European FinTech Trends 2017

1. www.frontline.vc June 2016 Sept - 2017

2. European FinTech is on track for a record year €500b €1075b €1650b €2225b €2800b 2013 2014 2015 2016 2017 £2,637m £1,902m £2,160m £1,415m £924m 2013 2014 2015 2016 2017 136 193 284 375 466 DEAL # FUNDING $m £4,096m (FULL YEAR RUN RATE) CBinsights Europe FinTech Trends 2017

3. As EU FinTechs raise fresh funding Private Equity $225m Growth €110m Series B $20m Series C $40m Series D £20m Series A $11m Series A $10m Series D £20m Series B €21m Series D £20m Series E £32m Private Equity €30m Series C £20m Series A €10m Venture €19m Growth $40m Series F $100m Series A $10m Series C €17m BIMA Series C €10m Series B £15m Crunchbase Pro

4. And big winners emerge throughout Europe CBinsights Europe FinTech Trends 2017 $598m $373m $281m $266m $193m $146m Funding $2.5b $1b $500m2 $2.3b $500m - Valuation HQ 18% 5% 7% 9% 16% 44% UK Germany Sweden Ireland Switzerland Other EU FinTech Investment by Country

5. 5 Intro: Key topics covered in this deck Online Lending Banks & Neo-Banks Banking APIs Asset Management Foreign Exchange Payments Insurtech

6. Challenger banks continue to gain market share 6 Low NPS (a UK average of +2) encourage startups in the banking space 250k 500k 1.1m 30m # Users 6259 50 35 27 52 -6-8-10-17-22-24-41-42 AVERAGE UKBANK Challengers still a long way from incumbent user base Challenger Banks in Europe, Frontline Ventures

7. Online lending continues to grow, despite fears 7 2Q 15 3Q 15 4Q 15 1Q 16 2Q 16 3Q 16 4Q 16 1Q 17 2Q 17 £8.3b £7.5b £6.4b £5.7b£5.8b £5.1b £4.3b £3.7b £3.1b Lending reported by the the P2PFA Funding Circle Statistcs

8. Regulation enables API centric banking 8 Railsbank Global banking access Banking OSBanking APIsFully licensed bank of banks

9. Asset management tech companies pursue partnerships 9 Robo-advisors pursue partnerships as scale is hard to achieve Integration Strategic investment

10. Competition heats up in foreign exchange $185m $116m $119m $100m $24m $19m $10m Many well funded players Revolut offers free FX (subject to £5k per month fair usage)

11. And big exits take place in the payments space 11 Acquired for £9.1 Payments continue a wave of tremendous consolidation after the acquisition of £16b Visa Europe in 2016 Acq offer for $3.9b Acquired for £700m Acquired for $1.5b

12. 12 Online Lending

13. 13 LendingClub, stumbled and yet to recover LendingClub Statistics 1.5 years after CEO was ousted for inﬂating loan originations, LendingClub is yet to recover Stock is down 75% since IPO, ± unchanged for the past year

14. 1Q 15 2Q 15 3Q 15 4Q 15 1Q 16 2Q 16 3Q 16 4Q 16 1Q 17 2Q 17 $464m $573m $631m $612m $589m $569m $556m $482m $419m$416m 14 SMB focused OnDeck also experienced an originations slump LendingClub Statistics OnDeck originations experience slump in 2017 Stock is down 75% since IPO, ± unchanged for the past year

15. 15 US consumer online lending collapsed in 2016 LendingClub Statistics Valuation drops from $1.9b to $500m as origination volumes fall 45% US online lending platforms suffer fall in volumes US Consumer Loans by Online Lenders 2013 2014 2015 2016

16. However, US Online lending overall is growing since 2011

17. 17 So who is winning? Goldman Sachs, SoFi LendingClub Statistics https://www.ft.com/content/50c1faf6-6a3b-11e6-a0b1-d87a9fea034f Time to €1b in loan originations 8 months 14 months 28 months 65 months 98 months

18. The UK is experiencing tremendous growth as well 18 3Q 15 4Q 15 1Q 16 2Q 16 3Q 16 4Q 16 1Q 17 2Q 17 £8.3b £7.5b £6.4b £5.7b£5.8b £5.1b £4.3b £3.7b Lending reported by the the P2PFA Funding Circle Statistcs http://p2pfa.info/p2pfa-publishes-second-quarter-lending-datahttp://p2pfa.info/peer-to-peer-lending-data-for-second-quarter-2016

