Disclaimer
All research on startup and the whole investment memo has been done for personal use of Akim Arhipov.
Disclaimer 2
On the slides below, Draper = Inbank as research company used a neutral name while putting report together.
- Intro
- Mission
- Solution
- Overview
- Business Lines and Clients
- Credit Engine
- Tech
- Partners & Marketing
- Business Model
- Team
- Executive team
- Market
- Market Size
- Growth Potential
- Competition
- Future plans
- Why now
- Momentum
- Financials
- Overview
- 5 year Business Plan
- Round Terms
Intro
Inbank is a successful fintech company specializing in embedded finance.
Since its establishment in 2010, it has experienced significant growth in three distinct phases, expanding its services and customer base. Inbank's business has seen an average yearly net revenue growth of approximately 44% and a net profit growth of around 56% from 2015 to 2022.
Some highlights:
- Operating in a lending market - total net income in EU is expected to be €95bn by end of 2027 and total addressable market reach €42bn, whereas total embedded lending opportunity amounts to €29bn and Inbank’s target markets represents nearly 50% of the total EU embedded lending market.
- Positioned in high-growth verticals, benefiting from the embedded lending market's higher growth rates and trends such as the demand for solar panels, heat pumps, online car sales, and e-mobility.
- Top 10 merchants account for approximately 45% of total partner volumes, and has successfully increased the number of partners by 21% annually and average balance per partner by 15% annually from 2018 to 2022.
- Grew into a company with over 300 employees, 8 offices, and served more than 2 million customers, reaching an annual GMV of approximately €575m in 2022.
Mission
Inbank helps our partners sell more by simplifying purchases and making financing more accessible to our customers.
Solution
Overview
The company focuses on providing convenient and fast financing solutions to consumers at the point of sale, revolutionizing the traditional slow and complex lending process. Inbank serves merchants across various embedded finance verticals, targeting medium-to-high-ticket transactions that are underpenetrated by BNPL players and incumbent banks. They offer a streamlined sales flow, automated credit decisioning, and flexible product configurations to their merchant partners.
Inbank's product portfolio includes instalment and balloon financing, subscription services, uncollateralized cash loans, and credit cards. The introduction of green financing has significantly contributed to the company's volume growth, expanding from 0% to 22% of the outstanding balance between 2018 and 2022.
The majority of Inbank's business is generated through its partner network, which has shown healthy growth in terms of the number of partners and average balance per partner. Poland represents the largest share of Inbank's outstanding volume, followed by Estonia, Lithuania, Latvia, and Czechia.
The company maintains diversified funding sources, primarily through retail deposits, and has demonstrated a strong risk track record with stable loan loss ratios even during challenging times like the COVID-19 pandemic.
Inbank's partner portal enables easy integration into physical sales flows, offering a streamlined application journey. Merchant partners can view and initiate applications, configure loans with minimal customer input, and receive automatic loan decisions. The portal provides access to contract signing, payment reports, and sales transaction tracking. It simplifies financing for merchant partners and requires minimal customer involvement, ensuring a seamless process.
While Customer facing journey has been made quick and easy as well.
Business Lines and Clients
Inbanks offering consists of 7 main solutions across two categories:
- Embedded lending
- Direct to consumer lending
Verticals targeted being:
- Auto Marketplaces
- Subscriptions (incl. cars, e-mobility, consumer electronics)
- Green Energy
- Merchants
- UCL
- Credit cards
Credit Engine
Inbanks Credit engine is integrated with partners and can deliver a decision in about 15 sec. It is connected to 25+ credit bureaus across 5 countries, from where the information is being pulled and processed. Credit decisions being made within 15 seconds time and automatically in 90% of the cases.
Tech
Inbank's current tech platform adequately supports the business and has room for scaling. It provides 30+ capabilities and is hosted in a public cloud with containerization for horizontal scaling. The platform exhibits good speed, scalability, quality, and cost efficiency.
While architecture and processes have room for improvement, infrastructure and tech talent assets show high maturity. Inbank has established a product roadmap for tech modernization and operating model acceleration, including migrating services to a microservices layer and implementing cross-functional agile product teams.
The platform efficiently meets customer and partner needs, with streamlined sales flow, integrability, and competitive advantages in product configuration and risk-based pricing.
