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Over the past year, startup banks have proven that they have a shot at disrupting retail banking. These challengers have amassed a war chest of funding, announced some ambitious international expansion plans and attracted millions of customers.

And yet, building a bank has proven to be even harder than building a startup in general. Retail banks aren’t willing to sit back and watch startups eat their lunch. Here’s a look back at the biggest moves of the year from challenger banks, some trends you should keep an eye on and the upcoming challenges for those startups.

A year of aggressive growth

Due to the regulatory framework and the size of the market, it is much easier to launch a challenger bank in Europe compared to anywhere else in the world. That’s why challenger banks have been thriving in Europe.

When a company gets a full banking license from the central bank of a EU country, the startup can passport its license across all EU countries and operate across the continent.

N26 raised a ton of money in 2019: last January, the Berlin-based startup announced a $ 300 million funding round, raising another $ 170 million in July. The company is now valued at $ 3.5 billion.

With more than 3.5 million customers in Europe, N26 announced some ambitious expansion plans. N26 is now live in the U.S. and is already planning a launch in Brazil.

Revolut has also been aggressively expanding in order to beat its competitors to new markets. In addition to its home market in the U.K., Revolut is available across Europe. In 2019, the company expanded to Singapore and Australia and currently has at least 8 million users.

While Revolut announced that it should launch in the U.S. and Canada by the end of last year, the clock ran out on that prediction. The startup has been very transparent about its expansion plans, even though it sometimes means that you have to wait months or even years before a full rollout.

For instance, Revolut announced in September 2018 that it would launch in New Zealand, Hong Kong and Japan “in the coming months.” It later became “early 2019,” then “2019.” India, Brazil, South Africa, Mexico and the UAE have also all been mentioned at some point. In other words: launching a banking product in a new country is hard.

The U.S. is a tedious market as you have to get a license in all 50 states to operate across the country

Monzo has been doing well at home in the U.K. It has attracted 3 million customers and raised £113 million (~$ 144m) in funding last year from Y Combinator’s Continuity fund. It is expanding to the U.S., but the rollout has been slow.

Nubank is another well-funded challenger bank. Backed by Tencent, the startup has raised a $ 400 million Series F round from TCV. According to the WSJ, the startup has a valuation above $ 10 billion.

Originally from Brazil, Nubank expanded to Mexico and has plans to expand to Argentina.

Chime is increasingly looking like the bigger player in the U.S., recently raising a $ 500 million funding round and reached a valuation of $ 5.8 billion. It only operates in the U.S.

Starling Bank and Atom Bank only operate in the U.K. Bunq is based in Amsterdam with a product tailor-made for the Netherlands, but it accepts customers across Europe.

This isn’t meant to be an exhaustive list as it’s becoming increasingly hard to cover all challenger banks.

Subscription-based business model

There are a few basic features that separate challenger banks from legacy retail banks. Signing up is extremely simple and only requires a mobile app. The mobile app itself is usually much more polished than traditional banking apps.

Users receive a Mastercard or Visa debit card that communicates with the company’s server for each transaction. This way, users can receive instant notifications, block and unblock their cards and turn off some features, such as foreign payments, ATM withdrawals and online transactions.

Challenger banks usually customers promise no markup fees on transactions in foreign currencies, but there are sometimes some limits on this feature.

So how do these companies make money? When you pay with your card, banks generate a tiny, tiny interchange fee of money on each transaction. It’s really small, but it could become serious revenue at scale with tens of millions or hundreds of millions of users.

Challenger banks also offer other financial services like insurance products, foreign exchange or consumer credit. Some challenger banks develop those features in house, but many of those features are actually managed by external fintech partners. Challenger banks generate a commission on those products.

But the most promising product is premium subscriptions. While challenger banks started with free accounts and low, transparent fees, they have been selling premium subscriptions for a fixed monthly fee.

Challenger banks have become a software-as-a-service industry with a freemium component

For example, Revolut offers premium accounts for €7.99 per month with higher limits, some insurance benefits that you’d expect from a premium card and access to advanced features, such as cryptocurrencies and disposable virtual cards. There’s a super premium product for €13.99 called Metal with a metal card design, cashback on card payments and access to a concierge feature.