19. EU market leaders maintain market position (unlike in the US) 19 Jun 2017 Raise ₤32m to pursue banking license Jan 2017 $100m raise at $1b valuation Competitors emerge, raising £50m+ in funding in the past 12 months ₤9m Series B ₤2.5m Seed ₤21m Series C €5.5m Seed

20. 20 While some smaller players disappear Lendico and Zencap displaced by auxmoney in Germany Lendico, once valued at €140m, likely acquired for a nominal sum by institutional loan investor Zencap acquired for an undisclosed amount, recently reported poor loan performance, roughly breakeven across the life of the platform Rocket Internet Sells Stake in Lendico Startup Funding Circle buys German startup Zencap from Rocket Internet for European expansion plans

21. 21 Consumer debt per capita smaller in EU than in USA 1 Consumer Creidt & Payment Statistics, Philadelphia Federal Reserve, 2 Irish Central Bank, Household Credit Report 2H 2015. 3 The Money Charity, UK Lending Statistcs 4 New York Fed: Quarterly Report on Household Debt and Credit. Consumer debt is ex-mortgages $10,700 €3,500 £2,850 The average consumer debt per capita Reﬁnancing is the #1 use case for online lending

22. Online lenders have reduced operating costs 22 Savings stemming from lack of branches and more efﬁcient collections

23. And signiﬁcantly lower capital requirements 23The future of ﬁnance, rise of the new shadow bank. Goldman Sachs Research

24. Online lending to grow into trillion $ business 24 Projected Marketplace Lending Deals 2020 0 35 70 105 140 2012 2013 2014 2015 2016 China Origination Volume United Kingdom Origination Volume United States Origination Volume 300 250 200 150 100 50 BillionsofUSD 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YoY Growth in 2014: 167% YoY Growth in 2015: 200%+ Global Marketplace Lending: Disruptive Innovation in Financials, Morgan Stanley.Global Crowdfunding Market to Reach $34b in 2015, Mass Solution • Morgan Stanely forecasts global originations will reach $300b • This would suggest $1trln in loans outstanding in 2020 • Half of this growth has come from china, where there has been massive fraud • Banks will acquire or build similar platforms

25. 25 Banks & Neo-Banks Neo banks offer a banking like service, but (often) do not offer the same guarantees and are not regulated as banks

26. 26 Neo-banks are beginning to look like banks Non-banks Banks As neo-banks grow larger, they realise the quickest way to proﬁtability is to become banks New licenses! “…You get a license to defy the laws of gravity…government guarantees, and ability to increase leverage…it is a license to print money.” CEO, Atom Bank Challenger Banks in Europe, Frontline Ventures

27. 27 While low NPS continues to drive growth Challenger Banks in Europe, Frontline Ventures CHALLENGERSINCUMBENTS 88 80 73 6259 50 35 2827 221917 52 -6-8-10-17-22-24-41-42 AVERAGE UKBANK Net promoter score is the leading cause of bank switching

28. • It is cheaper, easier and faster than ever to engage in banking activities • Existing low customer satisfaction creates an incentive to try new banks • Bank partnerships (often) extend the same deposit guarantees for customers • In the UK a number of ventures capital backed banks launch on prepaid cards • Easier on-boarding 28 And a perfect storm emerges for incumbents Digital challenger banks by total disclosed funding (€m) MoneyConf, Madrid, Panel Discussion “How can banking become a level playing ﬁeld” Atom Revolut Tandem Starling N26 Monzo Tide Monese Osper Ffrees Pockit 0 75 150 225 300 $3.5m $8.5m $11m $16m $16m $45m $52m $70m $77m $86m $268m Challenger Banks in Europe, Frontline Ventures

29. 29 Customers benefit from challenger efficiencies switched from their bank in the past 12 months2 would consider banking with Google financial products are not targeted at 18-34 year olds A new landscape: Challenger banking annual results , The Pulse of FinTech Q1 2016 Review, CBInsights 59% Bank ROE (return on equity) Rates for Savers Less Complex IT Systems Simpler product set Favorable regulation Less costly real estate No legacy compliance 40% 18% Customer View Challenger Efficiencies 36bps 108bps Challengers Incumbents 4.6% 17% Challengers Incumbents

30. 30 Although N26 scales back on some free perks MoneyConf, Madrid, Panel Discussion “How can banking become a level playing ﬁeld” Last year we did a “case study” on N26 in our “European FinTech Trends”. A lot has changed! v Through on boarding and KYC services, others offer similar experience A fair usage policy on free perks Increased competition on services offered Fees for excessive ATM use (5+ withdrawals p/m)

