Lydia is working with several partners to turn its P2P app into a platform that provides a variety of unrelated financial services.
Founded in 2013, Paris-based Lydia is modeled on Chinese super apps such as WeChat Pay and Alipay that operate as financial services hubs for their users. Tencent, WeChat Pay’s owner, led a €40 million Series B investment in Lydia in January 2020, with U.S.-based venture capital firm Accel leading a further $86 million Series B investment in Lydia in December 2020. The funding is intended to help Lydia, which has operated in France since 2013, to move into new European markets with an expanded product range including savings and investments products.
Lydia has added a range of extra features in recent years following the advent of PSD2 and open banking in the EU. These include real-time credit products from several providers enabling users to walk into a store, apply for a loan, and instantly receive the funds in their Lydia account. The app also offers a Market providing home and smartphone insurance, gift cards, utility services and charitable donations.
In another change of direction, Lydia realized that because originally its app only used QR codes, it couldn't gain universal acceptance among merchants. “In 2017, in order to provide a universal payment system, we started issuing our users with IBANs" — international bank account numbers — "for incoming bank transfers and virtual and physical Visa debit cards,” said Lydia CEO Cyril Chiche.
Lydia allows users to set up subaccounts acting as money pools for specific purposes which they can share with other people such as family members.
“Instead of issuing a card for each of the user’s Lydia accounts and subaccounts, we just provide one card,” Chiche said. “The user decides dynamically in the Lydia app which account they want to associate the card with at any moment.”
PSD2 came into effect in the EU between January 2018 and September 2019, requiring banks to open their infrastructure via APIs to third parties for account information services and payment initiation services.
Fintechs offering account information services provide users with aggregated access to their financial data at multiple banks, while companies providing PIS enable users to initiate payments from their bank accounts from within merchants or billers’ apps and websites. AIS can also be used by financial firms for customer onboarding, credit scoring or for checking the validity of existing accounts.
In October, Lydia announced a partnership with open banking API vendor and bank data aggregator
“Tink provides its customers with a single API integration which gives them access to 3,400 banks representing about 250 million customers in 14 European countries,” said Jerome Albus, Tink’s regional director for France and Benelux. “This enables our clients to access aggregated financial data and initiate payments on behalf of their customers. We also provide enriched data for personal financial management apps that, for example, categorize a customer’s transaction data by type of payment.”
Before starting its partnership with Tink, Lydia had been using French fintech Budget Insight’s Budgea Bank API for payments initiation. “We’ll continue using Budget Insight so we have a fallback API to ensure our payments initiation feature always works in whichever European country we operate in,” said Chiche.
Open banking technology allows Lydia users to check their balances and transaction history at their banks. They can transfer money between their external bank accounts using Lydia’s payments initiation feature.
“They can get alerts from their linked accounts, for example when their salary is paid into their bank account, even if their bank doesn’t provide alerts,” said Chiche. “We provide features that bank statements don’t offer, such as the ability to attach receipts or notes to transactions so you know what you bought at a particular store. You can use Lydia’s search function to locate receipts for specific transactions.”
Chiche said Lydia selected Tink after conducting tests with the main European open banking API vendors.
“The important thing was the vendor’s ability to support us with the right technology and to be available in all the countries we want to operate in,” he said. “We want to offer our feature letting you drag and drop money between your linked external bank accounts in each of our markets, but it will only work if payments initiation technology is available there.”
Lydia has a 30% share of the French millennial market, and in 2020 saw 100% growth year-on-year in its total payments volume.
“In France, there’s opportunity for agile players to win market share in retail banking services,” said Aite Group senior analyst Ron van Wezel. “By going the neobank route, Lydia can offer more services to its clients, and it seems to be successful in attracting young customers.”
Chiche said that Lydia’s 2021 road map features a large number of new products, including savings and investments.
“We went live in Portugal in November 2020, and will launch in two or three other eurozone countries this year, depending on the pandemic,” he said. “Two of these countries will be Belgium and Spain, and, if we enter a third, it will be Italy or Germany. In each country, we’ll offer similar services to Lydia France, such as virtual or plastic debit cards, linked external accounts, and our Market.”
In January 2020,
In June 2020, Tink announced that PayPal planned to use its open banking and account aggregation technology to enhance its customers’ experience in the European Economic Area.
“Tink is on a roll, as it is a smart aggregator that continues to develop new ideas and announce new client deals,” said Aite Group’s van Wezel. “Investors love Tink, and it’s one of the European fintechs to watch.”
Tink was on the acquisition path in 2020, buying Swedish credit decisioning firm Instantor in order to expand in credit risk products; Spanish account aggregation provider Eurobits; and U.K. aggregation platform OpenWrks.
“The open banking movement continues to gain pace,” said Zoé Fabian, Eurazeo Growth’s managing director. “2021 shows every sign that it will bring increased collaboration between fintechs and large enterprises which want to take digitally enabled services to their customers with a trusted partner. Tink has proven itself to be the leading open banking platform in Europe, as evidenced by its Pan-European connectivity platform. Our investment in Tink underlines the confidence we have in Tink specifically and open banking more generally.”
