It doesn’t matter whether it’s physical payment services like Payleven or iZettle, or virtual processors like Paymill or GoCardless. Digital money is where a huge amount of energy and investment is going right now. And it’s big money too: just before Christmas the Russian search giant Yandex sold its payment service to Sberbank for $60 million.

Why is it happening now?

It’s no surprise that financial technology is loved by investors, manys of whom harbor a quantlike obsession with money manipulation. Many feel like payments are safe ground: after all, internet companies have a notoriously louche relationship with profit, but if money is your product then you’ve already solved part of the problem of monetization. That’s no doubt a big reason that the Samwer brothers started up both Payleven and Paymill to attack the payments stack from two different directions.

But I suspect the cultural mood is important too. We’re living through tough times: the economies of the West undone by their own hubris, the Euro rocking on its heels. Retreating to money management is appealing for investors, but the sense of risk means it’s also more appealing to a certain sort of entrepreneur right now.

Take London’s fast-moving financial sector: it’s helping the shakeup of banking through refugees starting businesses, like Transferwise and GoCardless. As the UK’s Independent noted last year, many young bankers are turning to the startup world instead of staying suited up.

Young graduates have eschewed their pin-striped destiny in the Square Mile in favour of the alternative working lifestyle of the internet start-up – but are building dynamic companies based on their specialist knowledge of business.

[MarketInvoice's] Charles Delingpole, 29, set up the company after leaving his job as a mergers and acquisitions specialist at the investment bank JP Morgan. His partners are Anil Stocker, 28, who formerly worked at the collapsed Lehman Brothers, and Ilya Kondrashov, 26, who was at Goldman Sachs.

But there’s another big reason that Europe is turning to financial startups right now: inaction from the power players in the US.

Fast-growing names like Square and Stripe are making waves in the American market, but for their own reasons have not yet stretched out across the Atlantic. Some — Braintree for example — have made the leap, but in the meantime many of those sprouting up are clones of, copies of or at the very least “inspired by” their American cousins. They’ve spotted an opportunity that the innovators can’t move into (even it means they have to go into battle with each other instead.

The waiting game

Square’s Jack Dorsey may already have European politicians on speed dial, thanks in part to Twitter’s influence, but there is an argument that it is wise for the US companies to hold fire, rather than rush headlong into European expansion.

Services that require people to change behaviors require a lot of effort, and a lot of capital: and changing the minds of a whole continent is a tough thing to do. Square, for example, could wait for European copycats to fight among themselves, open the doors for them, and then move in to take the market — either by purchasing the winner (if they are strong) or crushing them (if they are not).

And in the end that may be the smart thing to do, because money is one of the most socially complex and awkward of all the things Europeans squabble about. Attitudes to money vary so wildly, it’s impossible to see a single player winning easily. Of course, you’ve got those inside the Eurozone and those outside, but that’s just one small part of the matrix. In Britain and France, for example, paying by card is the norm; in Germany and Russia, for various reasons, cash remains king. Oh, and then you’ve got those trying to turn NFC into a thing (it’s not a thing).

Whatever Europe’s financial startups choose to do, becoming the one service to rule them all will be hard. The continent’s approach to money is a mess in more ways than one. A vibrant, exciting, mess with a ton of opportunities, yes — but still a mess all the same.

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The San Mateo, Calif. company is formally launching its payment platform today, offering developers not just the ability to accept credit card and other payments, but to also hold the funds in stored accounts and move funds around between financial institutions, all in compliance with regulatory requirements. With its set of APIs, BancBox is trying to help companies without financial expertise create a new set of applications from gifting apps and e-wallets to light banking services and collaborative consumption apps.

The idea, said CEO Sanj Goyle, is to provide a payment back-end that works like Amazon Web Services, allowing developers to concentrate on their products without having to think about the payment integration details. In essence, BancBox is integrating with banks so its developer clients don’t have to.