31. Announced £50m Series B ﬁnancing round at a valuation of £300m Acquired 700k customers since launch 3 years ago Offer free FX up to £5000 per month, powered by CurrencyCloud Does not have a banking license Upsell a small portion of users to their premium service for £7 that offers card + turbo transfers Poor customer service 31 Revolut’s e-money account grows rapidly Product is centred around mutli-currency accounts https://www.linkedin.com/pulse/how-do-customer-support-painful-lessons-from-adomas-baltagalvis

32. 32 Challengers status quo Atom - focused on savers, no public customer numbers Expands to Europe after raising $10m Series A Launched Current account in March, no public ﬁgures Pre-launch250k users, launching current account Raised $14m Series A Acquired Harrods bank, now with £80m in despots 500k customers , banking license

33. 33 Banking APIs

34. 34Customer Loyalty in Banking, Earnix New Survey Finds That Open Banking is a Game Changer for Millennials (Consumer banking data) Banks FinTechs APIs sit between banks and FinTechs, controlling ﬂow of data APIs

35. 35Customer Loyalty in Banking, Earnix New Survey Finds That Open Banking is a Game Changer for Millennials Open use of data (open banking) expected to have big impacts 80% Expect an increase in competition as a result of open banking 88% Believe users will be accessing services through an aggregator In a survey of 300 European bankers

36. v v 36 A number of regional champions have emerged

37. 37Yodlee S-1 FOUNDED: 1999 ACQUIRED: 2015 Founded: 1999 IPO: 2014, 1999 MRKT CAP (IPO): $340m Acquired 2015: $590m ORGANIZATIONS: 750 REVENUE: $70m FLAGSHIP CUSTOMERS: Banking APIs are a big business, pioneered by Yodlee

38. 38 Asset Management

39. Robo-advisor assets under management are still small 39 Betterments AUM has grown from $3bn since Jan 2016 to $8.5b in May of this year. Small relative to incumbents. European Champions

40. Growth slowing in recent years 40 “Stand-alone ﬁrms will need $16b to $40b of net assets to break even. Moreover, [Morningstar] estimates…$1000 cost to add a new account, after factoring in attrition, and up to a decade to recoup marketing costs.” - Joe Manseuto, CEO The Pulse of FinTech Q1 2016 Review, CBInsights, Quote MoneyConf, Madrid, Panel Discussion “Distributed Money: The arbitrage game”, Does not compute, The Economist “Products are extremely low margin. It will be harder than the airline industry. Competition is still increasing. People coming in with competitive pricing.” Tamaz Giorgadse, CEO, Raisin (cross boarder deposits)

41. Companies acquired for tech 41The Pulse of FinTech Q1 2016 Review, CBInsights

42. Banks move into the robo-advisor space 42The Pulse of FinTech Q1 2016 Review, CBInsights1UK banks set to launch robo-advisors, FT 4 out of 5 largest UK banks plan to launch their own robo-advisors

43. v A challenging propositions for VCs 43The Pulse of FinTech Q1 2016 Review, CBInsights1UK banks set to launch robo-advisors, FT Increasing competition Long CAC payback times Low Differentiation High capital intensity

44. • Goldman Sachs Asset Management (GSAM) has 1trln in AUM. • Betterment and WealthFront have a combined $20b, suggesting tremendous room for growth • Financial advisors have historically struggled to build tech, which could justify high take out premiums 44 Wealth management attracts strategic investors Blackrock makes strategic investment into scalable capital

45. ₤15m Series B 45 Pensions largely untapped wealthhtech opportunity Undisclosed seed Automatic enrolment + Existing pension pots: £2.4tn Total pension assets in the UK (2015)* *Source: The Investment Association “Asset Management in the UK 2015-2016 report”

46. 46 Foreign Exchange

47. 47 The FX market remains highly fragmented Arma Partners FinTech Update Q1 2017

48. 48 With a number of well funded players $185m $116m $119m $100m $24m $19m $10m Arma Partners FinTech Update Q1 2017

49. 49 Taking share from incumbents 2Q 2017 Earnings Presentation Western Union sees declines in ofﬂine business

50. 50 Payments

51. 51 Acquired for £9.1 Visa Europe acquired for €16.5b Acquired for £700m Last round valuation $2.3b 2500 FTE Acquired for £1.1b Market cap £2.6b Acquired for €1.5b €5.3b market cap High level of M&A activity

