In the bowels of office blocks overlooking the redevelopment of London’s Kings Cross sits the architect of Nutmeg, a start-up with ambition to marry digital technologies with financial services.
The business of wealth management appears ripe for disruption by the innovations of Nutmeg, a five-year-old venture that co-founder and chief executive Nick Hungerford says will be a top-10 UK money manager by this time next year. His bright green jacket contrasts with the blue and black suits striding into the basement hall for Fintech Week 2015.
“For 300 years rich people have had two choices: give your money to someone else to manage; or do it yourself,” says Nick, his British accent bearing no hint of the two years he spent at California’s Stanford Graduate School of Business.
“Suddenly this wave of companies has come along and said there is a third way,” he says, combining the services offered by institutional wealth managers with a “DIY” approach online.
Rejected 50 times before securing investment, Nutmeg has raised nearly $40 million in funding from investors including Schroders, Europe’s second largest asset manager, and London VC firm Balderton Capital.
A banker turned entrepreneur who cut his teeth at Barclays Wealth, Nick hit upon the idea for Nutmeg while studying for an MBA in 2010, after being encouraged by Eric Schmidt, the former CEO of Google, who was teaching at Stanford.
Nutmeg offers an online, low-cost service, with professionals who invest money on clients’ behalf, but without the advice that would bring regulatory burden.
Nick joins a throng of business schoolers who are bringing innovation to financial services through disruptive tech.
Jannick says there is a perception that to become a star performer, traders must work 24 hours a day: “If you want to be a rockstar trader it’s really no different than if you want to get into the NBA — you need to be the first guy in the gym and the last guy out.”
But Tradable’s collection of trading tools enable people to succeed without necessarily having to “quit your day job”, Jannick says.
Rising demand for online and mobile services have created the opportunity for these fintech start-ups.
The British Bankers’ Association forecasts that by 2020, consumers will use their mobiles to manage their current accounts 2.3 billion times — more than internet, branch and telephone banking put together.
“Being mobile-enabled is a must, not a maybe, and banks that don’t engage properly with mobile channels risk losing relevance in customer’s lives,” says David Ebstein, head of digital for financial services at EY, the consultancy.
“We have been very focused on our internal operations and technology,” says Nutmeg’s Nick.
For Nutmeg, that has meant overcoming technological barriers. Most of today’s financial IT systems are “horrendous”, Nick says. “Take payments for example: they’re built on 1980s mainframes.”
The service has been labelled as “democratizing finance” because it potentially opens up wealth management to the wider public because it is affordable. The minimum for investment is just £1,000. Fees are as little as 0.6% a year, compared with as much as 7.5% at some traditional wealth managers.
Start-ups such as Nutmeg and Wealth Horizon that have emerged over the past few years are luring customers from some of the UK’s biggest private banks.
Research from Accenture found that 83% of high-net-worth investors are already using digital technology for financial services.
“High-net-worth investors are very savvy about using digital channels and see digital as an essential part of the service they expect from a private bank,” says Alfredo Avila, managing director for Accenture Wealth and Asset Management in EMEA.
Jean François Mazaud, head of Société Générale’s private bank, said in a recent interview with BusinessBecause: “For private banks, the threat is thus to miss the boat and be outdistanced by competitors who would be more efficient at adapting their model to these new trends.”
The exposition of fintech, with investment in the fledgling sector tripling to $12.2 billion last year, has seen entrepreneurs bite at the fringes of banks’ business models.
TransferGo for example, is a pure-play digital remittance start-up for migrant workers who aren’t interested in transferring cash physically.
Daumantas Dvilinskas, co-founder and CEO, who studied business at Lancaster University, says €100 million has already been transferred by its 100,000 users. The remittance market is popular, with market leaders such as Transferwise already established, but Daumantas says: “Few people go for blue-collar workers.”
Another fintech business, Squirrel, partners with employers to enable employees to manage their financial affairs directly from their pay.
“We are looking to make a tangible impact on people’s lives,” says Mutaz Qubbaj, CEO and co-founder. He launched Squirrel in 2014, two years after graduating from the masters in finance at London Business School.
Styled as a “financial well-being platform”, the start-up was incubated in the Barclays Techstars Accelerator. Squirrel has raised £1.1 million in three funding rounds from six investors, and has 17 trial employers signed up as clients, says Mutaz.
For all the innovation in financial services, fintech is still a nascent movement. A big challenge for Nutmeg has been convincing people in wealth management — a centuries old sector — that money can be managed online, according to chief executive Nick.
“Our biggest marketing challenge is not defining a brand; it’s literally defining this category,” he says, before adding: “I don’t know whether that’s going to take five years or ten years or 100 years to develop and evolve, and for people to understand that there is a new way of investing.”
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