- We asked 5 top VC investors to pick out the hottest new areas in consumer fintech.
- Disrupting established finance institutions remains a core focus.
- They highlighted growth areas like influencer banking and financial services for freelancers.
- See more stories on Insider’s business page.
Europe’s challenger banks have made their move. Startups like Monzo, OakNorth, Klarna, and N26 have all landed sizeable blows on the traditional banking sector and begun to change how consumers manage their finances.
The flow of capital into these buzzy companies, which attract younger users with brightly-colored cards and fee-free trading, demonstrate just that. Global fintech investment topped $44 billion across 3,052 deals, up 14% on 2019, per a report by Innovate Finance.
What’s next in consumer fintech, according to the people who are betting on its future?
“A lot of these millennial-focused solutions can be considered the first wave, and they effectively educated the market on what was possible,” Luca Bocchio, partner at venture capitalist company Accel, tells Insider. “This has put us in a condition to expect more in other areas of financial services where we have been under-served. Other verticals are being attacked.”
Some venture capital investors say the insurance industry is eight years behind where these neo-banks are. Others say the trend of embedded finance will enable a crop of new, highly specialist fintech services to emerge.
“A lot of consumer fintech focused on unbundling existing financial services,” Lars Jornow, partner at EQT Ventures adds. “Now we are seeing a decoupling from that with more specialized solutions.”
As consumers get used to app-based banking, here’s where the future of consumer fintech lies, according to the expert investors we spoke to:
EQT’s Jornow cites portfolio companies including Willa, a platform that helps ensure freelancers are paid promptly as a good example of a company that provides a specific service to an otherwise underserved but valuable segment.
Jornow also suggests Stockholm-based early-stage startup Juni as another one to watch.
The business provides banking services specifically to e-commerce and online marketing professionals and companies by providing a debit card, centralized bank accounts, invoice and payment matching, and cashflow-management software.
“We’re seeing a non-stop disruption coming from personalization, and from that a specialization,” Yusuf Ozdalga, partner at QED Ventures, says. “You can integrate more services via an API meaning you can provide specific products.”
The growing world of embedded finance is behind this trend. Embedded finance sees new fintech players enabling any company to provide banking services beyond online payments, such as bank accounts, wallets, or loans — meaning anyone can become a fintech.
As one example of a niche area that’s growing, QED Ventures’ Ozdalga points to banking for influencers.
“This is a big trend we’re seeing as brands realize they need these influencers as a marketing channel and it’s getting competitive,” he says. “The big differentiator then becomes, ‘how do I become a bank for them?’ so you monetize future receivables from their Youtube channel, for example, you can give them financial products that they specifically need.”
Financial services for the creator economy is an area of interest too for Remus Brett, a partner at London venture capital firm LocalGlobe, who says the fund is actively looking at the sector as Gen Z and millennial influencers increasingly make primary or secondary income from platforms like TikTok and YouTube.
It may be tempting to consider the rise of now-familiar neo-banks like Monzo as old news, but investors say there is still plenty of room for growth.
“I still think there is so much upside in core consumer-led propositions,” LocalGlobe’s Brett says. “The core numbers at neo-banks like Monzo and Revolut are just getting started and the chasm between the incumbents and challengers is getting smaller.”
Revolut boasts around 13 million users while Monzo has around 5 million customers in the UK. By comparison, traditional banks like Lloyds and Barclays have 25 and 24 million respectively.
It’s a similar picture in credit and insurance, where broad-based propositions like Lemonade in the US and WeFox in Europe are taking on insurance giants, but still have a long way to go. “Things like embedded insurance are exciting but don’t forget that neo-brokers are barely touching 1% of the revenues of insurance giants like AXA,” Brett says. Lemonade’s revenue in 2020 was $94 million, while AXA’s was $118 billion.
As a market for consumers, insurance is “where fintech was eight years ago,” according to Ozdalga, who adds that new disruptive companies are transformative for users by making the process cheaper and more affordable.
This “fragmentation and segmentation” of insurance products is a major positive, Bocchio adds. He points to Accel portfolio company Luko, which provides home insurance, as one business where offering a simplified, digital-first product can have an outsized impact.
In Europe — where credit cards are historically less prevalent than in the US — new options are becoming available to offer smarter and cheaper routes into lending. Sweden’s Anyfin is one such example, according to EQT’s Jörnow. Anyfin allows users to refinance their existing loans through a dropdown menu which provides feedback on the given terms.
Consumer fintech can potentially better people who have poor or non-existent credit scores, says Leila Zegna, partner at early-stage fund Kindred Capital.
“The opportunity post-pandemic is to find profitable sectors within consumer fintech where there is a large and growing unmet need combined with a compelling business model,” she says.
“Many people are under-served by existing financial products that can enable a better quality of life, and it’s where technology can play a transformative role.”