FinTech Connect x Seedcamp

Ahead of FinTech Connect Live, we spoke to our FinTech speaker, Carlos Espinal, Partner at Seedcamp

FT: Seedcamp have a stake in some of the best-funding fintechs including Transferwise and Revolut. Who do you think will emerge as FinTech’s first global player: an incumbent venture launched by a bank or asset manager or pure-play unicorn launched by an organic team of friends from a university?

CE: That’s a very good question, but it implies that some of these things haven’t happened already. If you look at Transferwise, it is already a global product and so I think [the emergence of a global fintech player] has already happened.

I could answer your question by asking you a question; which incumbent financial institutions are truly global? Maybe HSBC? Perhaps Citi? In the case of Citi, it doesn’t have as much of a presence in Europe as it does in the United States for example. The challenge when we’re asking about start-ups going global is that we have to draw a parallel [with incumbent financial institutions].

There are very few global financial institutions because of the complexity of jurisdiction, local and cross-border taxation, global product cost and currency fluctuations. The only thing the fintech can win is to tackle individual problems with 100% focus on the process of one individual service or product and in doing so, it becomes more likely that they’ll be able to manage that complexity across jurisdictions and this is what Transferwise have done.

They are focused on moving currency from point A to point B and on the basis of that foundation; it is not uncommon for startups in general to build on a core product and attached other focus areas around it.

In my opinion, Transferwise were the first global consumer-facing fintech company. If you look at it from the point of view of insurance, [InsurTech] has only just seen tremendous growth in the last two years and if you look at it from the point of view of current account, that started out locally. By definition, currency exchange has to be global if your dealing with global currency exchanges, cross-border payments and clientele in every continent.


FT: Please finish this sentence. UK fintech remains resilient because…

CE: the start-up community knows how to overcome problems, period. That is the umbrella under which any answer would exist and the question then becomes, what will happen over the course of the next two years until we finalise BREXIT and a series of trade acts. Until then, the situation could literally change from week to week.


FT: What are the main concerns of the start-ups you have been in contact with in light of the UK’s decision to exit the European Union?

CE: Quite simply, attracting and retaining talent is one of the top concerns, along with Passporting rights. None of the start-ups I am in contact with are either 100% conclusively worried or relaxed, we’re all applying a ‘we’re all in it together’ attitude to the situation at hand. The good thing is that we’re all convinced that there will be a degree of flexibility and success in the UK continuing to attract talent and resolve any rights issues, the bad thing is, its not quite clear what the timings will be.


FT: Looking at Seedcamp’s extensive portfolio of investments, we noticed that weFox and Kasko were on the list. What is your take on the sudden explosion of innovation across the insurance sector and is it too premature to argue that InsurTech is the new FinTech?

CE: You could argue that InsurTech is a sub-division of FinTech and so that would spawn a whole different conversation. In many ways these sub-divisions and their ‘explosions’ are all related. There is a very good book called ‘The Ascent of Money’ [written by Niall Ferguson] and it talks about the evolution of different financial products and so the very fact that he includes insurance within that would imply that fintech and insurtech are highly linked and I would agree with that thought.  When you look at insurance, there are a lot of elements to it that do make it very different than what most people would attribute to fintech i.e. the movement of money. As a consequence a lot of the startups we’ve seen produce solutions and products based on storing, moving and protecting money and insurance isn’t necessarily about that.

Most of the time, insurance is about dealing with risk and so the money either flows or it doesn’t depending on what the risk of being insured is. What has made it a classically difficult industry to tackle for a start-up has been that a lot of the datasets that generate the models of risk and proprietary and make it a little bit more difficult for some of the underwriters to adopt new technology to replace that.

We’re also seeing a lot more innovation in the way that insurance is being packaged more effectively and sold more transparently. As with any industry, you can divide it into many parts which include everything from how people research it, consumption it and use it, refer it and management on the back-end. It is the newest area of fintech that is being tackled to better manage risk and machine learning is playing a big role in this and as start-ups are being able to integrate, aggregate and take part in brokering new policies, I expect to see a lot more innovation in that space.


FT: News recently broke that Transferwise had achieved its first profit, six years after inception. Can VCs ever be comfortable playing the ‘long game’ when supporting fintech?

CE: It is difficult to bundle an answer into 3-4 lines because every venture capital firm is different and the difference is based on stage [of investment outlook], size and geography. The regular 500m [under management] VC will think very differently to a 20m [under management] VC. I’d compare it to the way you think about your career when you’re age 20 and how that will in some respects, drastically change by the time you hit your 40’s. There are plenty of good investors that understand that it takes a long time for businesses to grow and have the patience and capital to withstand the [non-profit generating period].


FT: As the UK’s largest fintech exhibition, what will be the core message you would like to communicate to our audience at FinTech Connect Live later this year?

CE: For me, Seedcamp always enjoys investing in the most cutting edge ideas in the fintech space. We are always interested in ideas that are trying to change not just the near-term but the long-term. I think we are literally at a tipping point where a lot of these ideas are now viable, for instance, machine learning technologies are enabling risk modelling at an advanced level which had not been previously achieved and customers are going to use more and more financial services that are not from institutional brand names. There’s also a greater amount of opportunity to reduce the cost of operation across financial services by a lot. Ultimately, the gathering of professionals in this context will highlight the cutting-edge of what is currently in development at the moment.

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