French startup Qonto has raised a $115 million Series C funding round led by Tencent and DST Global. Today’s news comes a few days after another French fintech startup, Lydia, raised some money from Tencent.
Existing investors Valar and Alven are also participating in today’s funding round. TransferWise co-founder Taavet Hinrikus and Adyen CFO Ingo Uytdehaage are also joining the round. Qonto says it represents the largest funding round for a French fintech company.
Qonto is a challenger bank, or a neobank, but for B2B use cases. Instead of attracting millions of customers like N26 or Monzo, Qonto is serving small and medium companies as well as freelancers in Europe.
According to the startup, business banking in Europe is broken. The company thinks it can provide a much better user experience with an online and mobile-first product.
The company has managed to attract 65,000 companies over the past two years and a half. The product is currently live in France, Italy, Spain and Germany. In 2019 alone, Qonto managed €10 billion in transaction volume.
With today’s funding round, the company plans to double down on its existing markets, develop new features that make the platform work better in each country based on local needs and hire more people. The team should grow from 200 to 300 employees within a year.
Qonto obtained a payment institution license in June 2018 and has developed its own core banking infrastructure. Around 50% of the company’s user base is currently using Qonto’s own core banking system. Others are still relying on a third-party partner.
Moving from one back end to another requires some input from customers, which explains why there are still some customers using the legacy infrastructure. Over the coming months, Qonto plans to launch new payment features that should convince more users to switch to Qonto’s back end.
Even more important, Qonto plans to obtain a credit institution license, which could open up a ton of possibilities when it comes to features and revenue streams. The company says that it should have its new license by the end of the year.
For instance, you could imagine being able to get a credit card, apply for an overdraft and get a small loan with Qonto.
Compared to traditional banks, Qonto lets you open a bank account more easily. After signing up, Qonto offers a modern interface with your activity. You can export your transactions in no time, manage your expenses and get real-time notifications. Qonto also integrates with popular accounting tools.
When it comes to payment methods, Qonto gives you a French IBAN as well as debit cards. You can order physical or virtual cards whenever you want, customize limits and freeze a card. Qonto also supports direct debit and checks. Like many software-as-a-service products, you can also manage multiple user accounts and customize permission levels.
Over the past several years, ‘fintech’ has quietly become the unsung darling of venture.
A rapidly swelling pool of new startups is taking aim at the large incumbent institutions, complex processes and outdated unfriendly interfaces that mar billion dollar financial services verticals, such as insurtech, consumer lending, personal finance, or otherwise.
In just the past summer, the startup community saw a multitude of hundred-million dollar fintech fundraises. In 2018, fintech companies were the source of close to 1,300 venture deals worth over $15 billion in North America and Europe alone according to data from Pitchbook. Over the same period, KPMG estimates that over $52 billion in investment pour into fintech initiatives globally.
With the non-stop stream of venture capital flowing into the never-ending list of spaces that fall under the ‘fintech’ umbrella, we asked 12 leading fintech VCs who work at firms that span early to growth stages to share where they see the most opportunity and how they see the market evolving over the long-term.
The participants touched on a number of key trends in the space, including rapid innovation in fintech infrastructure, fintech companies embedding themselves in specific verticals and platforms, rebundling and unbundling of financial services offerings, the rise of challenger banks and the state of fintech valuations into 2020.
The great ‘rebundling’ of fintech innovation is in full swing. The emerging consumer leaders in fintech — Chime, SoFi, Robinhood, Credit Karma, and Bessemer portfolio company Betterment — are moving quickly to increase their share of wallet with their valuable customers and become a one-stop-shop for people’s financial lives.
In 2020, we anticipate continued entrepreneurial activity and investor enthusiasm around the infrastructure and middleware layers within the fintech ecosystem that are enabling further rebundling and a rapid convergence of product themes and business models across the consumer fintech landscape.
Many players now look like potential challenger bank models more akin to what we have seen unfold in Europe the past few years. Within consumer fintech, we at Bessemer are more focused on demographically-specific product offerings that tap into underserved themes, whether that be the financial problems facing the aging population in the US or new models to serve the underbanked or underserved population of consumers and small businesses.
What trends are you most excited in fintech from an investing perspective?
I suspect that many enterprise software companies become fintech companies over time — collecting payments on behalf of customers and growing revenues as your customers grow. We have seen this trend in many industries over the past few years. Business owners generally prefer a model that moves IT expenditures from Operating Expenses into Cost of Goods Sold, because they can increase prices and pass their entire budget onto the customer.
On the consumer side, we have already made investments in branchless banking, insurance (auto, home, health, workers comp), cross-border payments, alternative investments, loyalty cards/services, and roboadvisor services. The companies we funded are already a few years old, and I think we will have some interesting follow-on activity there over the next few years. We have been picking spots where we think we have an unfair competitive advantage.
Our fintech portfolio is also more global than other sectors we invest in. This is because there are opportunities to achieve billion dollar outcomes in fintech, even in countries that are much smaller than the United States. That is not true in many other sectors.
We have also seen trends emerge in the US and move abroad. As an example we seeded Flutterwave, which is similar to Stripe, and they have expanded across Africa. We were also the lead investor in Yeahka, which is similar to Square in China. These products are heavily localized —tin for instance Yeahka is the largest processor of QR code payments in the world, but QR code payments are not popular in the US yet.
How much time are you spending on fintech right now? Is the market under-heated, over-heated, or just right?
Fintech is about a quarter of my time right now. We continue to see interesting new ideas and the valuations have been more or less consistent over time. The broader market doesn’t impact us very much because we tend to have a 10 year holding period.
Are there startups that you wish you would see in the industry but don’t?