Inbank's growth ambitions are not limited by its tech platform, and the ongoing modernization program positions it to surpass fintech leaders in the future.
Partners & Marketing
There a are 3 ways on how Inbank reaches its clients. it mostly varies depending on the product in question. The market go-to strategies are:
- Through merchants
- Directly
- Indirectly
In order to avoid the need to manually, constantly onboard new clients, Inbank has chosen to focus on acquiring customers through Merchants (totalling about 80% of all the clients).
Business Model
Business model is built around the partner-based approach. As things stand, Inbank is offering services to partners from €1 000 to €20 000+. Sweet-spot being tickets in the range of €5 000 - €10 000.
Team
Executive team
Legal, compliance and risk control
Ivar Kurvits - Chief of Staff
Evelin Lindvers - Head of Risk Control
Finance
Marko Varik - CFO
Market
Market Size
Inbank operates in the dynamic European consumer finance market, specializing in embedded finance while expanding into D2C lending and merchant value-added services.
Inbank focuses on embedded lending in auto marketplaces, green energy financing, and merchants, targeting a market size of approximately €42 billion in total addressable market, representing about 50% of the total European consumer lending market.
Potential and segmentation of the Addressable Market
By expanding into additional markets, Inbank aims to increase its addressable market size by approximately 10 times to €14bn. Net revenue margins in the addressable market are expected to grow due to a higher interest rate environment, while the cost of risk is projected to remain low at around between 1-2%.
Inabnk is attacking the white space as shown below
Growth Potential
Embedded Finance refers to the integration of financial services into non-banking products and business models, offering customers convenient access to financial products and creating mutually beneficial opportunities for customers, partners, and banks. Embedded Finance is creating a win-win-win situation for all the participants.
As the E-commerce is one of the biggest factors that is driving embedded finance forward, its raise since the COVID19 pandemic is only paving the way for Inbank to scale and growth.
Competition
Competition in the Baltics show rather low-mid competitive intensity while things are more packed in Poland.
Inbank is the largest embedded finance player in Estonian CF market with nearly 20% market share and has been winning market shares from market leader Swedbank.
Inbank focuses on embedded finance, bringing tech capabilities to partners and serving the underserved midsized ticket segment. It offers a diverse product portfolio, including traditional embedded options and innovative products, with customizable specifications. Inbank prioritizes smooth customer journeys with a streamlined process.
Finally, to show you in which spaces is Inbank competing with who.
Future plans
By 2027, Inbank is aiming to achieve +30% Net Income Growth. As for the new products and markets, Inbank has identified:
- Wave 0 (2017-2022):
Achieved significant growth by becoming the second-largest consumer finance player in Estonia and expanding successfully to the rest of the Baltics, increasing market share from 8.0% to 12.8%. Demonstrated success in entering sizable markets, notably Poland, and excelling in rapid-growth sectors such as solar panel financing. Effective acquisition strategy with the integration of market leader Mokilizingas in Lithuania in 2018. Demonstrated capability in market expansion, entering Czechia within six months from opportunity identification to launch. Introduced innovative products including vendor programs for solar panel installers, car classifieds, and premium Apple resellers to tap into high-growth verticals.
- Wave 1 (2023-24):
Drive growth by expanding the merchant base and revenue per merchant in current markets through strategic acquisition in new verticals and optimizing customer acquisition. Scale the auto subscription model and introduce new subscription products for emerging trends. Inbank is assessing and looking for M&A opportunities to accelerate its growth in the coming years, enhancing the merchant value proposition and expanding across core markets.
- Wave 2 (2024-2027):
Pursue organic growth while strategically exploring add-on acquisitions. Execute post-transaction strategies, integrating commercial offerings and sales, capitalizing on synergies, diversifying product offerings, and seeking additional opportunities. Strengthen multi-market origination through unified technological capabilities. Scale subscription products into new markets and verticals, staying attuned to emerging trends.
Approaches have been segmented in 3 different ways:
- Focus on growing the merchant base, including partnerships with retail players, car dealerships, solar panel installers, and utility providers in the Baltics.
- Enhance revenue per merchant by doubling Autoplius volumes in 5 years and continuing growth of auto24.
