The last few weeks have yielded more announcements of challenger brands receiving funding from strategic investors. Tracing the funding rounds of robo-advisors over the last 12 months reveals a distinct trend:
This isn’t really a great surprise – the so-called robo-advisor model is disruptive to the extent that it dramatically lowers the cost of servicing HNW (or indeed non-HNW) customers, but it is an area where the barriers to earning trust are significant and whilst challenger brands are busy earning that trust, its suffering from challenging unit economics. This is not a uniquely UK-centric or European problem.
It feels like a necessary component of this earned trust is thriving over a prolonged period of time – which is something that Zopa would seem to have benefitted from in the alternative lending market – as it now establishes itself as a credible challenger bank.
This “survival requirement” is of course anathema to the venture model which pursues non-linear returns. So for the time being the best source of capital for this market remains clear, but I believe we will hit a tipping point for the b2c model when wise VC’s will re-engage – the question is what are the leading indicators that they should be looking out for…