The Newest Trends in Middle Eastern Fintech

There are two great ways to get a sense of the newest regional trends in Middle Eastern fintech: 1) attend industry conferences 2) talk to accelerators. We’re 100% up-to-date on the first piece (FinovateMiddleEast is taking place November 20 and 21 in Dubai). And as far as accelerators go, we recently caught up with one of the newest fintech accelerators in the region, the DIFC FinTech Hive, to get a sense of the local fintech trends.

The Fintech Hive recently clued us in on what trends its mentorship partners in the Middle East, Africa, and South Asia are currently interested in. The following are the top categories:

  • Credit scoring
  • Customer acquisition
  • Onboarding
  • Security
  • Data analytics

Additionally, the mentorship partners want to focus on insurtech-specific trends, including:

  • Data aggregation
  • Connectivity
  • Customer journey

This list comes from the accelerator’s 21 mentorship partners, which include financial institutions, insurance firms, and strategic partners. Specifically, the group’s partners include Finablr, Standard Chartered, Visa, AXA Gulf, AIG, Cigna Insurance Middle East S.A.L., and MetLife.

If you’re a startup interested in participating in the DIFC Fintech Hive accelerator, be sure to submit your application by June 10 for the next three-month program, which begins this September.

First Look: Honeycomb Credit

Last fall Finovate added an Accelerator Showcase where pre-seed startups from fintech accelerators pitch on stage for three minutes. That’s where I first heard George Cook, founder of Honeycomb Credit, one of two startups selected to pitch at FinovateSpring by accelerator AlphaLab.

The Pittsburgh-based company got its start as a class project at Dartmouth’s graduate school of business. But co-founder Cook and his classmate Ken Martin received so much positive feedback from the idea they decided to make it a real company in 2017.

The company is joining what was expected to be a crowded space of SMB crowdfunding. But the lengthy implementation of the U.S. crowdfunding framework has caused many of the 38 startups in the space to give up leaving room for new companies such as Honeycomb. The notable exception is Funding Circle which has raised $375M (note 1). Other active platforms include Finovate alums P2Binvestor (raised $9.2 million) and SeedInvest (raised $8.2 million) along with Crowdfunder (raised $6M), Fundable (acquired by Startups.co) and Wefunder (raised $2.3 million). Indiegogo (raised $56 million) is also now involved in equity crowdfunding, although it is currently a small piece of its overall rewards-based funding platform.

Honeycomb is a debt crowdfunder where investors loan money at bank-like rates to SMBs currently unqualified for bank funding. In addition, like Kickstarter or Indiegogo, non-monetary gifts and experiences are offered to incent action on the part of would-be-lenders. For example, Pittsburgh Pickle offered t-shirts to the first 20 investors in its $10,000 to $50,000 crowdfunding campaign (see screenshot at top). It also invited anyone who kicked in at least $1,000 to an exclusive event at the pickling facility.

The idea is to enable small businesses to tap their local community for debt capital on better terms than higher-rate alt-lenders such as Kabbage or OnDeck. According to Cook, its SMB customers are “near bank quality” but lack one or two of the typical prerequisites such as 3 years of tax returns. But at least one of their beta customers used Honeycomb not because they couldn’t get bank financing, but because they’d been burned in the past and preferred a non-bank alternative.

The loans are funded by individual investors on the platform, using the same model as Lending Club, Prosper, or Zopa. Thanks to the provisions of the crowdfunding act (specifically Reg CF), investors need not be accredited, an important aspect of the Honeycomb business model, which relies on the borrower’s friends, family and customers to fund the loan. Eventually as the business scales, HoneyComb expects to attract institutional and high net worth funds seeking yields from alternative assets.

Honeycomb’s special sauce is community and collateralization. It lends to existing businesses looking to expand expand their share of wallet within their predefined market. For example, it recently ran a successful campaign for an ice cream shop to buy a truck for mobile sales. And whenever possible, HoneyComb takes equipment as collateral on the loans.

Pricing
Borrowers typically pay platform lenders 8% to 12% interest on 3- to 5-year installment loans. At the conclusion of a successful money-raising campaign, Honeycomb charges borrowers an 8% fee and investors 2.85%. Honeycomb doesn’t hold loans on its balance sheet, so all credit risk is pushed to investor/lenders.

Go-to-Market Strategy
The startup has begun rolling out the platform having ran two successful campaigns, raising $50,000 for an ice cream truck and $25,000 for several new greenhouses. There are currently two more in process, one of which has already surpassing its minimum raise amount.

To expand, Honeycomb is currently raising a seed round. They have received good publicity in their local market, but to make that scale to other markets Honeycomb may need to find local partners such as local development groups, governments, and financial institutions. However, Honeycomb believes that the public nature of crowdfunding campaigns will drive a large number of new customers to its platform keeping customer acquisition rates low.

