The 10 financial technology companies to watch
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Paytm, the Indian electronic payments company that has thrived following the country’s withdrawal of high value banknotes, has won the inaugural FT Future of Fintech impact award.
A separate prize — in the fintech innovation category — went to Transmit Security a cyber safety start-up that brings together a range of biometric and other financial security services on to one platform.
A total of 10 companies were shortlisted for the awards, including a biometric heart rate start-up, a pension consolidator and a company offering a secure messaging service for banks.
The companies, selected from more than 200 entrants, span the breadth of the burgeoning fintech sector and reflect its dispersed global make-up.
Essentia Analytics analyses behavioural data such as heart rate, anxiety levels and amount of sleep, to help investors uncover behavioural biases that affect the way they trade. It ‘nudges’ them proactively to make fewer biased decisions. The company says the software has improved portfolio performance by 50 basis points for some clients.
Founder Clare Flynn Levy, a former active fund manager with Morgan Grenfell, launched Essentia Analytics in 2014, bringing together a team of neuroscientists, data scientists, and 17 ex-fund managers. The UK-based start-up has raised £2.1m to date and is so far working with 11 hedge fund and active fund management companies in Europe and the US.
Novastone offers an ultra-secure instant messaging system for the financial services industry. Banks using Novastone can decide precisely who clients and staff can communicate with inside the company.
Founded in 2011 by serial entrepreneur Douglas Orr, Novastone ensures that banks meet regulatory requirements as all conversations on the platform can be searched and reviewed by auditing teams. Corporate banking and wealth management customers can share documents securely between their organisations and clients. Communicating over Novastone reduces the chances of hacks as all users are authenticated. London-based Novastone, which has a staff of 16, is primarily focused on financial services clients but is looking at expanding into the legal and health sectors.
PensionBee has built an online platform that allows customers to track their pensions. Users list their employment history and PensionBee brings their various pensions into a single plan.
In the two years since it was founded, the UK-based service has raised £2.3m, grown to 15 employees and signed up over 11,000 people. The company is targeting younger users with a product called the Beehive, which allows savers to follow a new pension daily and make one-off or regular contributions online or by mobile phone.
PensionBee’s pension plans are managed by investment managers BlackRock and State Street, but its annual fees range between 0.50 per cent and 0.70 per cent, compared to 0.75 per cent in most actively managed funds.
R3 is working with 60 of the world’s largest financial institutions to explore ways to use blockchain, the technology best-known for underpinning the digital currency bitcoin. Founded by David Rutter, a Wall Street veteran, R3 is building ambitious software that could speed up the time it takes to clear transactions between banks and significantly reduce the costs of record keeping for financial services companies.
Launched last spring, R3’s Corda is one of the first real life applications of blockchain-inspired technologies for the financial services. It is specifically designed to record, manage and synchronise financial agreements.
R3 is not the only company working on blockchain technology for banks but it has one of the most extensive networks of partnerships.
Mickey Boodaei created Transmit Security with Rakesh Loonkar, aiming to provide a digital identity authentication platform for banks and other financial groups.
With 20 staff, mostly working in research and development in Israel, their Massachusetts-based start-up has developed a system that allows financial services companies to fight cyber crime by checking customer identities in a more efficient way.
It brings together inter alia biometrics, behavioural profiling, push notifications, and analytics to create a platform to help companies with client identification across all channels, from mobile phones to physical branches.
Incorporating most types of biometric verification, including face- and retina-scanning, fingerprint identification and voice recognition, Transmit Security wants to do away with most requirements for customers to enter passwords.
eToro is a new concept — a combination of fund manager and social network designed to democratise the world of investment. Turnover this year is expected to be a third higher than last year’s $45m. It does not disclose profit or loss figures but funding to date has been $62m.
The platform has 5m registered users from 170 countries. “The existing financial system is broken and was designed to benefit an elite circle and not the masses,” says the Tel Aviv-based company, founded by chief executive Yoni Assia. “The platform revolutionises the financial system and blows open the global investments markets for everyone to invest.”
The model of combining an investment platform with a social network gives the company its unique selling point — an ability to “copy trade” whereby users ape investment strategies of other users. eToro says 80 per cent of copy trades end in profit.
Funding Circle was born in 2010, to make it easier for small businesses to borrow in the wake of the financial crisis. Founded by Samir Desai, James Meekings and Andrew Mullinger, this direct lending platform has since raised $273m to expand the business. Anyone can lend, meaning companies can find funding from outside the small host of lending banks. It bypasses legacy IT systems and branch infrastructure characterising traditional lenders.
Funding Circle relies entirely on the value created by its lending. The company boasts 7 per cent average return to investors, with cumulative returns outperforming the FTSE 100 over the past five years.
Funding Circle has added £2.7bn to the UK economy and created 40,000 jobs, according to research published by the Centre for Economics and Business Research consultancy in August. The UK company has expanded into Germany, Spain, the Netherlands and the US, drawing in managerial talent from incumbent banks Barclays and Nomura.
PayPal Working Capital
When small and medium-sized businesses need to raise working capital — for example to buy more stock, hire seasonal workers, expand a warehouse or launch a marketing campaign — it can be difficult for them to obtain funds from traditional banks. PayPal Working Capital, launched in 2013, attempts to fill this gap in the market by offering cash advances to PayPal merchants with a strong sales history.
The programme has provided more than $2bn in funding for over 90,000 firms. There is a fixed fee instead of interest and flexible repayments. Approval times are faster than for bank and even credit card loans. It recently launched an updated mobile app, further speeding up the process. The programme is live in the US, Australia and the UK.
Paytm is one of India’s biggest fintech companies. Backed by China’s Alibaba group, the ecommerce and payments operator looks set to accelerate its growth from its current tally of 130m users. A recent $300m funding round, in which Alibaba participated, gave the company a $5bn valuation.
Founded by chief executive Vijar Shekhar Sharma, an engineering graduate of Delhi University, Paytm’s business plan relies on a strategy of financial inclusion and an aspiration “to bring at least half a billion Indians to the mainstream economy”. Already the standard mechanism for money transfers and prepaid card payments in India, it now plans to set up a “payments bank”, a new form of Indian financial institution that is authorised to take deposits and facilitate payments, though not to lend.
Mr Sharma says he realised just how far his payments app had penetrated society when he learnt it had been used in an armed robbery, with the victim ordered to load up his virtual Paytm wallet as well as hand over cash. “Even a thief knows Paytm!” says Mr Sharma. “There’s nothing else to say.”
Like the eponymous hero of English folklore, this stock-trading app was designed to support the little guy by providing commission-free trading to individual investors.
“We didn’t build Robinhood to make the rich people richer,” says Baiju Bhatt, co-founder and co-chief executive. “If they think it is useful that is wonderful, but the mission is to help the everyman, the rest of us, to be part of the financial system.”
Eighteen months on from its launch, however, the California-based company has started charging, asking users for $10 a month if they want a range of “premium” features including margin loans, extended trading hours and quicker settlement of transactions.
Mr Bhatt says Robinhood has attracted more than 1m users who have done $10bn of trades since it went live, some with a few hundred dollars in their accounts and others with tens of thousands. It recently launched in China via a partnership with Baidu.
Robinhood has so far raised about $66m from backers including Index Ventures, Google Ventures and Snoop Dogg, the rap musician.