As Monzo confirms a 40% drop in valuation with its latest, long-delayed fundraise, is it time for investors to look beyond mass-market, B2C fintechs?
“Challenger bank fatigue” is easy to understand while big customer counts don’t translate into positive cashflows.
Accenture recently reported that UK neobanks added six million customers last year, reaching a total of nearly 20 million. But, the average deposit balance dropped by 25% to just £260. The report, published in February, went on to predict that:
“those [neobanks] that fail to convert customer acquisition and outside investment into profit may struggle under less favourable funding rounds and market conditions.”
“With the exception of OakNorth, neobanks in the U.K. lost between £5 and £15 per customer last year due to weak revenue streams and increased spend on customer acquisition.”
As we’ve discussed before, turning big consumer customer numbers into anything more meaningful isn’t easy and there’s a growing sense of investor weariness, as a result.
“Overall, investors’ attention is shifting away from pure business-to-consumer (B2C) banks to those with proprietary banking-as-a-service (BaaS) technology. That’s when we really see institutional investors get out of their seats.”
It’s not just UK challengers that are struggling. One of the earliest challenger banks in the US, Moven, recently announced it was shutting down its B2C operation, having failed to spin it off, to concentrate on enterprise.
You need to get more than skin-deep
Fintech players need to convince investors that they have a strategy beyond simply funnelling successive funding rounds directly into customer acquisition.
That means delivering real customer value that goes beyond a funky new debit card. As our COO Jim Warner, observed recently, customer experience needs to be more than skin-deep. It can only come from investing in understanding customer needs.
That investment maybe comes more naturally in the B2B space, where relationships are often longer and deeper, but this isn’t simply a B2C versus B2B debate. It’s a super-niche debate.
It takes time to get under the skin of any industry, but it’s only under the skin that you see what’s causing the pain. Understand the pain and you can treat it with precise solutions. And, if you solve people’s pain, you build even deeper, more loyal relationships. It becomes a virtuous circle.
Centtrip is a super-niche fintech. We serve organisations that manage multiple, internationally-mobile teams such as music acts, road crew, film crew, superyachts, aviation, consulting, legal or audit teams. The industry sectors seem disparate, but the niche is precise: highly mobile, high-spending teams who need to be empowered to act as situations arise.
We target these high-value, super-niche markets where our combination of deep sector expertise, relationship-focus and secure, scalable technology solves real-world problems not addressed by more generic competitors. As a result, Centtrip is the leader in its chosen markets.
Who said niche means small?
There are 10,000 superyachts in the world and each captain runs a multi-million dollar budget. The yacht charter industry is worth over $50 billion a year.
Last year, the top touring music acts – Ed Sheeran, P!nk, Elton John etc. – each grossed around $200 million. Live music may be suppressed in 2020, but it’s a $30 billion business straining to get back on the road.
Centtrip supports the world’s largest superyachts and its top touring music acts. We’re also growing quickly in adjacent super-niches of film and TV production, the arts and aviation.
Super-niches are narrow by their level of specificity, but they can be deep and rich … if you are prepared to invest in going more than skin-deep to understand their needs at a level not met by generic solutions.
From B2C, to B2B, to super-niche
So, perhaps B2C fintechs are fatigued, while B2B investments are growing.
Banking Circle CEO Anders La Cour recently noted that “Fintech innovation in the B2B space has only just begun”:
“Although non-banks are more agile than their incumbent counterparts, they often struggle as they try to scale. The lack of an established client base, issues with licensing and financial regulation, and crucially, a lack of direct access to banking rails, are all barriers to growth. The need for fintechs to be able to access existing payments infrastructure to deliver a consistent and reliable service is something that is planned for the future with PSD2 and the Faster Payments network being opened up, but in the interim, fintechs will continue to encounter issues if they do it alone.”
That’s an opportunity and a challenge we recognise. It drove Centtrip’s platform strategy to partner with, and select, the best solutions for our customers. But, I would argue that rather than investing in any old B2B fintech, investors should seek out niche, or super-niche, players where an established investment in relationships is yielding “stickier”, more rewarding customers. Do that and your investment won’t be running out the door on the back of another customer acquisition strategy.
You may not get to see your investment on the Tube or the side of a bus but, you just might spot it in the hands of your captain, as you sail out of Monaco.