This seems a bit counterintuitive, but premium subscriptions have been performing well, according to discussions with people working in the industry. You pay a lot in subscription fees in order to avoid small transactional fees. (And you also get a cool card.)

Challenger banks have become a software-as-a-service industry with a freemium component. It leads to a premium positioning and high expectations from customers.

Revolut’s fees top out at €13.99/month.

Upcoming challenges


TechCrunch

Salesforce turned 20 this year, and the most successful pure enterprise SaaS company ever showed no signs of slowing down. Consider that the company finished the year on an $ 18 billion run rate, rushing toward its 2022 revenue goal of $ 20 billion. Oh, and it also spent a tidy $ 15.7 billion to buy Tableau this year in the most high-profile and expensive acquisition it’s ever made.

Co-founder, chairman and CEO Marc Benioff published a book called Trailblazer about running a socially responsible company, and made the rounds promoting it. In fact, he even stopped by TechCrunch Disrupt in San Francisco in September, telling the audience that capitalism as we know it is dead. Still, the company announced it was building two more towers in Sydney and Dublin.

It also promoted Bret Taylor just last week, who could be in line as heir apparent to Benioff and co-CEO Keith Block whenever they decide to retire. The company closed the year with a bang with a $ 4.5 billion quarter. Salesforce, for the most part, has somehow been able to balance Benioff’s vision of responsible capitalism while building a company makes money in bunches, one that continues to grow and flourish, and that’s showing no signs of slowing down anytime soon.

All aboard the gravy train

The company just keeps churning out good quarters. Here’s what this year looked like:


TechCrunch

Disney plans to bring its on-demand video streaming service to India and some Southeast Asian markets as soon as the second half of next year, two sources familiar with the company’s plans told TechCrunch.

In India, the company plans to bring Disney+’s catalog to Hotstar, a popular video streaming service it owns, after the end of next year’s IPL cricket tournament in May, the people said.

Soon afterwards, the company plans to expand Hotstar with Disney+ catalog to Indonesia and Malaysia among other Southeast Asian nations, said those people on the condition of anonymity.

A spokesperson for Hotstar declined to comment.

Hotstar leads the Indian video streaming market. The service said it had more than 300 million monthly subscribers during the IPL cricket tournament and ICC World Cup earlier this year. More than 25 million users simultaneously streamed one of the matches, setting a new global record.

However, Hotstar’s monthly userbase plummets below 60 million in weeks following IPL tournament, according to people who have seen the internal analytics. The arrival of more originals from Disney on Hotstar, which already offers a number of Disney-owned titles in India, could help the service sustain users after cricket seasons.

The international expansion of Hotstar isn’t a surprise as it has entered the U.S., Canada, and the U.K. in recent years. In an interview with TechCrunch earlier this year, Ipsita Dasgupta, president of Hotstar’s international operations, said so far the platform’s international strategy has been to enter markets with “high density of Indians.”

In an earnings call for the quarter that ended in June this year, Disney CEO Robert Iger hinted that the company, which snagged Indian entertainment conglomerate Star India as part of its $ 71.3 billion deal with 21st Century Fox, would bring Star India-operated Hotstar to Southeast Asian markets, though he did not offer a timeline.

Disney+, currently available in the U.S, Canada and the Netherlands, will expand to Australia and New Zealand next week, and the U.K., Germany, Italy, France and Spain on March 31, the company announced last week.

Price hike

Disney, which debut its video streaming service in the U.S. this week and has already amassed over 10 million subscribers, plans to raise the monthly subscription fee of Hotstar in India, where the service currently costs $ 14 a year, one of the two aforementioned people said.

A screenshot of Hotstar’s homepage

The price hike will happen towards the end of the first quarter next year, just ahead of commencement of next IPL cricket tournament season, they said. The company has not decided exactly how much it intends to charge, but one of the people said that it could go as high as $ 30 a year.

