Banks are general supply shops from the 80s

FinTech Startups are booming – even readers of high street newspapers have come across news about early successes, big funding and massive market disruption by one or another player in this segment. There are good logical reasons for this development. And you can find them in the state of the banking industry.


The issue of most major banks until today is that they follow a strategy of a very deep and a very wide value chain. That means, they offer a huge variety of products, which they handle from IT to after sales support. And everything in between. They run the core banking infrastructure, pre sales, the core product, and after sales.

The products range from retail banking, private banking & wealth management, products for external asset managers like tax advice and private label funds, to internal asset management and investment strategy and research products. Further, most banks offer corporate banking (split between SMEs and large caps), treasury, FX, brokerage, leasing & factoring, global finance and transaction banking, transportation, fixed income, equity and M&A. In addition, retail banking, credit, mortgages, all kinds of saving products, pension products, investment products – and payment. The list could be extended both vertically and horizontally.

In short: banks offer a huge variety of deeply integrated products.

This makes it is easy to cut of some edges and start a highly specialized business. This is what we see every week now. We call them FinTech startups.

Not only is it easy to leave out some services that banks still run in-house (scoring, KYC, IT) around their products. But banks also offer this service in pricy real estate locations. They call them bank branches. Most of us have not set foot in one lately.

This opens a broad flank for highly specialized companies to target one product only. Dissect the offering, add a modern IT infrastructure (cloud, mobile, analytics, prediction, big data, a revamped contract / KYC handling), and sell it cheaper than any account manager in a nice suite could do. Online.

This is what we see in the current FinTech boom.

The width of banks horizontal diversification and the depth of value creation of banks is still archaic. Few industries have managed to cope with this structure as long as banks. Most industries have trimmed down to their core business by now. When you try to do everything, you don’t do anything right. This has lead to the fact that most retail bank product offerings are interchangeable, as no one is really bad, but no one is really good either. That’s where the brand of a bank comes into play to convince customers to go with one or the other offering. And if in addition you have a huge capex underlying, competing on price gets difficult, too. As even most vertically specialized banks still operate a big amount of their vertical activities themselves, there is a big chunk of optimization potential for newcomers in the operations alone. We see this in the competition of classical direct banks with mobile banks for example.

Let’s face it, overall banks today still look and feel like general supply shop from the 80s.

The specialization and disruption which we have seen in other industries (e.g. travel, traditional retail, communications) now accelerates in financial services / banking. Things started to change ten years ago slowly, but the acceleration we see in Europe over the last three years is impressive.

That is not a problem by any means. We have seen this disruptive development in other industries already – where highly specialized players and services have shifted to become complementary partners. Add the degree of digital technologies and user adoption to them, and you can explain what is happening in FinTech today.

We as VCs are happy to see so much disruption in the industry. Not all FinTech startups will be successful, but one thing is sure: some will. And banks will struggle to justify their existing cost structure, and margin business. It will take time to disrupt the industry to the degree that we see others being chopped up and put together again.

However, what we see right now is a race into all verticals of banks.

And it would be beneficial for banks to realize, that this is 2015.

Interactive map of the European FinTech landscape

We see the disruption in almost every traditional product offering of bank. We currently monitor 480 FinTech startups in Europe. Most of them focus on one category only. Others compete against banks – and against each other – in two or three categories.

Click here if you want to go directly to the graph.

To better understand the industry, we started mapping it. First we had lists. We soon realized that having a single dimensional list did not do justice. Our portfolio company for example does personal finance management within its retail bank account. And offers the functionality to send money easily from peer to peer. Hence it competes directly with peer to peer wallets. And with other personal finance management startups. Lists were difficult to maintain.


I then started to build mind maps. However, the end nodes of mind maps also only arch back to one category. So we had to duplicate startups and hook them to category nodes. Not very sexy.

Finally, I started to develop a view that I believe does justice to this multidimensional industry: a self sorting graph. Startups are hooked to the main categories they operate in. This allows to understand one category within FinTech, but also which startup competes with who.


The map is based on sigma.js (read this for more on this great JavaScript framework) and Force Atlas 2 (read this for the math behind it) – a graph layout algorithm on top of a JSON export fed by a MySQL database – I believe to now have found a great way of displaying the connection between the multiple startups within the European FinTech Industry.

Feel free to play around with it – please add startups that we missed – and give feedback to “schmincke at earlybird dot com”.

The 18 verticals in the European FinTech Ecosystem

Just like in the US, Europe is seeing a dramatic spike of activity in Financial Technology (fintech) Startups. After the wave of E-Commerce, Subscription Commerce, Customization, Social Gaming, Adtech and other themes – I meet a growing number of exceptional teams working on topics that disrupt banking, payment, insurance, investments – or ultimately create new financial products.

To give an overview, I want to group and classify the different types – I call them verticals though it might no be 100% correct – of financial technology startups. I can across examples of each of them, over the course of the last year.

