EQT: the Future of Fintech

Since the founding of EQT Ventures and Growth, we have been strong believers in the potential of founders building financial technology. As part of EQT, one of the largest private equity investors on the globe with €224 billion in total assets under management, we’re deeply embedded in the challenges and opportunities of the fintech founder ecosystem.

The EQT Ventures and Growth fintech portfolio

Our portfolio

We’re privileged to have backed some of Europe’s emerging fintech category leaders such as Banking Circle (BaaS), Cleo (AI financial assistant), Mambu (Core Banking), Mollie (PSP), and Volt (Payments), amongst others, and have a front row seat to the incredible growth of these companies. We’ve supported 20 fintechs that collectively raised €3.1bn. Collectively, they handle an impressive >€600bn in transactions, making up more than 10% of European eCommerce. Most importantly, we are privileged to have backed some of the best founders building in this business — we are humbled daily working with the founders in our fintech portfolio. Fintech remains one of our core focus areas in our generalist fund strategy.

Vertical application layer — hyper-tailored finance

While horizontal players have been prevalent for years, it’s only recently that we’ve witnessed the rise of vertically-specialised fintech applications. The usage and application of fintech solutions differ widely across sectors, calling for sector-specific solutions:

* Juni targets the creator economy: In e-commerce, brands are struggling to access crucial features like cashback, virtual cards and payments, but generalist offerings are not tailored to online marketing spending and marketing analytics. The +6 trillion annual e-commerce sales require granular industry-specific solutions delivered via financial applications such as Juni.

* Cleo tailors money management for Gen Z with AI: 81% of Gen Z says that money matters are a leading source of stress; significantly more than any other generation. With customised language, features, and incentives, Cleo’s an AI assistant that helps over 6m people across the US manage their money every week.

* Treecard makes finance more sustainable: We are experiencing a profound behavioural change against climate change: 55% of consumers would like a say on the types of green financial products and services their financial institution develops in future. Treecard enables this change.

* ManyPets provides pet insurance: Pets are gradually perceived as family members (i.e. « humanisation »). Accelerated by the pandemic, strong tailwinds have continued to push pet insurance penetration across most developed markets, with still meaningful runway ahead (e.g. c. 2% penetration in the US).

Aggregators — when, not if

The world is experiencing a dramatic shift in payments: decline in cash usage, surge in digital payments, new and international payment methods, etc. As fintech and payment spaces mature, services are becoming more commoditised and hence aggregated. And rightly so, think about the behind-the-scenes complexity of facilitating an internet transaction on a daily basis with providers like Uber, Amazon, Etsy. Combine that with the fact that online payments are estimated to be a $9 trillion market, growing 19–22% annually. That is why we have led high-conviction investments in:

* Payrails, connecting enterprise payment operations: A $30 billion market driven by the shift towards multiprocessors and productisation of enterprise payments.

* Billhop, aggregating credit across large enterprises to unlock working capital and tailspend via existing credit arrangements: Global payments revenues are in the trillions; European +B2B is circa €300 billion

* Volt, paving the way for account-to-account payments: Historically, platforms like Visa and MasterCard dominated. Now, direct account-to-account payments are gaining share rapidly, with 58 countries adopting instant payment systems.

* Anyfin consolidating lending: The need for better debt management solutions is evident as consumer loans constitute 18% of total household debt, growing by 7% annually.

* Onramper, simplifying access to crypto: Users lack access to the most advantageous price and process of getting into the crypto ecosystem where $50 billion are being transacted every day (despite the crypto slowdown).

Infrastructure — a turning tanker

Traditional banking and insurance services sit at the core of all financial products. Historically it has been slow, expensive and manual. When services are manual, we know that tech can play a crucial role:

* Banking Circle and Griffin, powering banking-as-a-service and payments software: Our two companies are at the heart of banking and payments systems facilitating transaction processing and new bank accounts in under 5 minutes instead of 5 days at zero marginal cost.

* Mambu, re-architecting banking software: Representing 25% of all tech investments across industries ($780 billion), core banking is crying out for an overhaul. Especially since 56% of bankers highlight manual data collection and iterative processes as their main challenges.

* Mollie and Token, rails to enable payments globally: the e-commerce industry that is now handling over $6 trillion volume is still served with inefficient local payment acceptance capabilities.

* Kota and Cytora, bringing financial benefits: Recent financial tightening has stressed the need for operational efficiency for insurers. No process is left behind. Distribution: whilst channels are the lifeblood of insurance, new API-driven approaches like Kota are opening new avenues. Underwriting: Cytora uses AI to streamline an insurer’s risk intake, reduce manual processes, and drive a 100% GWP uplift per FTE.

With a lot more to come — these are some of the future themes we are excited about:

• Payments: The majority of the world’s payments still go through the same payment networks as a few decades ago. Payin, stored value and payouts have become significantly commoditised and will continue to be commoditised. There will be 2nd and 3rd order effects to this such as the rise of processor-agnostic infrastructure which we are excited about. Additionally, the rise of real-time payments (e.g FedNow) creates several investment opportunities in the space.

• Digital currency rails (Stablecoins, deposit tokens, CBDCs): The current crypto winter notwithstanding, we believe in digital currency rails for as long as they solve core problems. In several of these cases, digital currency rails are not the reason to build, but rather the logical choice to solve a problem (e.g. x-border money movement).

• Wealthtech: Wealthtech software is a museum of bad technology, with several large incumbents that have little room to innovate. Tailwinds of AI are supercharging the wealth manager, in addition we’re excited about white-label ETFs and the ability to make the back office significantly more efficient.

• Cross-border payments and the disruption of correspondent banking: The majority of the world’s money is still moved on antiquated infrastructure. FX fees are still prohibitive, and x-border money movement and settlement remain a big problem. We’re keen to meet teams attacking this problem head-on.

• Fintech x AI: Like most other investors in the world, we believe that there is a lot of value to be gained in supercharging analysts and automating several repetitive tasks that are performed in large organisations. Being one of the largest investors in the world across different stages, we have a unique and deep understanding of the pain points faced by analysts across different fund structures and are actively meeting teams building in this space.

• Climate x Fintech: The greenification of all areas of finance in wealth, capital markets, and insurance is happening fast. Finance is at the core of how people direct the economy and direct spending. By challenging this industry, a positive and long-lasting impact can be created.
  
  

  We’re super bullish on fintech and still believe there are tons of problems to be solved. For the disruptors and pioneers building the future of fintech, we’re here to support, and partner.
  
  If you see the world differently and are driven by innovation in fintech, please reach out to fintech@eqtventures.com.
  
  We’d love to hear from you!
  
  The EQT Fintech Team