Budapest Letters #4
👋 Hi All! Hope you had a great past week and have much in store for this one. Before we jump into this week’s edition of Budapest Letters, very warm welcome to our new subscribers, great to have you with us! One more thing before we get going, if you like what you read, subscribe (if you had not done it) and share. Cheers, Aron
📢 TL;DR
This week we will touch on the following stories: ✍️ Financial regulators in the UK and France demand digital challengers to clearly inform users that they are not banks ✍️ Formlabs, EstateGuru and the Romanian startup scene bagged big sums from investors ✍️ Wise intends to launch a free of charge coding school for Estonians ✍️ GenZ seems to be more financially responsible than older generations, confirmed researches by both K&H Bank (from 🇭🇺) and Gohenry
🔥 Story of the Week
Financial regulators in both the UK and France issued very strong statements that target the behavior of digital challengers a.k.a. challanger banks or neobanks. According to local authorities, many of these fintechs (intentionally or not) mislead clients into believing that they are banks, whereas in reality they are not. This unlawful behavior - based on real-life examples - can result in a loss of savings and/or frozen accounts that can hurt the financial wellbeing of customers.
Incumbents, of course, welcomed these warnings. For years, the leaders of banks argued and warned authorities and clients that they should not trust challengers; and in most cases, precisely for the reasons listed in these recent statements. On the other side, representatives of digital challengers, while acknowledging the existance of such practices and the possible negative consequences, hold a view that most of them are trustworthy and safe who do not jeopardize clients money.
But how does this affect CEE? At the moment, not a lot. Incumbents are strong on this side of Europe, trusted, willingness to switch is even lower than in the West, and also there are not that many alternative options as it is in London or Paris. Still, keeping track of these developments are important because this might very well change in the next 2-5 years as GenZ is much more open to newcomers.
Show Me Da 💶
👏 Formlabs, a 3D printing technology startup from 🇺🇸, raised a whopping €150M from Softbank’s Vision Fund 2. The company, which has strong 🇭🇺 roots (i.e. its CPO/minority owner is David Lakatos and its R&D lab is in Budapest), already raised several rounds in the past but as demand is soaring for its products (especially thanks to the COVID pandemic), future seems bright for the team.
👏 EstateGuru, a startup from 🇪🇪, succesfully raised €1.3M from almost 1k small investors via Seedrs, a well-known UK-based equity crowdfunding platform. This is the second time that the marketplace operator (which offers short-term, property-backed loans to its users) is raising money via crowdfunding, a solution that several famous startups also pursued, such as Revolut, Monzo and Brewdog.
👏 Raiffeisen Bank International (RBI), the holding company of 🇦🇹 banking giant Raiffeisen, accounced that it will invest €5M in the 🇷🇴 startup scene via its local subsidiary’s investment program (factory). According to its current plans, RBI intends to put €50k into ca. 100 startups. This approach is nothing new though from the Austrians, as they already invested in local Finqware back in January.
🚨 Startup Alert
Wise, a popular money transfer startup hailing from 🇪🇪, will launch a coding school (Jõhvi) with the aim to produce hundreds of new IT specialists for the local job market / year. The current plan is to have Jõhvi as a two-year study course, built on a cloud-based platform, so that each student can move at his/her own pace. The programme is a big win for the Baltic country, home of one Europe’s most successful and booming startup scenes, which has IT specialist shortages.
🧠 Food
Gohenry, a UK fintech offering a pre-paid debit card and an app to kids aged 6-18, recently published its UK Youth Economy Report which is packed with interesting insights on how the youngest think about money and financial health:
2/3 of children and teenagers (66%) surveyed said that they worry more about money. But this caution increases with age: 52% of 6-10 year-olds said they worry, along with 59% of 11-15 year-olds and 73% of 16-18 year-olds.
Last year, over half (52%) of children and teenagers’ spending took place online, which is a significant shift from 2018, when just 1/3 of it did.
Since the start of the COVID-19 pandemic, over half (51%) of British children and teenagers are more concerned about using cash.
Between January and December 2020, kids gave an additional £82,200 to charity, and their donations increased by 59 % during lockdown one.
And interestingly, these UK developments pretty much correspond with the ones in 🇭🇺, according to K&H Bank’s Youth Index. Hungarian GenZ, like their British counterparts, save more, go cashless and pre-dominantly spend money online.
🧐 Personal take: I sincerely believe that the change in the financial behavior of GenZ will change banking for good. Not just because most will use an app rather than a branch to interact with a bank but because they are more conscious how they spend their money (and on what) and are more accustomed to use alternative ways of building up their financial knowledge base than previous generations.
Banks and historical financial insitutions are becoming less and less of gatekeepers of financial truth or knowledge. Kids buy online, source information online and use various fintech apps (i.e. from non incumbents) to save / invest. Long story short, none that has anything to do with the old guard of finance.
Still, banks have an edge. Trust, money and clients. Should they use these wisely, they could remain in the game. But the dynamics against them are accelerating and when it comes to understanding customers, especially younger ones, they are not well positioned. Also, when it comes to products and services, they do not have something GenZ is after. Digital challengers have those. Plus swagger.
So competitive times ahead.