Categorized | crunch's blog

All hail the EU startups taking on the banks!

Twenty twelve was an eventful year on the world stage for more reasons that any of us can remember, but in startup land it may well be remembered as the year the financial sector was finally taken to task.

All across Europe tech startups set about loosening the banks’ grip on the financial services market, and largely came through in fine form. Just about any financial service you care to name is now being done better, cheaper and faster by a young technology company somewhere in the Eurozone than in the City.

These startups are all responding to a public demand for better access to financial services, and have been lucky enough to have the public zeitgeist on their side. Trust in existing banks has fallen to previous unplumbed depths in the last year – a recent study found that only 2% of business owners would approach their Bank Manager for advice.

Peer-to-peer lending was the breakthrough service of the last year, with a clutch of VC-funded companies all vying for an increasingly vibrant market.

Despite signs of recovery in some European economies in 2012, banks remained cagey about offering credit. Small business lending in the UK fell to it’s lowest level since 2006 and in response SMEs went looking for funds elsewhere. Lending marketplaces like Funding CircleSeedrs and Rate Setter were all too happy to oblige – and with returns on investment greater than those offered by banks, individuals who decided to lend through them did well too. The sector was further bolstered by the overdue arrival of crowdfunding giant Kickstarter.

Elsewhere foreign currency exchange – traditionally a money-spinner for the banks – saw the beginnings of meaningful disruption through services like TransferWise and Currency Cloud, both of whom offer currency transfers at a fraction of the banks’ prices through clever collective consumption methods.

Payment processing got a shot in the arm from GoCardless, who are re-engineering Direct Debits to be useful for things other than paying bills, and iZettle, who offer a Eurocentric take on Square’s plug-and-play smartphone card reader.

The one problem common amongst all these firms is that the big name banks are still their platform. Money lent, transferred or processed still moves from one High Street bank account to another. Finnish startup Holvi looks to be taking tentative steps towards building a viable alternative, and in the US Simple is rethinking personal banking – although both still rely on institutional banks to underpin their services to one degree or another.

While many of these inventive companies are tinkering with auxiliary financial services, none have yet entered the fray headlong in a bid to oust the HSBCs and Deutsche Banks of the world as the main repositories for our money.

Will this happen in 2013? In the current financial climate it seems unlikely. However, with their profits being squeezed by all these young pretenders, it won’t be long before the big banks have to adapt or suffer the consequences.

Jon Norris is a freelance writer, and Web Editor at online accountancy firm Crunch.

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