The lure of consumer-focused fintech

Oscar Geen
20 November 2017

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Recent investments in Monzo and TransferWise are indicative of the growing prominence of consumer-focused fintech companies, which are competing for business typically dominated by high-street banks. Oscar Geen reports

New payment technologies have been disrupting both the consumer and B2B markets this year. Banks have been keen to work with the companies behind these technologies to modernise their service offering. However, not all the newcomers have been receptive to this arrangement. Private equity and VC firms have been backing companies on both sides of the split, and the sub-sector has produced some of the most interesting deals of the year.

On the one hand are companies that compete with banks directly. Monzo, Revolut, Transferwise and WeSwap are all consumer-focused financial technology companies that are attempting to take over services (including payment services) that have traditionally been provided by high-street banks. All four companies have received backing from VC firms in 2017.

Monzo was first to close in February, with the announcement of a £19.5m round and subsequently raised a further £71m in November. Meanwhile, Revolut (already backed by Balderton Capital) raised $66m in July. Both companies focus on developing more consumer-friendly payment and account management software and are looking to take over an increasing number of services from banks. As the name of the latter suggests, neither firm sees its product as an incremental improvement on traditional banking services, but a major paradigm shift.

Forex takeover
Foreign exchange startups Transferwise and WeSwap raised a $280m series-E and a £8m series-B respectively in November 2017. WeSwap said it will be putting the fresh capital towards accessing the corporate travel market. This approach is atypical of the B2B segment, where the focus has been on providing intermediary services or partnering directly with banks. Nordic Capital's sale of Bambora to Ingenico for €1.6bn was one of the most profitable and valuable exits of the year and was a result of this strategy. Bambora is a multi-channel electronic payment software developer with annual revenues of €202m that was created as the result of a buy-and-build strategy started in 2014.

Nordic Capital's Frederik Näslund described Bambora as "a great modern private equity success story" in an interview with unquote" at the time of the sale, when the GP netted a 5x return on its original investment. Bambora and its new parent Ingenico have partnerships with more than 230 banks. The original buyout had an enterprise value of €243m and, after 12 bolt-on transactions and the employment of an extra 400 people, the company recorded revenue growth of 20% and EBITDA growth of 30%.

The sector also produced a large-cap deal when Bain Capital and Advent International jointly acquired payment service Concardis in a deal that valued the company's equity at €700m. The deal has been classified under financials rather than as a tech deal, partly because of its history as a joint venture of German banks, meaning it is excluded from overall sector figures. However, a large part of the company's business model is developing both consumer- and business-facing software.

Software has been an important consideration in the payment services and consumer finance sectors for a while now and the examples above prove that GPs have been adept at creating value in these segments in both the mid- and large-cap ranges. However, in order to continue to do so they will need to ensure their portfolio companies' software is more efficient, secure and user-friendly than ever before. One thing is certain, software of this kind will not always be developed by banks.