Verivox, Outbank, and Clark: some disruption, FinTech-stack, and fighting incumbents

In November, the comparison portal Verivox acquired Outbank, a personal finance manager (PFM) who temporarily filed for bankruptcy and aboalarm, a contract cancellation tool (Link to Outbank’s German press release, Link to Verivox’s German press release). A lot can be written about that. For starters, why they made that acquisition.

Verivox’s reasons for acquisitions: response to CHECK24, additional marketing channel, and response to FinTechs/InsurTechs

Looking at CHECK24’s — their primary competitor — recent moves, probably the most obvious reason is that Verivox made the acquisitions as a response to CHECK24. Furthermore, when considering that Outbank is layered atop Verivox, I am arguing that Outbank might be an additional marketing channel (to TV and search) and thus more important to Verivox than Verivox to Outbank. Finally, through that acquisition, they might, in fact, be responding to FinTechs instead of attacking them.

Verivox’s reasons for acquisitions: response to CHECK24

In May, Capital (news in German) reported that CHECK24, one of Verivox’s biggest competitors, will be offering several „FinTech products“. Among them a contract management tool, a multi-banking feature and an expansion of their comparisons into fixed-term deposits. Whereas this was often quoted as an attack on FinTechs (amongst others Clark, WeltSparen, and Outbank), it also threatened to put Verivox under pressure. CHECK24 outperforms Verivox on both, revenue and users. In 2015 CHECK24, founded in 1999, accumulated revenues at around €500 Million and a total customer base of 15 Million users. Verivox, founded in 1999, had 8 Million users and about €62 Million in revenues [1]. Thus, by acquiring similar products as CHECK24, Verivox is trying to catch up with CHECK24.

Verivox’s reasons for acquisitions: additional marketing channel

The other reason why Verivox acquired Outbank was to increase usage of their comparison platform by becoming less dependent on Google and TV-advertising.

Whereas one could argue that there are „innovation-based“ differences between Verivox and CHECK24, from a consumer perspective, the main differentiator is „distribution“, i.e. who has the biggest marketing budget to reach the most consumers. To do so, Verivox has to two major marketing channels, TV and search advertising. Both are costly. Verivox is estimated to spend €2 Million on Google advertising monthly [10] and, depending on which source you believe, CHECK24, spent €60 Million on TV advertising in the first half of 2017 [3].

From this perspective, one could argue that Outbank is Verivox’s third major marketing channel. Once Outbank knows which contrasts you have or lack, it can provide you with cheaper alternatives or show you which ones you might need. Interestingly, when you access Verivox’s offering through Outbank (in the form of contract optimization), Verivox loses direct consumer contact and becomes merely the provider. Thus, Outbank might be more important to Verivox than Verivox to Outbank (leaving aside financial resources).

This last part — Verivox losing direct consumer contact — is particularly interesting. Whereas the general notion is that CHECK24’s and Verivox’s foray into FinTech is considered an attack on existing FinTech startups (and legitimately so), one must not overlook the opposite site, namely that FinTechs are a threat to the aforementioned comparison portals. The reason is that Outbank’s contract optimization approach applies to other companies, amongst them, volders, Clark, and N26, as well.

Verivox’s reasons for acquisitions: response to friction-reducing FinTechs

One of the biggest reasons for the threat through the above-mentioned volders, Clark, and N26 is that their approach to contract optimization has considerably less friction than Verivox’s and CHECK24’s. Inherently we all want to save money and with Verivox and CHECK24 we could, but we don’t (if we would CHECK24 and Verivox would not spend so much on advertising and Verivox wouldn’t have introduced Verivox prime a service that takes care of your contract optimization). One could argue that this “lazy” behavior is irrational. However, it is not because what we actually want is saving money without working for it, but CHECK24 and Verivox make us work. In order to use them we must:

  1. Overcome the uncertainty of whether we could really save money
  2. Visit CHECK24 or Verivox
  3. Look for contracts with potential savings and choose the one we want

This changes with volders (see volders, a Berlin-based contract management startup, raised two million euros) which contains your contracts and has a built-in price comparison tool for switching or opening contracts.

This means that instead of:

  1. Overcome the uncertainty of whether we could really save money
  2. Visit CHECK24 or Verivox
  3. Look for contracts with potential savings and choose the one we want

we have

  1. A notification saying: „click here to switch to contract B, it does the same and saves you €50 monthly“

With this frictionless contract optimization and volders’ 500.000+ users who might never (again) visit CHECK24 or Verivox, they are a serious threat to Verivox and CHECK24. In this context, CHECK24’s “newly” introduced contract management tool which also supports “outside” contracts, i. e. those not opened through CHECK24, might be considered a subtle but important competitive response to volders and Co.

The situation is similar with Clark (also a contract management tool), but theoretically even more powerful when considering them being integrated into N26 (Clark is also partnering with ING-DiBa, Germany’s biggest direct bank with around eight million customers. However, it is not integrated into ING-DiBa’s banking app, but ING-DiBa just promotes them on their website). First, Clark solves the “access problem”. Your banking app is (still) more important to you than a digital folder, and you are more inclined to visit it than a digital folder. Secondly, Clark makes us work even less. Whereas with volders, Verivox and Co. you still must enter all your contracts, Clark could deduct them from your N26 transactions. In fact, Aboalarm, the other company Verivox acquired, does exactly that; you connect it to your banking account and it — fairly accurately I must say — deducts from your transactions which recurring payments you have. Similar to volders, Clark might be a serious competitor with their theoretical 8,5 Million users who might never (again) visit CHECK24 or Verivox.

