insurtech firms such as Next.
Finxact Solutions (Florida, US)
An outlier that is still in the early stages of seed funding having raised $12 million in May this year is Finxact. But it is worth including the enterprise cloud-based core banking system provider here as one to possibly watch in the future due to the experience of its founders and backers. It may scale up to match the other larger fintechs listed previously.
Finxact CEO, Frank Sanchez (pictured), and his brother are ex-owners of Sanchez Computer Associates which was sold to FIS in 2004, where they subsequently went on to work, after they sold them their Profile core banking software. The pair also developed real-time software for banks in the 1990s, which may be useful as the U.S. at last moves towards a real-time fast payment infrastructure.
Finxact is designed to run as a cloud computing accessed service, hosted on Amazon Web Services (AWS). It's effectively a way of outsourcing the software to track, update and maintain checking accounts across multiple channels, potentially saving money for established mid-level banks and installation time for new challenger banks that want to get to market quickly. Both types of customer could benefit from enhanced IT flexibility as the core is built around a set of open application programming interfaces (APIs) that mean fintech specialist suppliers of mobile banking, risk management or other solutions can easily link to the system.
Funding so far has come from angel investors and Live Oak Ventures for the Jacksonville, FL headquartered firm. Rivals include Germany's Mambu, which also offers a Software-as-a-Service (SaaS) cloud-based alternative system, and counts the OakNorth challenger bank in the U.K. as a user.
Ant Financial (Hangzhou, China)
The second outlier is at the opposite end of the spectrum as it is huge with a valuation at the turn of the year of $60 billion and predictions of triple figures by year end. Ant Financial, formerly known as Alipay, is an affiliate company of the Chinese Alibaba e-commerce Group headed by Jack Ma (pictured) that is similar to eBay and its old "killer app" friend PayPal.
Ant's affiliates provide payment, wealth management, credit reporting, private bank and cloud computing services. Alipay, still a brand, is now the world's largest mobile and online payments platform and Yu'e Bao claims to be the world's largest money-market fund, with the Zhima Credit rating system enjoying a similarly dominant position in China.
The expanding Group offers numerous other technology-enabled financial services and has invested considerably in other companies, notably buying MoneyGram International for $1.2 billion in cash and stock on January 27. It also recently purchased fellow fintechs helloPay and EyeVerify. and took the lead in funding the ofo Chinese urban bicycle sharing platform that is the two wheeled equivalent of Uber.
Ant Financial raised $4.5 billion last year, a historic high for the fintech sector, in a Series B fundraiser that was backed principally by China Investment Corp (CIC) and China Construction Bank (CCB). In February this year, Ant raised a further $4 billion with a debt financing round of investment that exceeded expectations and will be spent on aggressive international expansion plans.
Ant Financial is the personification of how e-commerce and technology-led companies can carve out a financial services niche for themselves if there is no incumbent bank, payment processor or other firm providing the services that online, mobile tech savvy 21st century customers want. It illustrates how fintechs might take over the financial world.