BancBox, which launched a beta last month, is built around three services:

• It can accept payments from credit card, wire transfers, ACH, checks, wires and moneygrams, and multi-party transactions. That’s not so different from other developer services that make it easy for apps to process payments.
• BancBox works with banking partners to create stored accounts so a developer’s money can be held safely, with full ledgering, account reconciliation and FDIC insurance. This is helpful for apps that take in money from users but don’t use it right away. For example, a collaborative consumption service can hold on to payments and allocate them to multiple sellers over the course of weeks or months.
• After receiving the money, BancBox can send it directly or through various channels such as ACH, checks, e-bill payment services, PayPal or other services. That makes it easy to transmit money to and from different bank accounts. BancBox, for example, is working with a company called ReadyForZero, which helps people reduce their debt by storing money and automatically routing cash to various debtors.

“Some others make it easy for ecommerce companies to collect payments and they make that process simple and elegant,” said Goyle. “But our belief is that’s the starting point. After you collect funds, you need to be able to hold it, store it and send it. You need to have a technology and regulatory solution to do that.”

The regulatory point is important, said Goyle. Many apps are storing and sending funds but they don’t necessarily adhere to the different regulatory rules of each state. Getting a license to transmit money across all 50 states can cost more than $1 million, he said. Since BancBox works with existing banks on money movement, it meets the various regulatory standards so developers don’t have to acquire licenses or maintain PCI compliance.

BancBox has been around for five years and first developed payment services for itself. But over the last 18 months, it’s been working on extending those services to developers with its APIs. The company, which has been profitable with its legacy business and expects to be cash-flow positive with its new service in 12 months, has raised a little more than $11 million in funding, including $6 million in 2009, when Baseline Ventures, Floodgate, Harrison Metal Capital and Founder Collective invested.

I think Bancbox is poised to do well, because it brings real disruption to the banking world by making payments and more sophisticated financial transactions easy for app developers. That can lead to more compelling commerce and payment apps, but it could also mean more apps that offer real banking services, kind of like banking start-up Simple. Personal finance services could also become much more versatile, not just tracking spending but now helping people move money automatically into savings accounts or transferring funds to the debtors.

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SigFig syncs with about 70 brokerages and is already tracking $30 billion in investments, carried over from Wikinvest. The service can show a user’s positions — both current and historical — and also figures out how much they’re paying in fees. There’s also a way to see asset allocation and forecasted dividends and risks. The service is still invite-only but GigaOM readers can get access by going here.

The heart of the service is the advice component, which is possible because SigFig is a registered investment advisor. The service can tell users how much they are paying for options trading and what they can save on trading fees by switching to another brokerage. SigFig can dig into the past results and risk ratings of funds and determining how it’s done  historically. And then it can recommend better performing exchange traded funds.

And for users who rely on someone to manage their funds, SigFig can tell if they’re getting their money’s worth. Some brokers steer their client’s investments toward products that pay the largest commission but is not always the best performing fund, said SigFig co-founder and president Parker Conrad.

“We can show you where your advisor falls with everyone else on the platform,” he said. “We can tell if your advisor is overcharging or underperforming. About 25 percent are in that quadrant and the more expensive guys are not always better.”

SigFig CEO and co-founder Mike Sha said the idea is to bring high quality advice and analytics to all investors, not just those that can afford the best service. He said SigFig can offer a more data-driven approach to investing that can go beyond the current abilities of human advisors.

SigFig makes its money, in some cases, by getting referral fees from brokerages. Some advisors also provide a percentage of their management fees to SigFig for sending them clients. But the company said it relies on the best data to make recommendations and referrals and isn’t guided by potential revenue.

SigFig, Simple and Personal Capital, another wealth management service that launched last year, are showing how technology can make finance more transparent and understandable for consumers. Finance is still largely a human-driven business that can lead to a lot of mistrust, especially when Wall Street puts profits over customer service. With next generation financial tools, there’s the hope of more data-driven, transparent services that offer potentially cheaper and more accessible financial advice.

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I think the startup, which I profiled a few months ago, is a really exciting business for a simple reason: it applies a disruptive technology to a business with a lot of excess fat. Currency exchange is basically a rip-off for ordinary people, allowing banks and financial institutions to make a killing — even at a time when the global economy is struggling.

