Just this past week, Techstars New York ran its 2017 cohort final demo day. Graduating this year were two small business focused start-up banks; Irish fintech Cogni, founded by Australian born and bred Archie Ravishankar, and Novo.
Cogni is another pan-European bank targeting sole traders and small businesses – namely freelancers, start-up entrepreneurs and micro-businesses. It follows in the footsteps of other neobanks in the region, like Penta, Tide, Coconut, Hufsy, banqUP, FairFX and iBanFirst. We covered many of these last year in our article, Europe’s love affair with business banking startups. Which seems ripe to remind everyone of on Valentines Day.
Seeing two more neobanks enter the fray, and one in particular being Euro-focused, leaves us still wondering if the fundamentals of the current market and future growth statistics support all this start-up business banking enthusiasm. And if you’re committed to this space, where are the Golidlocks, hidden opportunities that are perfect for the focus and foothold kick starter many of these ‘everything to everyone and everywhere’ banks so desperately need right now? Maybe it’s not just about features, but also about villages?
Below are some insights drawn from regional European data that could shed some light on potential next steps for a startup looking to navigate this increasingly crowded market.
There definitely is a sizeable market, in case you still weren’t convinced..
According to Eurostat statistics, SMEs make up over 99 % of all enterprises in all EU countries and in Norway. They account for around two-thirds of total employment, ranging from 53 % in the United Kingdom to 86 % in Greece. SMEs contribute 57 % of value added in the EU.
The same data shows in Germany and Norway, independent SMEs have grown much faster than dependent SMEs across all size categories, while in Latvia and Finland the reverse seems to be true. Dependent SMEs are linked to bigger Enterprises, and are more likely to have group banking relationships that are harder to unpick.
Steer clear of Bulgaria, Romania, Hungary and Poland if you’re far ahead on the innovation curve, as more basic needs probably need to be met on the technology front before banking.
Eurostat data on Entrepreneurship indicates Bulgaria, Romania, Hungary and Poland are in the bottom five organisational and marketing innovating countries as well as in the bottom five product and process innovating countries. Now there’s nothing to say banking can’t be the first innovation these businesses start with, but if you think SME fintech needs other innovations, like cloud accounting, to already be relatively mature, then I’d suggest it won’t.
Multi-currency trading apps will probably get higher penetration in Belgium, Malta and Cyprus compared to other Eurozone countries.
Data on International trade in goods shows Belgium (54 %), Malta (42 %) and Cyprus (35 %) are the micro enterprises that account for the highest value in imports from outside the EU.
Scale still counts
Data is a wonderful thing, and there are no doubt many more hidden gems. Also, one lonely data point, a strategy it does not make. But one hopes, on behalf of all these neobanks, that they are thinking about how they are going to navigate this behemoth of a market, and find those critical launchpad opportunities that will give them the foothold they need to scale. Because in banking, scale has been, and is what it always will be, very much about.
Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business and the Gig Economy.