What software company will spoil the fintech startups party from Europe.

Name a software company from Europe which runs a fintech operation bringing in about $100M in revenue every quarter. Hint: it’s from Norway!

There are not too many options but the answer you are looking for is Opera Software. In Q1 2020 Opera brought in $94.7 million driven by 8.6 million financial loans. Yes, the browser company.

A little history

The story goes that in 2016 Opera was in discussions to be acquired for $1.2bn by a Chinese group. Due to privacy concerns, Opera and the Chinese have instead came up with an alternative deal worth $600 million which stripped out some products and services in order to overcome regulatory hurdles.

As such, the Chinese took over the Opera brand, along with the mobile phone and desktop computer browser business, its performance and privacy apps division, its technology licensing business, as well as its stake in Chinese joint venture nHorizon.

Opera’s advertising and marketing business, the TV operations, and game-related apps remained as a standalone biz operating as Otello Corporation.

In 2018, two years after acquiring Opera, the Chinese listed it on Nasdaq in US.

Since then, the company, which is led by CEO Yahui Zhou and COO Lin Song, transitioned the core business from selling advertising to selling consumer financial services, getting from 0 to 70% of its revenue in two years. In Q1 2020 the ads biz generated some $40 mil.

The business

More interestingly, Opera’s current focus is in Africa and Asia, where most of their users come from. The company’s core products are a multi-device browser, an AI-based news product and financial micro-loans - mostly targeted at African users.

Now, the move from ads to other service-related business has deep strategic background. When you have an operation solely based on a browser competing with Google, going head-to-head for user share and related ad revenue seems to be a waste of resources. Even in markets where Google is not as strong such as Africa or Asia, it is just a matter of time until you collide and uhm, can’t just be part of a growing story.

And in this position, it seems reasonably strategic to evaluate your core assets and strengths and leverage them towards a more lucrative and growing market. In Opera’s case, the main assets are the good tech, good brand and a 300+ million MAU number, which may be not a big one in the browsers market but in other markets can be a huge figure.

The switch from advertising to a financial services provider was criticized by retail investors, going as far as producing a research report accusing Opera of offering predatory short-term loan products (that means obscenely high interest rates; but legal nonetheless) and further accusing Google being complicit by providing lax Play Store’s policies on short-term and misleading lending apps.

While it is true that the Chinese culture is different and public markets require more transparency, when you attack strategically a new market aiming to totally reinvent your front end business perhaps it is not very wise to lay out your cards upfront. But, especially when in public markets, a lil’ scrutiny is welcome.

However, none of the allegations seemed substantiated and it looks like the market priced accordingly the Opera’s stock, not too far from the 2018 point when it IPO-ed and later made the pivot.

Why the switch to financial services though? Some background arguments: 

i) the Chinese shareholders - the group’s largest investor and current Opera Chairman/CEO were recently involved in a Chinese lending business that listed in the U.S. It’s also notable that the above mentioned report mentions this business saw its shares plunge more than 80% in just 2 years amid allegations of fraud and illegal lending practices - again, the Chinese culture is very different than the Western one.

ii) Africa is a lucrative emerging market - large, untapped and with not that much competition, and open to financial services provided via mobile apps because of low tech education/adoption. 

iii) the financial services market is at an absolute behemoth size, with its core still very much un-touched by technology. The consumer side has already started to be disrupted in the past 5 years or so. But that’s just scratch on the surface and, besides that, the outdated legacy financial technology companies are next in line to face competition from a new wave of startups.

The strategy book

In the past 6 months, Opera bought two neo-banks from the Baltics: PocoSys, which is a developer of banking technologies from Estonia, and Fjord Bank, a full-digital consumer finance bank from Lithuania. 

Not by coincidence, PocoSys also holds a payment institution license and provides financial services in the European Union. Fjord Bank has a specialized bank license issued by the European Central Bank and they too can operate across the Euro market.

And so it is interesting to consider Opera’s options. 

On one hand you have an economic mechanism in place, with a foot in the African door, a proof of concept and 300 million users you can cross-sell financial services to. It is a testing market segment at worst and a solid revenue leg at best (today it’s the only one). 

On the other, you built tech, business capabilities and experience so you can operate in Europe, a very fragmented and inviting market. Arguably more crowded and lucrative than Africa - but what the Euro neo-banks and other fintech startups are doing* is just the tip of a huge financial service iceberg stuck in the 90s paradigm. 

It kinda makes sense for Opera to want a seat at the table, doesn’t it?

Its new acquisition, PocoSys, will launch a consumer card called Pocopay as an European alternative sometimes this year. 

The other new acquisition, Fjord Bank, is aiming to launch its first deposit and loan service in Lithuania during this summer too.

And voila, Opera has sneakily become an European contender with a compelling value proposition.

Africa’s business gives Opera revenue, optionality and breathing room for the stock market. And, equally important, the stock market provides access to liquidity. 

The strategy book and choices are wide open. The funny thing is that beyond all the European protectionism against foreign buyers of local tech, you have Chinese operating an interesting European tech company, listed in US, doing business in Africa and Asia and with Euro optionality given by a powerful combo of tech and banking licenses. Globalism. 

Will the browser-based tech and African biz experience combo managed by Chinese work for selling financial services in Europe? Hard to tell, Opera, after all, has a minuscule market share in Europe and did I mention that the Chinese culture is different? :-)

Keep in mind though: 

i) the browser is a valuable internet point of entry for consumers, a gate which is heavily protected by Google’s cvasi-monopoly with the Android + Chrome + Chromebook play. 

ii) a news product, which Opera already operates, is earned media - done right, it can fortify the marketing muscle.

iii) Opera has built Estonia as its fintech hub, besides an existing one in Göteborg, and Estonia is a very good, friendly place to conquer Europe from.

iv) Opera is still an European company, from the Nordics, a region with strong fintech tradition.

Once you have the operating stack in place and all cards in hand, you just need smart marketing and a good pair of strategic balls. What the Chinese did with Opera so far certainly seems to show evidence of the latter.

Revolut made $73M in 2018, raised a total of $836M, last at $5.5bn in 2020.
N26 made $50M in 2018, raised a total of $783M, last at $3.5 billion in 2020.
Monzo Bank made $50M in 2018, raised a total of $483M, last at $1.5bn in 2020.
Opera Software made $138 million in Q1 2020, $95M of which from financial services.

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