Fintech Talk – May 25, 2016
This week saw another digital challenger bank, Tandem Bank, smash its crowdfunding target within minutes as investors continue to show their support for digital challenger banks. Despite not having launched yet, Tandem Bank raised over £1 million in just 20 minutes through crowdfunding platform Seedrs, with the high demand from pre-registered investors leading to a "momentary glitch" on the Seedrs website. Tandem Bank was granted a banking licence at the end of 2015 and is expected to launch by the end of this year. Tandem’s successful raise, alongside the emergence of other challenger banks, including Atom Bank and Mondo, demonstrates the increased level of disruption to existing high street banks and the number of customers taking up internet and mobile banking services. If you’re interested in hearing more about Tandem and its founders, Michael Kent and Ricky Knox, feel free to listen to this FinTalk podcast sponsored by bobsguide, GT News and Payment Eye.
Speaking of fundraising, a Paris-based insuretech start-up, Shift Technology, that users artificial intelligence to help insurers detect fraudulent claims, has raised $10 million in a round led by Accel Partners, Elaia Partners and Iris Capital. Shift’s funding round comes as venture capital firms increase their focus on companies that are trying to tap into the insurance market by helping large institutions transform the way they distribute products, calculate risk and manage claims. While the insurance industry is larger than banking in terms of revenue (by nearly $1 trillion according to a recent report by Commerzbank’s venture arm), it lags behind in terms of digital adoption and investment by venture capital firms.
That said, there are signs that more money is flowing in. According to data provider CB Insights, insurtech companies raised $2.65 billion in funding from venture capitalists in 2015, more than three times what was raised in the previous year. While the majority of insurtech start-ups have so-far focused on helping large insurers modernise the way they distribute products, many are also looking at ways to simplify the claims management process, with proposed solutions including tools that enable clients to carry out the claims process digitally or developing systems that enable instant payments as soon as claims are validated.
While interesting in themselves, the above mentioned stories are also particularly noteworthy in terms of the fundraising methods. This is particularly pertinent in light of recent stories in the British press around the fact that British banks are increasingly willing to scrap the accounts for fintech firms, small businesses and charities in a bid to cut the cost of regulatory compliance and anti-money laundering controls. According to a report commissioned by the Financial Conduct Authority, official crackdowns on money laundering have forced banks to work harder to ensure that they are not inadvertently letting dirty money into the financial system. The report also states that the higher cost of regulation has led banks to reject customers who are too small to be worth assessing for financial crime risks.
Alongside regulation and disruption, another area of fintech, and tech more broadly, that is widely discussed is tech hubs. In a byline article in City A.M., David Galbraith, Partner at Anthemis, a financial services venture capital and advisory firm, discusses why the firm was set up in London, New York and Geneva – rather than Silicon Valley. David states that Silicon Valley is filled with a countless number of wishful thinking, unicorn hunting VCs, but also notes that the market is already quite saturated and that there are more opportunities to identify successful companies elsewhere. He also highlights how the stringent regulation that financial services and tech companies face on the west coast hinders the investment in and the growth of tech companies – with exceptions such as Apple, Airbnb and Uber – and suggests that a tech company can excel anywhere in the world with the right network and connections.