To reach profitability Honeycomb needs to expand beyond its Western Pennsylvania home market. That’s going to be a challenge without compromising quality. The company hopes to attract revenue from ancillary services and balance sheet lending down the road, but that’s much easier said than done in the fickle SMB sector.

Bottom Line
As with many businesses, it’s all about scale and efficiency. Honeycomb will need to automate its processes while simultaneously increasing loan size. But as loan sizes increase, they will begin to run up against a raft of competitors, including banks and credit unions. But I also think there is a good opportunity to license the Honeycomb platform to banks and credit unions wanting to add crowdfunding to their SMB services.


Author: Jim Bruene (@netbanker) is Founder & Advisor at Finovate as well as Principal of BUX Certified, a financial services user-experience standard. 


Notes:
1. Also in the UK there are 4 other platforms with good traction: Crowdcube (£21.2M raised for itself) Seedrs (£13.7M raised), SyndicateRoom (£8.7M raised) and Venturefounders (£6.8M raised).

Plug and Play Plans New Middle East Innovation Platform in Partnership with Abu Dhabi Global Market

The agreement by Silicon Valley accelerator Plug and Play and Abu Dhabi Global Market (ADGM) is the latest sign that the hot MENA fintech sector is about to get a lot warmer. The new partnership calls for Plug and Play to open a new office in Abu Dhabi and bring some of its top fintech startups along to work with local FIs.

“We have already talked to close to 100 portfolio companies that we have investments in, (who) would like to come to the Middle East, implement their technologies with different banks, as well as perhaps raise money here and have a technical team here,” Plug and Play chief executive Saeed Amidi told The National late last month when the project was announced. The Abu Dhabi-based accelerator will be part of the new ADGM FinTech Innovation Centre – slated to open in 2018 – which will house ADGM’s RegLab fintech sandbox program.

“We are planning to bring to this fintech innovation platform 10 to 20 startups per year,” Amidi added, “say 10 in each batch; generally we (would) invest in half of those startups.” Accelerator programs would run for three months with the first cohort coming onboard in the third quarter of 2018.

A frequent Finovate event sponsor, Plug and Play has made the globalization of Silicon Valley one of its top goals in recent years. The accelerator has expanded from six satellite offices to 24 since 2015, and refers to their upcoming Abu Dhabi branch as “the latest addition to our global family.” In addition to helping connect local FIs with fintech startups and international banks, Plug and Play is hoping the initiative in Abu Dhabi will “generate POCs, commercial agreements, and investment opportunities” for startups and FIs.

“Through ADGM’s regional sphere of influence, we are able to empower startups and entrepreneurs to gain access to top-tier regulatory mentorship, whereby they can gain more ‘push-power’ in working with financial enterprises in the private sector,” explained Director of Plug and Play EMEA Omeed Mehrinfar.

Founded in 2006, the Sunnyvale, California-based innovation platform has invested and accelerated some of the most familiar names in technology such as Dropbox, SoundHound, and Zoosk, as well as Finovate alums like PayPal, Credit Sesame, and Lending Club. The firm has more than 6,000 startups and 180 official corporate partners, and provides active investments with 200 leading Silicon Valley VC. More than $6 billion has been invested in Plug and Play portfolio companies.

JP Morgan Chase’s Startup Portfolio with CFSi

JP Morgan Chase is more than halfway through its 5-year $30 million commitment to startup innovation in its partnership with CFSi’s FinLab. Each of the past three years, fintech startups have been invited to apply to the accelerator which is focused on finding financial solutions for low- and moderate-income consumers (for example, this year’s challenge).

So far, CFSi/Chase have invested $250,000 each in 24 for-profit companies for a total of $6.0 million (notes 1, 2). In addition, they’ve made two grants totalling $500,000  The investments (note 3) were made in June 2015, June 2016, and this month, so it’s too early to see how well the venture is at picking winners (official rules here).

We do know that two of last year’s class are already out of business, Bee and Remedy, a surprising result for companies winning a quarter-million investment from the third largest bank in the world just 12 months ago. On the other hand, the class of 2015 already has six early winners from the 9 investments (below), so things look good overall:

  • Digit, the impulse savings app which has raised $36.5 million
  • LendStreet, a marketplace-lending platform which has raised $28.25 million
  • Ascend, the loan management service, which has raised $12.75 million
  • Even, the income smoothing service, which has raised $12.25 million
  • SupportPay, the child-support management app, which has raised $7.1 million
  • Propel, the food-stamp support app, which has raised $5.4 million

Since the average investment is just 12 month’s old, it’s too early to judge CFSi/Chase’s seed-stage investing prowess. And that isn’t even the primary goal of the joint program with CFSI. But it’s always nice to turn a profit while doing good. Based on the excellent performance of its first class, we estimate that the venture is already sitting on a paper gain in excess of $1.5 million (note 3) across the 21 for-profit companies still in business, a 50% total gain on an average of $3 million invested. And they may have had some return of capital with the acquisition of Prism by PayNearMe.

