Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019. 

Fintech funding and activity for investing solutions is remarkably healthy given the macroeconomic conditions. The Stash ($112million in April 2020) and Robinhood ($280million in May 2020 and $320million in July) sizable funding rounds and the acquisition of Personal Capital by Empower Retirement (c.$825million in June 2020) are just three 2020 picks from the mature US market.

This past week, Europe adds Scalable Capital`s €50million ($58million) funding round which brings to the spotlight the stubborn difference of the US market with Europe in terms of savings, investing styles and behaviors.

Europe has dozens and dozens of so-called standalone robo-advisors. Germany is probably one of the European countries that is flooded with such offerings. Techfluence use to track them (up until 2017). The European map included nearly 100 offerings with Germany having 26 and the UK less than 20. These include B2B and B2C offerings and dual ones (like Scalable which started B2C and then added B2B). Only a few were operating in more than one European country, and again Scalable Capital was one those who started in Germany (2014), then in 2016 in Austria and the UK. In 2018 Scalable Capital entered the Swiss market too, only to service German customers with euro investments but had to withdraw in late 2019 due to regulatory. At the same time, Elvia e-invest an Allianz robo-offering powered by Saas WealthTech Additiv, was also folding which is another piece of evidence of how challenging it has been to penetrate the Swiss wealth market with robo-offerings.

Europe, low-cost investing, standalone robo-advisors

The ETF market in Europe has actually grown considerably. Deutsche Bank`s research report[1] (Feb 2020) compares the 10yr growth of AUM in ETFs from 2009-2019 and shows that European ETFs rose 5.5 times and US ETFs rose 4+ times. Both Western markets have had a decade of strong growth however, the absolute size of the European market ($1.13trillion) remains small – circa ¼ of the US market ($4+ trillion).

The report emphasizes the difference between retail investors in the US and Europe. Few European retail investors invest in ETFs as they prefer actively managed investment funds.

According to industry estimates, European retail investors hold around 15% of the ETFs whereas in the US, it is 3 times higher with retail holdings close to 45% in ETFs.

In addition to the traditional preference of Europeans towards actively managed investments rather than passive ETFs, Europe is faced with the complexity and variety of pension schemes of the continent countries which in most cases don’t leave a lot of choice to investors.

The only European robo advisors that operate in more than one country, are MoneyFarm, Scalable Capital, and ETFmatic.

The only European robo-advisors that have raised a meaningful amount of funding are Nutmeg, MoneyFarm, and Scalable Capital. Three out of ninety-three robo-advisors is dismal. The total amount raised by Nutmeg, MoneyFarm, and Scalable Capital is $404million altogether. Nutmeg $153million, Moneyfarm $127million and Scalable Capital $124million.

MoneyFarm acquired Vaamo in 2018 to grow its B2B business and has established partnerships with Poste Italiane, Allianz, and Yapily (the open banking API provider).

Scalable Capital has been aggressive through partnership and its B2B offering. They already have partnerships with The Austrian Raiffeisen Group, Spanish Santander subsidiary Openbank, and Raisin the pan European deposit innovator.

Scalable Capital is quietly also rebundling. It is offering fixed term deposits through Raisin. It just recently went live with a free trading service in Germany through a partnership with the electronic trading platform Gettex which belongs to the Munich Stock exchange.

German investors for the first time can invest with ZERO commissions in any ETF and have an ETF savings free account. Scalable capital offers tier pricing with flat fees. For example, the “Prime Broker” plan offers an unlimited number of trades for 2.99 Euros per month as a flat rate.

Once Scalable offers flat-fee and free brokerage services in the UK, then it competes directly with Freetrade, the UK zero -commission provider and with Revolut trading too.

[1] German robo-advisors March of the machines driving passive investments

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