52. 52 Strategic investment from VISA Plans to expand to consumer lending Strategic investment in LendUp Payment companies enter into the lending space With better data, payment companies are well positioned to make loans

53. 53 Paypal moves closer to point of sale Paypal launches credit card as Apple, Samsung and Android make progress in ofﬂine retail “Cardholders can manage their accounts, redeem Cash Rewards and make payments by logging into their PayPal account, giving customers another reason to access and use their PayPal accounts”

54. 54 Out of 300m customers, 33m have used amazon pay in 170 countries Adding 1m customers per month Over 50% are prime customers Money 20/20 Europe 2017 - Day 2 Keynote - 14:00 Giulio Montemagno, Amazon Pay “Online Giants are not sleeping…so who [are} the giants? Is the European LendingClub? Or is it Amazon…I think it is only a matter of years before you have your bank account with amazon. “ - Oliver Samwer, CEO Rocket Internet Tech giants are also well positioned to compete

55. €500b €675b €850b €1025b €1200b 2012 2013 2014 2015 2016 £1,124m £981m £863m £800m £717m 55 2012 2013 2014 2015 2016 £345m £374m £406m £467m EBITDA Revenue 12% Revenue CAGR Worldpay acquired for £9.7bn Worldpay ﬁnancials demonstrate consistent growth

56. 56 Insurtech

57. 2013 2014 2015 2016 2017 $88m $129m $13m$1m$13m 57 European insurtech accelerates from low base 6 11 23 30 39 DEAL # FUNDING $m $136m (FULL YEAR RUN RATE)

58. 58 A selection of new funding announcements so far in 2017 $10m Seed ₤2.3m Seed €2m Seed €1.6m Seed ₤5m Series A €10m Seed Price comparison Full stack insurance company P2P insurance broker Insurance + connected home Health Insurance Robo-advisor for insurance

59. 59 Cybersecurity is one of most promising areas for insurtech “Cyber crime costs the global economy more than $400 billion a year and the costs will continue to grow” - PwC Insurance 2020 & beyond** Sources: *World Economic Forum – “Global Risks 2015, 10th edition” **PwC Report “Insurance 2020 & beyond: Reaping the dividends of cyber resilience” Cyber attacks are one of risk with highest likelihood and highest economic impact 59

60. Some interesting European Cybersec startups Eliminates need for passwords Real-time cyber threat identification Stealth mode startup which raised £14m Managing cybersecurity risk Quantum- computing, defence grade security Prevent sending emails to wrong people Security management platform Managing and monitoring digital footpring

61. 61 Incumbent Response

62. Startups build on top of bank systems and are looking for partners 62 Startups partner with banks Banks are partnering with marketplace lending platforms1 1Proprietary Research, The Pulse of FinTech Q1 2016 Review, CBInsights WiredCard supports Number26, CurrencyFair and LinkedFinance Bank Investments to VC-backed FinTech Companies Q1’2015- Q2’2016 Goldman Sachs Citi Santander Mitsubishi JPMorgan ING Group Bank of China China Development Mizuho Sumitomo Mitsui 0 2 5 7 9

63. 63 US Based, 100k retail customers $15m funds raised Acquired for $117m UK, Pre-launch Banking license $292m funds raised Majority owned by BBVA Finish based Founded in 2011 $5m in funds raised Banks acquire tech companies

64. 64 Case Study: Santander Bank Agility Risk Taking Mindset Customer Scale Products Infrastructure Brand Startups + Banks = Best of both worlds Kabbage - Serving SMEs in the UK via 3m Santander SMB clients ripple - Santander uses ripple for small sum currency transfer Startups Banks

65. 65Customer Loyalty in Retail Banking Santander has simpliﬁed offerings, gone digital Santander improves banking offering

66. 66 Conclusions

67. Predictions for 2017-2018 67 Zopa or Funding Circle ﬁnally go public EU FinTech will see its ﬁrst major security breach 2017 will mark another record year for online lending volumes 3Q 15 4Q 15 1Q 16 2Q 16 3Q 16 4Q 16 1Q 17 2Q 17 £8.3b £7.5b £6.4b £5.7b£5.8b £5.1b £4.3b £3.7b

68. Predictions for 2017-2018 68 Consumer FinTechs without strong organic growth struggle Challengers will explore launching credits cards An EU bank announces B2C lender, following Goldman Sachs in USA

69. 69 Twitter Medium Quora Twitter Medium

70. 70 Appendix

71. 71 Expense management in 2017 Raises $2.2m in Seed Funding Raises $3.2 in 2nd Seed Raises $11m Series A