 


Total Return (2015 to 2017)

Total invested: $6.0 million in 24 companies (note 2)

Total grants: $500,000 in 2 non-profits (note 3)

Total returned: 1 exit, unknown valuation

Total market value: $7.5 million+ (note 4)

Paper gain: $1.5 million+ (50% total gain on average of $3 million invested from July 2015 to date)


 

Results by cohort:

2017 Investments


Total invested: $2.0 million

Total market value: $2.0 million

Paper gain/loss: $0


Blueprint Income: Creating the future pension – a simple, pre-determined income stream backed by insurance companies.

Total funding: $250,000

DavePredicts your “7-day low” checking account balance and offers advances on your paycheck at 0% interest to help prevent overdraft.

Total funding: $3.25 million

EverSafeMonitors seniors’ bank and investment accounts, credit cards and credit reports — serving as an extra set of eyes to detect fraud, scams, and identity theft.

Total funding: $250,000 (Finovate alum)

Grove: Personalized, comprehensive financial advice that is accessible and affordable.

Total funding: $250,000

Nova: World’s first cross-border credit reporting agency by building data partnerships across the globe.

Total funding: $250,000

Point: Home-equity platform giving homeowners cash today for a share of their home’s future appreciation.

Total funding: $250,000

Token TransitMobile app to quickly and easily pay for public transportation.

Total funding: $250,000

Tomorrow: Providing long-term financial security to busy millennials and working families.

Total funding: $2.85 million

 

2016 Investments


Total $ invested: $2.0 million + $250,000 non-profit grant

Total $ returned: 2 startups shut down, assume $0 return to investors

Total market value: $1.5 million

Paper gain/loss: ($500,000)


Albert: Mobile app that improves financial health with practical, actionable financial recommendations.

Total funding: $2.85 million

Value to Chase/CFSi: $250,000+

Bee: Mobile banking alternative to the under/un-banked (In process of shutting down)

Total funding: $4.85 million

Value to Chase/CFSi = $0

Earn: Non-profit leveraging technology to solve America’s savings crisis.

Total funding: $250,000

Value to Chase/CFSi: $0 (non-profit grant)

EarnUp: Platform that intelligently automates loan payments and identifies earning opportunities for the 200 million indebted Americans.

Total funding: $3.25 million

Value to Chase/CFSi: $250,000+

CreditHero: eCreditHero helps consumers fix their credit report errors for free.

Total funding: $250,000

Value to Chase/CFSi: TBD

Everlance: App for freelancers to automatically track their business miles and expenses.

Total funding: $250,000

Value to Chase/CFSi: TBD

RemedyProtects people from medical bill errors and overcharges, saving the average family over $1,000 per year (shut down 14 July 2017)

Total funding: $2.15 million

Value to Chase/CFSi: $0

ScratchModern-day loan servicer that delivers a borrower-first experience.

Total funding: $250,000

Value to Chase/CFSi: TBD

WiseBanyan: Free financial advisor.

Total funding: $250,000 (Finovate alum)

Value to Chase/CFSi: TBD

 

2015 Investments


Total invested: $2.0 million + $250,000 non-profit grant

Total returned: 1 exit, unknown valuation

Total market value: $4 million+

Paper gain: $2 million


AscendReduces risk on current loans and rewards the borrower by lowering interest payments for positive financial behaviors.

Total funding: $12.75 million

Value to Chase/CFSi: $500,000+

DigitAutomated savings tool that identifies small amounts of money that can be moved from checking into savings based on spending habits.

Total funding: $36.5 million

Value to Chase/CFSi: $1 million+

EvenTurns the inconsistent income of hourly and part-time workers into a steady salary.

Total funding: $12.25 million

Value to Chase/CFSi: $500,000+

LendStreetMarketplace-lending platform that helps borrowers reduce their debt and rebuild their credit.

Total funding: $28.25 million

Value to Chase/CFSi: $1 million+

PayGoalNon-profit workplace tool that enables financially underserved workers to improve their financial health.

Total funding: $250,000

Value to Chase/CFSi: $0 (non-profit grant)

PrismComprehensive bill payment and management app that helps people better manage their personal finances. In early 2016, Prism was acquired by fintech company PayNearMe.

Total funding: $3.8 million

Value to Chase/CFSi: Exited at unknown price

PropelSimplifies the food stamp application process by streamlining the initial enrollment form.

Total funding: $5.4 million

Value to Chase/CFSi: $500,000+

PuddleReduces risk on current loans and rewards the borrower by lowering interest payments for positive financial behaviors.

Total funding: $250,000

Value to Chase/CFSi: TBD

SupportPayAutomated payment platform that enables parents to share child expenses and exchange child support.

