According to Mark Gormley, a partner with Capital Z Partners, very few venture capital Wrms focus on e-Wnance and, apart from the securities Wrms and banks themselves, Capital Z is the only one in Europe that deals exclusively with it.
| Mark Gormley: systems neglected in Europe | ||||||
Capital Z has primarily focused on enabling technologies and products that can be immediately utilized by the Wnancial sector. “We don’t want to be in any business where we have to change people’s mindsets,” says Gormley. “For anything where you have to change either the consumer’s mindset or a business’s way of doing things, we’re Wnding the adoption rates are slow and the cash burns are high. To us, those are diYcult investments to make, so what we’re looking to invest in is businesses that these big Wnancial institutions can use to improve and help their business.”
One such company Capital Z recently backed is MPower, an electronic advisory service. In the US, the product is already the leading service of its kind for retirement advice and is sold to companies that provide it to their employees. It is soon to be launched in Europe.
Gormley says the European version will have a diVerent focus and will target the Wnancial institution market, as a means of helping to cross-sell products. It is a system that ultimately aims to move online broking away from execution towards the provision of advice.
For example, Gormley says: “The biggest challenge for platforms such as [UK online bank] Egg is that their million customers have in total £10 billion of deposits, but on most of those deposits either they are losing money or barely breaking even. So, the biggest challenge is to take that money and have them invest in something else. Historically, most people have just said, ‘hey I’m going to sell product. I’m just going to keep sending products to these customers and hopefully at some point they are going to buy something.'”
With an investment philosophy focused on enablers, infrastructure providers and back-oYce facilitators – essentially anything that enhances Wnancial institutions – Capital Z Partners made another investment recently in Infotel, an online business information service provider in Spain.
According to Gormley, the appeal of the company is that it cuts out the middlemen such as information providers Equifax and Dunn&Bradstreet, enabling consumers to access such information themselves.
Data Distilleries, an Amsterdam-based analytical customer relationships management business has also been backed by Capital Z. The company’s technology enables Wnancial institutions electronically to gather real-time information on their customers to provide them with products catering to their speciWc Wnancial situations.
Gormley says it is quite clear that one of the biggest areas where securities Wrms and banks need help in Europe is with their back-oYce operations.
Though US Wrms have made signiWcant advances with their back-oYce operations – providing traders with direct, real-time links to the exchanges – Europe is still playing catch-up.
“Here in Europe it is a mess,” Gormley says. “There are multiple exchanges, multiple products that trade on diVerent exchanges and all of the back oYces are like spaghetti. So, right now one of the hottest areas that all of these banks are investing in is trying to improve their back-oYce operations. If you think about what has happened here in Europe, they haven’t invested in the technology really. They went on hiatus and have been focusing over the last 10 years on mergers, the euro and the Y2K problem. So they didn’t invest that much in the systems and all of the sudden they looked up and said ‘Oh my God, we’ve neglected on the systems side. And, though they’re not likely to say this, they’re very behind on their back-oYce infrastructures to support their businesses.”
For eWnanceworks, a venture capital Wrm founded and capitalized by Capital Z and General Atlantic Partners, a company that has proved appealing in this area is Cash Edge, a system that enables Wnancial institutions to provide aggregation services to their customers that allow them to simultaneously access accounts held with several banks and institutions and to electronically and securely move funds between them. The system also includes a Wnancial advisory aspect.
According to Doug Woodham, managing director at eWnanceworks, though banks are clearly still competing against one another, one way they are Wnding it necessary to diVerentiate themselves is by providing tools that allow consumers to access not only the services they provide themselves but also those oVered by competitors. Since most consumers have investments spread across specialist institutions, those systems that make it easiest for them to access them will ultimately prove most attractive.
“It’s repositioning yourself as a Wnancial institution so that you are the natural hub for your customer’s Wnancial relationships,” says Woodham. “Even though you may not have all of the business that they are doing, you want to become the natural hub for their activity. So Wnancial account aggregation plus money movement capabilities are two absolutely critical components to you as a Wnancial institution in becoming that hub.”
