By Jeppe Zink, Partner
Bricks and mortar banks have long been an easy target for fintech companies, with their low propensity to innovate and lack of customer service. Challenger banks, like Atom, Starling, Tandem and Monzo, are building from the ground up to do things differently. Putting the customer first, and providing accessible and attractive products.
But building a bank is not easy. Sophisticated and diverse product offerings, consumer trust, and security are three vital components. And in this regard, the incumbents often have a head start. Our learning from many of the investments we have made in this space, has been that the better relationships between fintech company and incumbent, to the benefit of both parties, is often less combative and more collaborative. In our portfolio, we have seen AukaPay partnering with Sparebank1 in Norway to provide a white label payments app, MarketInvoice joining forces with BNI Europa to enable SMEs to access more working capital on its platform, Crosslend working with institutions to provide investment opportunities in consumer loans, and iZettle in successful partnership with Santander. And when talking challenger banks, we can’t forget to mention BBVA’s acquisition of Holvi last year.
This trend of collaboration has also been clear on the P2P lending side, where we have seen a shift from individual to institutional lending, along with banks increasingly approaching third party platforms with a view to partner with them. While P2P lending still represents a small proportion of total lending volumes, in the UK, originations grew 36% YOY in 2016.
This is our thinking behind our recently announced investment in Zopa, the world’s oldest, and Europe’s largest, P2P consumer lender. With its announcement that it is applying for a banking licence, Zopa is approaching bank building from a different base to the other challenger banks, and a case in point of collaboration with the incumbents. It has spent the last 11 years developing its product and relationships with consumers, investors and banks – while achieving better customer satisfaction ratings than traditional banks – and is now a fully profitable business. In January, it became the first UK peer-to-peer lender to reach a record £2bn in lending on its platform.
We are no doubt at an exciting point in time for the development of challenger banks, and we are interested to see how the spirit of collaboration will help shape the industry in the coming years.
Northzone is a VC fund investing in early stage, fast-growth companies across Europe and the East Coast of the US, from its offices in London, Stockholm, New York and Oslo. In 2016, Northzone raised its eight fund, NZVIII, at EUR350 million. It has invested in companies like Spotify, Klarna, iZettle, MarketInvoice and Zopa.