Total funding: $7.1 million

Value to Chase/CFSi: $500,000+


 

Author: Jim Bruene is Founder & Senior Advisor to Finovate as well as Principal of BUX Advisors, a financial services user-experience consultancy. 


Notes:

  1. We only know that Chase is a “founding partner” in the $30 million effort. We don’t know if Chase is the sole investor, or merely the lead. And we don’t know what happens with any investment gains, whether they go back into CFSi’s balance sheet or accrue to Chase and any other investors involved.
  2. It appears that the companies are each offered a $250,000 convertible note. But we don’t know the overall terms, how many companies accept the financing, or if they are all $250,000. For the sake of this post, we are assuming everyone takes the full $250,000. We also don’t know if Chase is earmarking part of the $30 million commitment for add-on investments. So far, there are no public record of add-on investments in the 26 companies.
  3. Non-profits receive restricted grants of $250,000.
  4. Since none of the companies have revealed valuations in their subsequent financings, to value Chase’s stake, we are assuming a 2x valuation on A-rounds and a 4x valuation on B-rounds.

Fintech 71 Accelerator Application Deadline Less Than One Week Away

If you’re a startup with a ready-for-market solution that can be used by large FIs or scaled to millions of customers, then Columbus, Ohio’s newest fintech accelerator, Fintech 71, may be just what you’re looking for.

But don’t just look. The application deadline for Fintech 71 is less than one week away on July 17th. For more information – and to apply today – check out Fintech71’s registration page .

All of the companies selected will receive a $100,000 stipend in exchange for participation within Fintech71’s Accelerator. Fintech71 is a non-profit organization and will take a small percentage of equity, from 0-6%, that will be stage-appropriate. The accelerator will bring on up to 12 fintech startups for its first class that starts September 10, 2017.

Fintech71’s ideal fintech startup will have a product that is ready for the market and to be utilized by a large financial service company or scaled to millions of consumers—allowing the corporate sponsor, partner, mentor network of Fintech71 to bring tremendous value to the startups selected. Fintech71 is focused on startups across the spectrum of fintech verticals including:

  • Digital banking
  • Insurtech
  • Payments
  • Personal finance and investing
  • Institutional finance and investing
  • Lending
  • Regtech

Fintech 71 is also interested in startups using technologies like data analytics, artificial intelligence/machine learning, and security authentication to build financial services solutions.

Fintech71 continues to build momentum with more and more corporate financial services companies jumping on board to support this statewide initiative. The alignment of the public sector, private sector, and fintech entrepreneurs within Ohio has created a world class fintech hub that is sourcing fintech startups globally to join their inaugural accelerator class. The current corporate Sponsor/Partner list includes a host of companies with a presence in Ohio such as Visa, Key Bank, JPMorganChase, Grange Insurance, Huntington Bank, Silicon Valley Bank, and a host of other corporations.

What is unique about Ohio is that it is the home of one of the largest financial service ecosystems, combined with an incredible millennial talent base and a ton of great universities, centered around Ohio State University. In addition, Ohio enjoys an extremely attractive cost of living and “cost of doing business” environment which is ideal for startups during their early growth years. The state’s attractive business and living environment combined with access to some of the top financial service brands in the world is a recipe for success.

Check out fintech71.com to apply. And remember the deadline to get applications in for consideration is July 17.

Five Weeks to SixThirty: Accelerator Program Sets July 11th Deadline

sixthirty_logo.jpgAre you a fintech startup looking to up your game? Then SixThirty has a date for you.

Friday, July 11th: the deadline for applications for its Fall 2014 Accelerator class.
Click here for more information and to get the process started.
SixThirty gives fintech startups $100,000 in funding (in exchange for an equity stake between 5-10%). The young companies also get valuable training, mentoring, and networking connections with some of the biggest financial services companies in the area. 
And for the uninitiated, it’s worth knowing that St. Louis, where SixThirty is located, is a growing financial hub, serving as the home base for financial corporations such as Edward Jones, Scottrade, and Wells Fargo Advisors. The region has received high marks from SixThirty program participants, as well.
SixThirty_homepage_new
Add to that Square co-founder Jim McKelvey serving as SixThirty’s managing director and it is no surprise to see the positive buzz the program has generated in the little time it has been a part of the accelerator/incubator scene.
The accelerator program is divided into spring and fall sessions, with four startups participating in each for a total of eight companies a year. Joining Finovate alum, gremlin in SixThirty’s most recent Spring 2014 cohort were PromisePay, LendingStandard, and WealthAccess. Alongside Finovate alum, miiCard in the program’s previous, Fall 2013 cohort were Upside, Hedgeable, and XYverify.
SixThirty is backed by the St. Louis Chamber of Commerce and Cultivation Capital, a venture capital firm based in St. Louis.