The start-ups challenging banks

By Nicole Miskelly | 11 November 2015

In the current financial landscape banks are facing challenges from new entrants that are providing the same or similar services to them, without the regulatory and legacy system obstacles that come with being a traditional bank.

A few weeks ago bobsguide reported on the new digital banks that are challenging traditional banks by providing the same banking services that they already offer, but via mobile and with additional services that customers are asking for such as the ability to suggest new products and apps that suggest ways to save more money every month.

Alongside new banks, traditional banks are also facing competition from start-ups that are focusing on specific parts of a bank’s business model, such as payments and asset management, which the FT has listed as the following:

Wealthfront

US start-up Wealthfront aims to take over work usually undertaken by asset managers and uses software to automatically make investments and financial decisions for its clients. The company uses algorithms to provide their automated investment service and will also open up investing to the less wealthy, the FT reports.

Wealthfront has raised nearly $130m in funding from US tech investors including Index Ventures and Spark Capital, and back in March the company said that it held over $2bn in assets for 22,000 clients, alongside saving those clients $10m in financial advisor fees.

iZettle

Since its establishment five years ago, payment processing start-up iZettle, has raised over $157m in funding and has created credit card-reading devices that can be attached to phones and tablets, enabling individuals and small businesses to take card payments.

According to the FT, the Stockholm-based company’s main rival is San Francisco-based company Square which was started by Twitter co-founder and CEO, Jack Dorey, but iZettle has plans to expand into other areas such as lending and has launched a financial product that provides businesses with small cash advances, called iZettle Advance.  

GoCardless

London-based GoCardless enables small businesses to take direct debits and recurring payments. Although the company charges according to the volume of transactions, which is usually around 1 per cent, this is not much cheaper that what banks or payment processors charge. However, the company claims to offer systems that are easier to access and use than other traditional payments processors.

Coinbase

San Francisco start-up Coinbase launched its digital wallet offering in the UK earlier this year and earned its status as the best backed bitcoin company also this year, when it secured $75m from investors including US Venture capital groups Andreessen Horowitz and Union Square Ventures.

Alongside the company’s online wallet which allows people to store, send and accept bitcoin payments, they have also launched a cryptocurrency exchange which allows people to change real money into the digital currency, and the company is currently planning further global expansion.

Osper

One issue raised by parents is that many banks do not provide digital banking services to their children who have a debit card and a current account. Osper has provided a solution to this problem by offering mobile-only banking services for children with parental visibility and partial control. The company has created accounts that have no credit or overdraft facilities, which can be accessed via an app and have separate login details for parents and children.

Adyen

Investors have valued this Netherlands-based company at $2.3bn which makes it one of Europe's most valuable tech companies. Adyen already handles online payments for Uber, Netflix and Spotify and is aiming to cut banks entirely out of the payments process in and out of stores. According to the FT, the company is currently expanding its tech offering to allow merchants to take in-store payments using devices connected to the internet. 

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