When Europe’s fintech industry first emerged in the 2010s, companies scrambled to quickly onboard as many customers as possible. Tasked with user growth by metric-hungry VCs, they acquired millions of users using sign-up incentives, low transfer fees and slick digital apps with speedy onboarding processes. Their brands become synonymous with mass appeal.
Now Europe’s fintechs are looking to muscle in on an altogether different market: the close to $500bn private banking industry.
Earlier this year, Sifted revealed Europe’s most valuable tech company, Revolut, is developing a private banking service for high-net-worth individuals (HNWIs), typically defined as people who hold liquid assets of more than $1m.
Other fintechs dedicated to providing private banking services to a new subset of wealthy clientele seeking digital solutions to manage their wealth are also popping up across Europe.
“It’s a very hot market,” says Georg Hauer, a former N26 exec who now advises and invests in the fintech industry. “There are quite a lot of teams building in stealth mode — a lot is happening in the digital private banking market.”
Last month, Paris-based Rockfi, which provides digital private banking services for its customer base of around 500 clients — including entrepreneurs, senior executives and elite athletes — raised an €18m round led by Partech, a year after raising seed money.
Ian Rand, CEO of UK-based Monument, a neobank aimed at the “mass affluent”, tells Sifted it’s raising a round targeting a post-money valuation upwards of £500m with the goal of IPO’ing when markets allow. Other European players like Germany’s Froots and UK-based Sidekick are also gaining traction.
Banking the rich and famous
It’s not going to be an easy industry to disrupt. Incumbent private banks, such as Coutts and UBS, provide a smorgasbord of investment services to the uber wealthy.
These services include estate planning, exposure to alternative investment assets such as private equity and hedge funds, access to alternative investments, and lending services tailored to complex needs such as aircraft financing. They also have advisors available 24/7.
That can be hard to replicate for fintechs, which typically focus on building a technology stack around a single asset class.
One way around that could be partnerships — in February Monument partnered with B2B wealthtech Firenze, for example, to offer financing options secured by financial assets such as stocks or bonds known as lombard lending.
Another model is to contract-in advisors, which is what RockFi does. As part of RockFi’s onboarding process, clients will meet with an advisor at the company who’ll audit their wealth and help them establish long-term and short-term investment goals. The fintech’s advisors also consider a client’s personal financial situation, such as how much inheritance they plan to leave to their next of kin.
After that, they’ll choose the right investments for a client’s specific needs — this could be life insurance, stocks and shares holding or even investments in alternative assets like private equity. The fintech makes money through a revenue-sharing model with the advisors.
Building trust
Another challenge facing fintechs in the space is building trust between the advisor and client — something that private banking institutions often have a hundred-year or so head start on.
“We want to build the same level of trust that clients have in these old institutions,” says Marie Bedu, RockFi’s cofounder and chief operating officer.
Incumbent private banks don’t just provide asset management services, they also give customers the cultural caché of parking their money in the same place as celebrities and royals.
Monument, which banks more than 60k customers and has over £5bn in deposits, is looking to replicate this. Michael Morley, the ex-CEO of Coutts, which banks the British royal family (and famously closed UK politician Nigel Farage’s account), also joined its board in February.
Monument’s core product is its savings accounts, which have a minimum deposit level of £25k. It also plans to offer a more bespoke investment advisory service.
It offers a membership plan for £16.95 a month, which provides lifestyle benefits such as access to sold-out sporting or music events and a subscription to the Financial Times.
“This helps create a sense of community,” says Rand.
The nouveau riche
These services aren’t exactly comparable to some of the more high-end benefits of private banking. A Coutts account, for instance, enables access to its central London headquarters where customers can dine at a restaurant headed up by Michelin-starred chef Peter Fiori and relax on its rooftop garden terrace.
Arguably, however, that doesn’t matter. Both Rand and Bedu say they’re targeting an altogether different demographic who aren’t quite rich enough to bank at Coutts but are more affluent than the average layperson. Incumbent private banks typically require customers to earn at least £100k annually and have minimum savings and investment thresholds of up to £5m.
Monument, on the other hand, focuses on “the mass affluent” — someone who has assets of at least £500m.
Hauer expects that this is the same demographic that Revolut will go after as well, but he’s sceptical if it can make it a success.
“Revolut is already venturing in so many directions that it’s becoming increasingly challenging for them to focus on one demographic,” he says. “That’s especially important for HNWIs — that’s a target audience that requires a lot of focus.”
Rand also believes that demographic is ripe for the taking — and isn’t phased by the competition. Along with Revolut, investment fintech Robinhood also announced last month it plans to introduce to its US customers wealth management and private banking services for investors with modest portfolios by the end of the year.
“I don’t think there’s a brand for the mass affluent right now in financial services,” says Rand. “We want to be the default choice for that demographic.”
Read the orginal article: https://sifted.eu/articles/private-banking-fintech/
