Finax Has Acquired ETFmatic and the Investment Activities of Aion Bank
The beginning of the year brought significant change to Finax. We made our first acquisition. We took over the investment division of the Belgian-Polish Aion Bank, including the first pan-European robo-advisor ETFmatic. In this article, we will answer what our motivation was to execute this deal, what it means for Finax and smart investors in the future.
As of 1 January, Finax has grown. On this day, the investment activities of Aion Bank, which included the now somewhat legendary ETFmatic brand, were finalized and officially acquired. The transaction was preceded by several months of analysis by the bank's investment department and deal preparation.
As part of the takeover, Finax acquired the clients and client assets, the division's assets including the trading system, liabilities and part of the Aion Bank team.
The acquisition not only expanded our client base and assets under management, but also provided us with valuable knowledge of Western markets, technology and a new field of operations. These assets will help us to expand into other markets, increase the scalability of our business, support the promotion of the European pension in the EU and increase our flexibility to introduce new features, innovations and functions for our clients.
Who are Aion and ETFmatic and why did they sell the investment department?
ETFmatic is a well-known name in our country, especially among more experienced investors. ETFmatic was originally a UK-based securities broker that started its journey in 2013 as one of the first robo-advisors in Europe (an online investment advisor that automates the management of clients' assets like Finax).
It was the first robo-adviser to offer its services across Europe. That is why its customers range from Slovakia, the Czech Republic, Poland and Croatia. In total, ETFmatic's offer reached all countries of the European Union.
The first blow to its well-developed business was the 2016 referendum on the UK's exit from the European Union. After the vote to leave, ETFmatic moved to Spain, where it began the trader licensing process, but did not complete it due to other developments.
At that time, the company changed its focus. It switched to so-called B2B services, i.e. corporate clients, to whom it provided investment technology in the form of leases and trader services on the basis of their external distribution (Investment-as-a-Service).
B2B services are used by various financial institutions, fintech companies, but also by firms in other industries that do not have the resources, people, experience or time to obtain their own broker license and develop their own software. Thanks to such a long-term "lease", they can launch their own products on the market much sooner and at significantly lower costs.
In 2021, ETFmatic's independent journey came to an end. The broker was taken over by a young, ambitious bank, Aion Bank. Aion Bank is a Belgian-Polish bank with a venture background (headquartered and licensed in Belgium).
At the time, the bank was launching a retail digital bank (neobank) on the Polish and Belgian market, similar to Revolut or N26. On the basis of ETFmatic, it created an online investment offer in the form of managed portfolios of ETFs, in addition to banking services for individual clients.
These activities led to the development of a sister software company alongside them, which created a banking system for Aion. Gradually, they also started to offer it as a stand-alone solution to corporate clients together with banking services (Banking-as-a-Service), similar to ETFmatic's earlier offering in the investment market.
This parallel development of the B2B business resulted in the decision of Aion Bank's shareholders to focus entirely on the banking services and the licensing and software business. As a result, the bank proceeded to discontinue its investment services offering over the past year.
At this point, Finax has come forward with an offer to take over the wealth management and capital markets investment department.
What prompted the acquisition and what will we gain from it?
There were several reasons for the decision to take over Aion Bank's investment department. The primary concern was, of course, the client base. The bank had several thousand clients and tens of millions of euros in the investment division's portfolio.
However, we were more interested in the technology that ETFmatic possessed. It is a proprietary, internally developed trading system that is modern, open and scalable. It would stop us being dependent on third parties in this respect.
The new system will allow us to be more flexible. We will have the development in our own hands, so we will be able to bring new features, new products and innovate the whole investment process more quickly. In addition to potentially increasing the value of Finax, this gives us a shortcut to further growth.
Last but not least, we were very interested in the licensing business (Investment-as-a-Service) that was mentioned in the introduction of the article. ETFmatic was one of the pioneers of this still young industry with great potential. Even today, the acquired software is one of the few on the market fully prepared to be implemented very quickly to outsource licensed investment services.
We have been approached several times in recent years to provide a "white label" solution - licensing and software for client registration with all regulatory compliance, client account maintenance, trade execution and third-party client asset registration.
The open technology we have acquired, together with ETFmatic's experience, greatly simplifies the execution of such inquiries. In addition, we add to it a strong, proven and time-tested frontend solution (end-user environment) in which we are historically more at home.
Along with the acquisition, we also gained our first B2B client and a dozen other interested parties. The existing client is Unitplus, an ambitious German startup with a unique, currently unrivalled offering. Unitplus has built its business model on offering a payment card for an investment account.