Verivox’s reasons for acquisitions: response to FinTech/InsurTechs

Furthermore, several InsurTechs such as getsafe (see simplesurance, getsafe, Coya, and ONE — convergence, emotions, and power of customer base in FinTech) are betting on more emotionalized and value-differentiating (instead of cost-based) insurances and are thus reducing the inherent need of comparison portals. Finally, FinTechs such as revolut — converging with InsureTech (see link above) — are offering insurances through their app (revolt offers a phone insurance) and are similarly making comparison portals redundant to some extent.

FinTechs without incumbents

Interesting about Verivox’s competitors and a range of other FinTechs is how in one way or another they are all fighting incumbents.That’s interesting because incumbents believe that for FinTechs to survive, they must partner with them in the so-called “third wave of FinTechs”. To some extent that is what, for instance, ING-DiBa and comdirect believe. Both have argued in their 2016 annual letters that they do not see FinTechs as competitors but rather as an opportunity for cooperation.

This, in turn, points at three ways how FinTechs are competing with incumbents:

  1. A form (!) of Christensen’s disruptive innovation (emphasize on form because it is not disruptive innovation in its academic sense)
  2. Being at the bottom of the FinTech-stack
  3. Being at the top of the FinTech-stack

A form (!) of Christensen’s disruptive innovation

Interesting about getsafe, Clark, and volders is how none of them started as a competitor to comparison portals. Conceptually, this is a form of Christensen’s disruptive innovation:

Disruptive innovation is “a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors” [4]. In other words: start with something easy where you can relatively effortlessly acquire customers (because incumbents do not or cannot care) and keep adding features until you become big.

Although volders and Clark offered similar services as CHECK24 and Verivox from the beginning (contract optimization) they did not compete directly with them because from a consumer perspective, CHECK24’s and Verivox’s USP was price comparison and volders’ and Clark’s was contract management. With volders and Clark contract optimization is the easy product that “takes root initially in simple applications at the bottom of a market” and by growing their customer base (and adding products as in the case with Clark’s Renten-Cockpit that helps you with your retirement planning) they are relentlessly moving “up market, eventually displacing established competitors”.

Similarly, revolut’s initial application, a multi-currency wallet aimed at travelers, was the easy product and now they are moving up market by adding insurances and other banking products. As a consequence, they are increasingly competing against insurances, comparison portals and — by getting a banking license — banks (see revolut, N26, and the future of banking). In other — oversimplified — words: they started with a wallet for an underserved market and relatively effortlessly (relative to acquiring bank customers) acquired 850.000 users, got a banking license and “over night” became a bank with 850.000 users [11].

Being at the bottom of the FinTech-stack

As I have argued in ING-DiBa, N26, revolut: fairly good incumbents and FinTech re-unbundling that is what solarisBank does; be the banking platform — the OS if you will — for startups and completely cut incumbents out of the equation. Especially noteworthy is the contrasting gain/loss trade-off between solarisBank’s FinTech-FinTech cooperation and an incumbent-FinTech cooperation. For solarisBank, each partnership is the best solution. In contrast, to an incumbent a FinTech partnership is rather the best possible solution. Whereas an incumbent partnering with a FinTech might lose direct customer contact (maybe its most important assets), that’s perfectly fine for solarisBank because their FinTech partners are their direct customer.

Being at the top of the FinTech-stack

In contrast to solarisBank Outbank and Co. are at the exact opposite position in the FinTech stack of solarisBank, but might still be in a similarly great position. As indicated above, one problem that incumbents face (in a partnership) is losing customer contact to FinTechs such as N26, PayPal, or WeltSparen. Consequently, PFM such as Outbank or Zuper who integrate all these FinTechs’ products into one app, have the potential to eliminate the visible need for any other application, get all the consumer contact and thus become the FinTech front face for users.

It is, of course, ironic that Outbank one of my here as so powerful proclaimed PFM has temporarily filed for bankruptcy. However, Zuper is now expanding to Austria (German press release) and other FinTechs such as revolut or comdirect are moving in that direction as well. revolut’s CEO wants to develop it into an app that can manage all aspects of your life [9], and according to comdirect their app is not a banking app but rather a “smart financial companion”.

Notes

[1] see Figures_FinTech_Germany_WIP_BLP

[2] http://www.dasinvestment.com/werbebudget-entzug-nach-verivox-kauf-check24-sieht-pro-sieben-als-konkurrenz/

[3] https://de.statista.com/statistik/daten/studie/382508/umfrage/e-commerce-unternehmen-mit-den-hoechsten-werbeinvestitionen-im-tv/

[4] http://www.claytonchristensen.com/key-concepts/

[9] Figures_FinTech_Germany_WIP_BLP

[10] Figures_FinTech_Germany_WIP_BLP

[11] Figures_FinTech_Germany_WIP_BLP

One comment

  1. Great essay.

    In an older presentation from CHECK24 they mentioned that customer acquisition costs are exploding (Slide 6: https://de.slideshare.net/NOAHAdvisors/check24). So retention is the key here in my opinion: if companies like check24 and verivox don´t manage to retain their customers and in the long run increase customer lifetime value it will be difficult for them to continue spending so much on customer acquisition.

    That´s one reason why buying a multi-banking app that people use on a regular basis makes sense for them. The question is how users will react once they constantly get offers inside the app to change their contracts?

    We at Zuper (http://de.getzuper.com) have decided not to go this road. We will continue our focus on helping people navigate their spending, control their accounts and improve their financial health.

    But I´m keen to hear what others think … will people still trust an app for their money management that makes money by lead referrals?

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