In other Southeast Asian markets, the service is likely to cost above $ 30 a year as well, both of the sources said. The prices have yet to be finalized, however, they said.

Even at those suggested price points, Disney would be able to undercut rivals on price. Until recently, Netflix charged at least $ 7 a month in India and other Southeast Asian markets. But this year, the on-demand streaming pioneer introduced a $ 2.8 monthly tier in India and $ 4 in Malaysia.

Hotstar offers a large library of local movies and titles syndicated from international cable networks and studios Showtime, HBO, and ABC (also owned by Disney). In its current international markets, Hotstar’s catalog is limited to some local content and large library of Indian titles.

In recent quarters, Hotstar has also set up an office in Tsinghua Science Park in Beijing, China and hired over 60 engineers and researchers as it looks to expand its tech infrastructure to service more future users, according to job recruitment posts and other data sourced from LinkedIn.


TechCrunch

Ebanx, the newly minted Brazilian financial services unicorn, expects to process $ 2 billion in payments by the end of the year and is looking to expand its offerings into domestic payments as it grows.

Since its launch in 2012, Ebanx has primarily focused on helping international merchants sell locally in Brazil. The Brazilian business accounts for nearly 90% of the company’s revenue, but as it expands into other markets the company is also broadening its suite of services.

The company moved into local payment processing in Brazil in April of this year, and recently closed on a new financing round from previous investors FTV and Endeavor Catalyst that values the company north of $ 1 billion, according to chief executive Alphonse Voigt. 

The money will be used to continue an aggressive hiring push in new markets and the launch of the company’s local payment services in other geographies, beginning with Colombia in the new year.

As credit cards penetrate the Latin American market, approval rates for local companies are increasing, which represents an attractive new source of revenue, Voigt says.

In addition to the local payment processing, Ebanx recently announced that it became a payment partner for the Uber Pay ecosystem in Latin America and would start processing cash voucher and bank transfer payments for Uber in Brazil and across Latin America. The company also inked deals with Coursera, Scribd, Trip.com and Shopify throughout Latin America. Finally, the company partnered with Mastercard on an initiative to increase electronic payments in the Brazilian state of Parana.


TechCrunch

SpaceX CEO Elon Musk delivered an update about Starship, the company’s nest generation spacecraft, which is being designed for full, “rapid reusability.” Musk discussed the technology behind the design of Starship, which has evolved somewhat through testing and development after its original introduction in 2017.

Among the updates detailed, Musk articulated how Starship will be used to make humans interplanetary, including its use of in-space refilling of propellant, by docking with tanker Starships already in orbit to transfer fuel. This is necessary for the spacecraft to get enough propellant on board post-launch to make the trip to the Moon or Mars from Earth – especially since it’ll be carrying as much as 100 tons of cargo on board to deliver to these other space-based bodies.

Elon Musk

These will include supplies for building bases on planetary surfaces, as well as up to 100 passengers on long-haul planet-to-planet flights.

Those are still very long-term goals, however, and Musk also went into detail about development of the current generation of Starship prototypes, as well as the planned future Starships that will go to orbit, and carry their first passengers.

The Starship Mk1, Mk2 and the forthcoming Mk3 and Mk4 orbital testers will all feature a fin design that will orient the vehicles so they can re-enter Earth’s atmosphere flat on their ‘bellies,’ coming in horizontal to increase drag and reduce velocity before performing a sort of flip maneuver to swing past vertical and then pendulum back to vertical for touch-down. In simulation, as shown at the event, it looks like it’ll be incredible to watch, since it looks more unwieldy than the current landing process for Falcon boosters, even if it’s still just as controlled.

SpaceX Starship Mk1 29

The front fins on the Starship prototype will help orient it for re-entry, a key component of reuse.

Musk also shared a look at the design planned for Super Heavy, the booster that will be used to propel Starship to orbit. This liquid-oxygen powered rocket, which is about 1.5 times the height of the Starship itself, will have 37 Raptor engines on board (the Starship will have only six) and will also feature six landing legs and deployable grid fins for its own return trip back to Earth.