The interest is primarily in its Cashplus product, which is similar to our Smart Deposit. However, customers can use their appreciating savings for standard payments in shops and online via a debit card provided by Aion Bank. Unitplus has had a relatively successful first year thanks to this unique service. With it, Finax has gained roughly 7,000 customers from Europe's largest economy.
Unitplus operates under an investment services distributor licence, similar to independent financial agents (networks of financial intermediaries). With the acquisition, we will be able to offer intermediaries their own investment platforms under their own brand.
Such solutions are also interesting for various fintech start-ups, licensed distributors, banks, insurance companies, etc. that do not want to invest in developing their own trading system and obtaining a license from the regulator to begin with.
At the same time, the new system opens the door to wider distribution and expansion of the Pan-European Personal Pension Product (European Pension, PEPP). We can do this through collaborations in markets where we are not actively present. In this respect, we have also seen interest in third-party distribution of the European Pension in the past year.
With the PEPP provider licence and the open system, we plan to create a new "Pension-as-a-Service" industry. We see this avenue of cooperation as less demanding in terms of our resources and also as more potential thanks to our links with local entities with local knowledge.
With the new human capital coming in, Finax is becoming even more of an international company. In our new partners we gain valuable knowledge of foreign markets, different tax regimes and pension systems across Europe.
How did we finance the acquisition?
The reason why Aion decided not to pursue the investment business was the loss-making nature of this division. However, the contracts were long term in nature and therefore Aion was looking for a partner to take over the business, including its costs. The price offered by Finax was proportionate to the loss the business was generating.
In an in-depth audit prior to the acquisition, we made sure that thanks to our large team of people and our know-how, we could streamline processes and significantly reduce the division's costs. We want to reduce the monthly cash burn (cash loss, negative cash flow) to a third within half a year. Within a year to a year and a half, revenues should exceed costs.
With additional externalities such as software, Western European know-how and client base, the acquisition will be a strong "plus" transaction for us.
We financed the takeover entirely from our own resources. This year, our goal was to make a profit. We had everything off to a good start, but the acquisition is the big unplanned item that will ultimately cause us to end 2023 in the red. However, we will make up for this slight loss at the 2022 level significantly on sales in future years.
How will the acquisition play out externally and what will smart investors get out of it?
At the outset, it is important to note that the execution of the transaction is not the end of the acquisition. In the coming year, we will be working hard to merge the systems as soon as possible and to connect the new business software to our frontend and CRM tools.
We need to adopt the system, adapt it to our requirements, processes and also to the regulation in our home countries. All of this will of course take time.
Finax's service offerings and their parameters will not change with the takeover of Aion Bank's investment activities. If we had not communicated the acquisition, you would probably never have noticed it in our services, as it is a solution running in the background of all the processes the user encounters in Finax.
The existing portfolios of the original ETFmatic clients will remain unchanged, but it will not be possible to open new accounts under the terms of the acquired division (clients have not had this option for several years).
Once the system is integrated and fully adopted, we will be significantly more flexible in our development and system capabilities. The transaction will shorten Finax's path to several improvements and innovations such as:
- higher frequency of trades,
- faster launch of new products,
- greater flexibility in adapting to changes in legislation,
- adapting portfolios to different tax regimes,
- greater flexibility in portfolio changes and management,
- the introduction of different approaches to rebalancing and portfolio management,
- a wider range of products (including third parties),
- faster development of new features and client tools,
- greater efficiency of Finax,
- faster growth of Finax.
We believe that in the near future these plans will not remain just on paper and we will actually be able to deliver them to you. These are the primary goals in terms of development for the coming years.
Since the very beginning of Finax, we have prioritized the client, quality of service and added value for smart investors. We will continue to pursue this effort and this direction.
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At the same time, we place great emphasis on the balance between the services we offer, their meaningfulness, user-friendliness, client satisfaction, technology and product development, costs, company growth, customer education, innovation, and the long-term sustainability of our business, which is a huge responsibility.
Few people perceive the operational background of a company that aims to serve hundreds of thousands of clients. The challenges and complexities of a scalable regulated business such as financial wealth management are truly vast. Therefore, we need to look at other areas of our business to ensure that its continuity is maintained without hesitation or bottlenecks.
We see the takeover of Aion Bank's investment business as a vehicle with considerable potential to facilitate our fulfillment of several of the aforementioned areas.
We thank you for your trust and look forward to continuing our joint journey towards a better financial as well as a better collective future.