Transferwise’s approach strips everything back and makes it dramatically cheaper and easier for ordinary people to send money to other countries (even if, right now, it only works between Euros and Sterling).

Oh, and there may be another reason for users to smile about the the €10 million landmark in these times of austerity. The €500,000 doesn’t just represents savings for customers.

“That’s money that banks did not get in fees and charges,” co-founder Taavet Hinrikus told me. “This is equal to ten small sports cars that bankers did not get in bonuses.”

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Their plan, they said, was to upset the payments industry by making it radically more simple and less expensive to move money from one country to another.

It wasn’t a message the audience particularly wanted to hear — after all, many of them profit handsomely from wire transfers and exchange markets — but the company got a fair reception, according to co-founder Kristo Kaarmann. “There were a lot of smiles in the audience,” he says.

Chances are those smiles were covering up some uncomfortable feelings, however, since Transferwise is one of those startlingly simple ideas that has the potential to be incredibly disruptive.

Here’s why.

Traditionally, people who want to send money to another country and in another currency (say from American dollars to Indian rupees) will go to a bank or an agency such as Western Union to organize the payment. They will pay money to the broker, who will then wire the money into the recipient’s bank account or destination for a price — usually at an exchange rate significantly worse than the underlying market figure, and often with fees or commission charged on top.

Transferwise makes things simpler by making the process much more transparent.

Instead of wiring the money into the recipient’s foreign account, it handles the back end by simply having accounts in the countries and currencies it needs to. That means when a customer wants to send some money, she pays it to Transferwise at one end, and the company can then pay it out to the recipient at the other end from a different account, directly in the target currency.

In order to minimize its own capital needs, the company tries to match payments on one side to payments going the other way. But if there are no matches it simply hands over money from its own coffers.

It is a simple idea that sidesteps the usual red tape and delays around international transfers — and allows the company to operate at lower costs, too. Those savings are passed on to the customer: There are no expensive wire fees and no cranked-up exchange rates. Instead users get charged a flat fee (£1, around $1.56) on small transactions or a small percent on larger sums.

It’s peer-to-peer payment — a sort of Skype for currencies.

The Skype analogy is no accident, either: The other co-founder, CTO Taavet Hinrikus, was an early employee at the telephony firm and has experienced the thrill of using the Internet to challenge a huge, expensive industry from the inside.

Since launching quietly over the summer as a self-funded startup, he says, the company has saved users £250,000 ($390,000) in bank charges and organically grown a core of regular, dedicated customers who are helping spread the word.

Just getting started

Today the service is small, not least because it only works between two currencies: sterling in the U.K. and Euros. The team plans to roll out soon into new areas – first low-hanging fruit like the Swiss franc and the Polish zloty but then hopefully into other, more lucrative markets with very large expat communities. It is eyeing the Australian dollar, the South African rand and ultimately the U.S. dollar and Indian rupee.

That expansion will require a lot of regulatory work, since the company must comply with financial rules and laws to prevent its being used for money laundering (this is one significant benefit of starting in Europe, where a single regulatory burden covers 500 million people, 27 countries and 14 currencies).

But it will also have to work hard to outflank the banks, which are unlikely to be happy to lose any custom, and gain user trust — something that the team knows is going to be tough.

Kaarman says this is an area where Transferwise is moving carefully, because “the day you lose your first customer’s money, you are in trouble for a long, long time.” He’s right. A false step could easily kill off a startup.

So what comes next?

More currencies, more users, more awareness are all important — and to get there, funding could be high on the agenda.

So far the company has been self-funded, and it only has a skeleton staff. Scaling up will require more investment. If nothing else, it needs significant capital in each country it enters in order to guarantee prompt payment. However, given how straightforward and useful the service is, I don’t think it will be too long before there is some significant investment coming in.