In terms of testing and development timelines, Musk said that the Starship Mk1 he presented the plan in front of at Boca Chica should have its first test flight in just one to two months. That will be a flight to a sub-orbital altitude of just under 70,000 feet. The prototype spacecraft is already equipped with the three Raptor engines it will use for that flight.

Next, Starship Mk2, which is currently being built in Cape Canaveral, Florida, at another SpaceX facility, will attempt a similar high altitude test. Musk explained that both these families will continue to compete with each other internally and build Starship prototypes and rockets simultaneously. Mk3 will begin construction at Boca Chica beginning next month, and Mk4 will follow in Florida soon after. Musk said that the next Starship test flight after the sub-orbital trip for Mk1 might be an orbital launch with the full Super Heavy booster and Mk3.

Elon Musk 1

Musk said that SpaceX will be “building both ships and boosters here [at Boca Chica] and a the Cape as fast as we can,” and that they’ve already been improving both the design and the manufacture of the sections for the spacecraft “exponentially” as a result of the competition.

The Mk1 features welded panels to make up the rings you can see in the detail photograph of the prototype below, for instance, but Mk3 and Mk4 will use full sheets of stainless steel that cover the whole diameter of the spacecraft, welded with a single weld. There was one such ring on site at the event, which indicates SpaceX is already well on its way to making this work.

This rapid prototyping will enable SpaceX to build and fly Mk2 in two months, Mk3 in three months, Mk4 in four months and so on. Musk added that either Mk3 or Mk5 will be that orbital test, and that they want to be able to get that done in less than six months. He added that eventually, crewed missions aboard Starship will take place from both Boca Chica and the Cape, and that the facilities will be focused only on producing Starships until Mk4 is complete, at which point they’ll begin developing the Super Heavy booster.

Starship Mk1 night

In total, Musk said that SpaceX will need 100 of its Raptor rocket engines between now and its first orbital flight. At its current pace, he said, SpaceX is producing one every eight days – but they should increase that output to one every two days within a few months, and are targeting production of one per day for early in Q1 2019.

Because of their aggressive construction and testing cycle, and because, Musk said, the intent is to achieve rapid reusability to the point where you could “fly the booster 20 times a day” and “fly the [starship] three or four times a day,” the company should theoretically be able to prove viability very quickly. Musk said he’s optimistic that they could be flying people on test flights of Starship as early as next year as a result.

Part of its rapid reusability comes from the heat shield design that SpaceX has devised for Starship, which includes a stainless steel finish on one half of the spacecraft, with ceramic tiles used on the bottom where the heat is most intense during re-entry. Musk said that both of these are highly resistant to the stresses of reentry and conducive to frequent reuse, without incurring tremendous cost – unlike their initial concept, which used carbon fibre in place of stainless steel.

Musk is known for suggesting timelines that don’t quite match up with reality, but Starship’s early tests haven’t been so far behind his predictions thus far.


TechCrunch

Entrepreneur First (EF), the London-headquartered “talent investor” that recruits and backs individuals pre-team and pre-idea to enable them to found startups, has announced its plans to expand to Canada.

It marks the first time EF has entered North America. Along with London, EF currently operates in Berlin, Paris, Singapore, Hong Kong and Bangalore.

The new Canadian outpost, due to launch in early 2020, will be in Toronto and follows EF’s $ 115 million first closing of a new fund in February.

At the time of the fund announcement, the talent investor/company builder said it would use the capital to continue scaling globally — specifically, enabling it to back more than 2,200 individuals who join its various programs over the next three years.

This, we were told, should amount to around 300-plus venture-backed companies being created, three times the number of startups EF has helped create since being founded by McKinsey colleagues Matt Clifford and Alice Bentinck all the way back in 2011. Clearly, setting up shop in Toronto is part of the plan to achieve this.

Often – mistakingly – described as an accelerator, EF stands out from the many other startup programmes because of the way it backs individuals “pre-team, pre-idea”. This means that participants typically find their co-founder and found their respective companies on the programme, and that these startup may never have seen the light of day without EF.

