European fintechs escape troubles afflicting established banks

[LONDON] When Swedish banking firm Klarna became Europe's most valuable financial technology startup last week, it was only the latest sign that digital finance has escaped the troubles afflicting legacy lenders.

Its latest fundraising gave Klarna, which facilitates online instalment payments, a US$5.5 billion valuation. European fintech companies raised US$3.3 billion in venture capital in the first half of 2019, up from US$1.9 billion in the same period last year, according to data compiled by CB Insights. In contrast, an index of European Union banks has dropped 39 per cent the past 18 months.

"Investors are drawn to it because it's the perfect blend of a huge, mature industry which, empowered by technology, can deliver vast returns, far in excess of what you see if you're starting up out of nowhere," said Ben Brabyn, chief executive officer of Level39, one of Europe's largest fintech accelerators, in an interview.

Here are a few other recent industry highlights and what to watch out for next.

Fintechs flout Brexit worries

London fintechs defied the Brexit gloom that descended on the the UK. Transferwise Ltd announced a funding round in May that valued the eight-year-old company at US$3.5 billion, up from US$1.6 billion in 2017. A few weeks later, online bank Monzo closed a new funding round doubling the startup's valuation to more than US$2.5 billion. Meantime, Revolut Ltd, while being eyed by regulators for possible compliance lapses, expanded into stock trading. They weren't all winners: shares of peer-to-peer lender Funding Circle Ltd have plunged 65 per cent this year.

IZettle's surprise PayPal sale

It was the midnight deal that surprised many - PayPal Holdings Inc purchased iZettle AB for US$2.2 billion in May 2018 the night before the Swedish startup had planned to price its shares in an initial public offering. Stockholm-based iZettle competes with Twitter co-founder Jack Dorsey's Square Inc, and Canada's Shopify Inc.

Adyen soars After IPO

Dutch payments processor Adyen NV hit headlines for two reasons last year. First, in February, it was announced the Netherlands-based firm would replace PayPal as eBay Inc's global checkout service. Then in June, it held a billion-dollar IPO and saw its shares surge 90 per cent in the first day of trading. The company, whose clients include Netflix Inc and Spotify Technology SA, is now valued at 20 billion euros (S$30.96 billion)

Worldpay's US$35.5 billion deal

As one of the world's biggest payments firms, Worldpay Inc handles about US$1 trillion annually - similar to Chase Paymentech. When Fidelity National Information Services Inc said on July 31 it'd completed its US$35.5 billion acquisition of the company, data compiled by Bloomberg showed the combined business will be the world's biggest in the processing and payments industry. It wasn't a bad day for Ohio-based Worldpay, which less than two years earlier had been a British enterprise snapped up for £7.7 billion (S$12.90 billion) by US merchant acquirer Vantiv.

What's next?

N26, the German mobile bank backed by billionaire Peter Thiel, announced in July it had extended its most recent fundraising round to US$470 million, at a valuation of US$3.5 billion. The company is expanding from Europe to the US, betting it can attract users from established lenders and credit card providers with free accounts, fewer fees and phone alerts.

Other companies to watch include Revolut, which despite multiple run-ins with controversy remains exciting to investors after it held one of the biggest fundraising rounds for a European fintech last year, and app-based banks Monzo and Starling, which are attracting customers at a rapid clip.

Further down the line is the UK's online lender Zopa Ltd, which its CEO Jaidev Janardana said in July could potentially hold an IPO in 2021.

"The valuations are encouraging but they're not enough. They're just an early indicator. The important numbers to watch are the customers," said Mr Brabyn. "We all need to step up to demonstrate the public value of what we do."

BLOOMBERG