Photograph used under Creative Commons license courtesy of Seedcamp

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I had a chance to hear their presentations, and it was a rock-solid group pulled from more than 90 applicants. The class showed that there is a lot of innovation happening in this field and that there is still room for new approaches in the financial sector. And the program showed that New York overall is honing its pitch to be a home for startups. Category-specific programs like this and NYC SeedStart’s media-focused summer class show that the city has some attractive accelerator options for entrepreneurs that address particular verticals. That may be the next step for accelerator programs, to focus on specific areas rather competing head-to-head as general startup programs.

Back to the new FinTech Innovation Lab class. I really enjoyed hearing from all the startups, but a few stood out to me.

Zipmark CEO Jay Bhattacharya

I liked Zipmark, a new mobile-payments service that is leveraging checking networks to enable fast, simple and cheap payments. By tapping the existing low-cost check-processing infrastructure, Zipmark is able to limit the cost of P2P payment fees to $1 for transactions of between $40 to $400 and makes it free for anything less than $40. Vendors using Zipmark pay fees of 1 percent, capped at $5 per transaction.

The system is not only cheaper than competing offerings such as PayPal but it also offers ease of use, especially for companies that are used to taking payments in checks. Real estate and property owners and other billers can include a QR code on their bills, allowing Zipmark users to scan and pay. The system basically connects to a user’s checking account, verifies and authenticates the payment and then sends a check to the recipient’s bank account by the next day. Zipmark doesn’t hold on to the funds or force people to carry a balance with them.

I like Zipmark because it taps existing accounts, similar to how Dwolla and eWise also connect payments to a user’s bank account. We’re hearing a lot about new approaches like near-field-communication payments, but for some payment situations, it makes sense to tap existing networks. Customers track their Zipmark payments and see a digital check receipt. Zipmark will need to find traction with billing services and commercial banks; right now, it has just one pilot under way.

CB Insights CEO Anand Sanwal

CB Insights, which already provides structured data on startups and private companies, is taking its service to the next level with Mosaic, a real-time insight and intelligence service that pulls in a wealth of data — unstructured, semi-structured and structured — to paint an overall picture of the health of a private company.

Mosaic integrates data from social media, job boards, press publications, government filings and other sources to create an index about how a company is doing. Some services give a limited look at specific signals, and some research firms look at a group of startups in particular areas. But Mosaic should be able to cover a wider array of private companies with at least 10 employees and provide a deeper assessment of their current state. It’s reminiscent of DueDil, a British company taking a similar approach to assessing companies with publicly available data.

This is helpful for firms doing business with a private company, to understand how reliable their partner might be. But it can also be useful for vendor selections, supply-chain decisions and secondary markets and should be attractive to investment bankers, private equity firms, venture capitalists and corporate M&A teams. The key is in ingesting a wide array of information, applying sentiment analysis to things like press mentions and then properly weighting the data to come up with a comprehensive picture.

“There’s no one smoking gun, but when you weave disparate signals together you can create a picture of a company’s health,” said Anand Sanwal, the CEO and co-founder of CB Insights.

Aqumin CEO Michael Zeitlin

The most visually arresting startup was Aqumin, a software company that lets traders, investment researchers and analysts use its 3-D visualization and analytics tool to create interactive “landscapes” out of mounds of data. More than just a visualization tool, Aqumin’s AlphaVision lets people get into the data, apply filters and algorithms to it and see how it responds in real time. Users can zoom around a set of data supplied by Bloomberg, for instance, and click on information to get more information.

By letting people visualize data and interact with it, Aqumin enables people to see patterns and trends much faster than if they used traditional spreadsheets or 2-D charts. CEO Michael Zeitlin said the tool takes advantage of our ability to naturally pick out patterns visually, something that is much harder to do when poring over spreadsheets. He said AlphaVision will be indispensable in ten years as financial workers try to grapple with a deluge of data. Zeitlin has had success before with data tools, building a geo-seismic software company called Magic Earth. The company offered a 3-D visualization product for the oil industry that was eventually bought by Halliburton for $100 million.

I’m not sure if everyone will be using AlphaVision, but I do think these types of tools will be more critical as people delve into more data. Visualizing information is important, but as we’ve said before, the big money is made in analyzing it. AlphaVision helps people do both in a way that’s fast and pretty easy to use.

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