It’s a new type of venture model that appears to be working so far — measured both in terms of exits and follow on funding — although question marks remain with regards to how scalable it can be, given that what works in one city and ecosystem with one set of EF staff may not be entirely replicable in another. Or, as one VC put it to me, “there’s only one Matt and Alice”.

With that said, others, such as Greylock partner and co-founder of LinkedIn Reid Hoffman, are convinced EF can scale. Greylock is an investor in EF and Hoffman previously told TechCrunch he can see there being between 20-50 cities “where Entrepreneur First is integral to creating a set of interesting tech companies in those areas.”

Cue a statement from Matt Clifford: “By launching a programme in a third continent, we’re a step closer to achieving our goal of giving the world’s most ambitious individuals the tools to build a company wherever they happen to be… Toronto is one of the fastest growing tech ecosystems in North America in terms of capital and talent, and the city represents a great opportunity for EF to encourage the next generation of ambitious founders.”


TechCrunch

Neuralink, the Elon Musk-led startup that the multi-entrepreneur founded in 2017, is working on technology that’s based around ‘threads’ which it says can be implanted in human brains with much less potential impact to the surrounding brain tissue vs. what’s currently used for today’s brain-computer interfaces. “Most people don’t realize, we can solve that with a chip,” Musk said to kick off Neuralink’s event, talking about some of the brain disorders and issues the company hopes to solve.

Musk also said that long-term Neuralink really is about figuring out a way to “achieve a sort of symbiosis with artificial intelligence.” “This is not a mandatory thing,” he added. “This is something you can choose to have if you want.”

For now, however, the aim is medical and the plan is to use a robot that Neuralink has created that operates somewhat like a “sewing machine” to implant this threads, which are incredibly thin I(like, between 4 and 6 μm, which means about one-third the diameter of the thinnest human hair), deep within a person’s brain tissue, where it will be capable of performing both read and write operations at very high data volume.

All of this sounds incredibly far-fetched, and to some extent it still is: Neuralink’s scientists told The New York Times in a briefing on Monday that the company has a “long way to go” before it can get anywhere near offering a commercial service. The main reason for breaking cover and talking more freely about what they’re working on, the paper reported, is that they’ll be better able to work out in the open and publish papers, which is definitely an easier mode of operation for something that requires as much connection with the academic and research community as this.

Neuralink1

Neuralink co-founder and president Max Hodak told the NYT that he’s optimistic Neuralink’s tech could theoretically see use somewhat soon in medical use, including potential applications enabling amputees to regain mobility via use of prosthetics and reversing vision, hearing or other sensory deficiencies. It’s hoping to actually begin working with human test subjects as early as next year, in fact, including via possible collaboration with neurosurgeons at Stanford and other institutions.

The current incarnation of Neuralink’s tech would involve drilling actual holes into a subject’s skull in order to insert the ultra thin threads, but future iterations will shift to using lasers instead to create tiny holes that are much less invasive and essentially not felt by a patient, Hodak told the paper. Working on humans next year with something that meets this description for a relatively new company might seem improbable, but Neuralink did demonstrate its technology used on a laboratory rat this week, with performance levels that exceed today’s systems in terms of data transfer. The data from the rat was gathered via a USB-C port in its head, and it provided about 10x more what the best current sensors can offer, according to Bloomberg.

Neurlalink’s advances vs. current BCI methods also include the combined thinness and flexibility of the ‘threads’ used, but one scientist wondered about their longevity when exposed to the brain, which contains a salt mix fluid that can damage and ultimately degrade plastics over time. The plan is also that the times electrodes implanted in the brain will be able to communicate wirelessly with chips outside the brain, providing real time monitoring with unprecedented freedom of motion, without any external wires or connections.

Elon Musk is bankrolling the majority of this endeavour as well as acting as its CEO, with $ 100 million of the $ 158 million its raised so far coming from the SpaceX and Tesla CEO. It has 90 employees thus far, and still seems to be hiring aggressively based on its minimal website (which basically only contains job ads). Elon Musk also noted at the outset of today’s presentation that the main reason for the event was in fact to recruit new talent.


TechCrunch

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