This list is not exhaustive of course – but it should give a good feeling about what’s happening in Europe right now.

I. Payment

  1. Peer-to-Peer Payment
    e.g. payments flowing in real life from one user to the other. Could be crypto currency, bank account to bank account, or wallet to wallet transaction. Either as a feature of a product or the standalone USP of an app.
  2. Remittance
    e.g. sending money abroad easily, cheap and often circumventing existing offline infrastructures.
  3. B2B Payments
    e.g. transaction of payments between businesses, or optimizing working capital for businesses, or factoring of invoices.
  4. POS / Mobile Payment
    e.g. enabling payments electronically, often mobile phone bases, often using Bluetooth, NFC or QR Scans mostly using dedicated wireless devices or parts of upgraded casher systems at the point of sales. Also tablets or smartphones that are used as a register via dedicated applications. Also hardware that is used to accept payments via e.g. credit cards.
  5. Social Payment
    e.g. applications that allow group paying, sharing of bills on premise, mobile or via social networks.

II. Infrastructure

  1. Processing / PSPs / Acquirers
    e.g. infrastructure / SaaS models to server as a single payment gateway for clients who use this services facing end consumers, often offering multiple payments through one service. Also services which aggregate and analyze payment data, standalone or as value add.
  2. Financial Networks
    e.g. closed online circles providing members with semi exclusive content, data and network within certain financial circles like VC, PE, Hedge Funds and other investment classes.
  3. Scoring
    e.g. profiling users on public, semi private and behavioral data to derive a score, provided for others or to issue own credit.
  4. Credit / Debit Card innovation
    e.g. new forms of issuing, pooling or managing credit and/or debit cards.
  5. Crypto Currency
    e.g. applications that allow storage, mining, applying, transferring or converting of digital currencies.

III. Investment

  1. Lending (C2C, C2B and B2C)
    e.g. management of many to many, few to many, many to few or crowd based lending based on currency or crypto currencies – often without involving a regular credit issuing institution.
  2. Investment Strategy / Portfolio Management
    e.g. allowing insights, or providing services to invest into (often mirroring) public, big data or crowd based investment strategies. Also web and mobile based asset management, often using more simple underlying financial products to provide easy money management for people without time and/or expertise.
  3. Equity Financing / Funding / Secondary
    e.g. enabling companies to raise funding for equity and/or products from mostly private investors. Also platforms that allow trading of equity on the secondary market.
  4. Fx
    e.g. trading or issuing of foreign currencies, real time price optimization or services around Fx settlement, standalone or integrated in ERP systems.
  5. Financial Research and Data
    e.g. market insights – often structured – for business and private users.

IV. Personal Finance

  1. Personal Finance Management
    e.g. stand alone or integrated applications to manage, analyze and budget personal spending. Often include forecasting auto grouping of past behavior.
  2. Wallets
    e.g. stand alone or integrated applications to store and send money – mostly in real time.
  3. Insurance
    e.g. applications for brokers to manage customers, customers to manage insurances, comparing prices and or optimizing insurance situations.

Some categories have overlaps within groups – but this is the best way of clustering and categorizing in my eyes. Did I forget any groups or categories? Drop a comment and I will add it to the list.

Why fintech?

Why is fintech so fascinating? Without a banking or trading background, I am fascinated by the fact that most of the startups I see in this space are working on something hard, different and potentially massive. So what is great about fintech?

First, fintech is hard. Fintech requires more than sourcing and selling. Smart SEM or customer acquisition tactics. It usually requires deep integration into the technology of partners, that often use legacy systems. And 600 page manuals. Nope, not everyone has a sexy REST Api in this world. Digging through these manuals, negotiation for adaptions to better ingrate ones service and convincing the slow moving world to allow to draw data or push some is time consuming, requires special skills and can be frustrating. And mastering difficult things is always rewarding. The results are difficult to copy and give a certain form of gratification that feels like beating a system, rather than only overcoming a difficult hurdle.

Second, fintech startups often work as enablers or as a platform for people. Or at least have an impact cross vertical, not only for a single case. They enable other companies to exist, scale or internationalize. Fintech startups enable people to pay easier, invest smarter, save time and resources that can be used otherwise. They often make your life better, rather than just serving a specific need.

Third, most startups I see have a good possibility to become unicorns or at least scale massively with little resources. And I don’t mean the upfront cost in tech. Which can be big. The leverage is unbeatable. Small teams can have a dramatic impact. If successful. Investors call this unlimited upside potential. There are enough examples which succeeded, or are on a good path getting there. And this is fascinating both for an investor and for someone who is interested in the business part of the newspaper in general.

And finally, the innovation we are going to see in the financial technology space in the next years is going to overcome borders, disrupt historicly existing systems, make ourselves wonder why things were socially accepted the way they were and ease our lives fundamentally. The best is yet to come.