- Scale the customer engagement platform and leverage positive market momentum, with projected CF volumes in the Baltics reaching approximately EUR 3 billion by 2027.
- Leverage a successful track record of revenue growth per merchant, including 9X growth in auto24's financing fees and 2.3X growth in contracts (2015-2022).
- Optimize creditworthiness assessment for fast and seamless contracting, supported by established cross-selling processes.
- Implement partner success teams, refine sales management, raise brand awareness, and enhance user experience across channels.
- Launch new products, features, and updates, expanding offerings to the Mobile App for omnichannel integration.
- In the Baltics, offer loans through various channels, optimize conversion rates, strengthen Inbank's brand presence, and improve user experience for enhanced engagement.
- Scale auto subscription offering and align with emerging trends in the industry.
- In the Baltics, drive Mobire's organic growth, partner with leading car dealerships, and cross-sell with existing Inbank partners.
- In Poland and Czech Republic, launch auto subscription, aiming for a fleet size of 4,700 cars by 2027.
- Expand electronics and micromobility subscription and explore new verticals like electric car chargers and routers.
- Respond to the growing subscription trend, as 75% of consumers express interest in shifting towards subscription-based ownership.
- Leverage the subscription model's advantages, including lighter capital and regulatory requirements, enabling expansion into various verticals and geographies.
- Address underserved markets, collaborating with electronics retailers like Euronics, Klick, and Tele2, with proof of concept partnerships in the pipeline.
- Capitalize on Inbank's strong capabilities, including the established Mobire auto subscription and partner network for cross-selling.
- Establish dedicated teams to launch and scale the subscription platform in new verticals, leveraging auto subscription experience.
- Appoint business managers for initiating proof of concept projects and targeting potential partners in new markets.
- Collaborate with regional offices of Apple and Samsung to promote cross-country offerings and marketing support.
- Seek potential joint venture partners in Poland and Czech Republic to accelerate auto subscription.
- Adapt the tech platform to local regulations, integrating with digital identification and local external registries.
- In the Baltics, onboard micromobility and telco partners, and introduce subscription to top Apple and Samsung resellers.
- In Poland and Czech Republic, average 5 partners per year through cooperation with Apple premium retailers.
- In Germany and Italy, partner with fast-growing micromobility and consumer electronics providers.
- Further expand subscription offerings to Switzerland and Scandinavia, starting with premium brands.
- Enter the used car vertical targeting marketplaces and car dealers, securing the first partner in Q2 2024.
- Onboard 3 large used car marketplaces without integrated financing solutions by Q4 2027 (e.g., Quattroroute, Subito.it, AutoScout24).
- Partner with 580 car dealers (e.g., Gino Automobili, Bonaldi Motori) by Q4 2027.
- Expand into fast-growing verticals and cross-selling opportunities in Q3-Q4 2024.
- Capitalize on Italy's positive market momentum, with expected used car CF volumes to reach EUR ~20 bn by 2027, and solar panel and merchants CF volumes projected to grow ~15% and ~4% p.a., respectively.
- Address white space in the market with integrated financing solutions for auto marketplaces, dealers, and SP installers, offering a profitable B2B2C sales financing model.
- Deliver best-in-class products, automating 90% of the credit decision process within <15 seconds.
- Offer partners access to large customer bases in the Baltics and Poland, creating a unique expansion opportunity.
- Scale with shortlisted partners, expanding in Italy and internationally.
- Establish a local presence with 1-2 business managers in Italy, supported by an international cross-functional team.
- Connect with regulators, like the Bank of Italy, and initiate the passporting license process.
- Adapt the tech platform to local requirements, accommodating credit products and subscription models.
- Disrupt other verticals by introducing B2B2C hire purchase and subscription products in consumer electronics and home & garden markets.
- Onboard SP installers/distributors and utilize up- and cross-selling through scaling the customer engagement platform.
- Enter the German market through subscription in Q1 2025, partnering with fast-growing micromobility OEMs, marketplaces (e.g., Äike), and consumer electronics partners.
- Explore the option to leverage the same partners for consumer credit offerings and expand into new verticals after successful subscription entry (Q4 2025):
- Enter the used car vertical by onboarding auto marketplaces and major car dealers without integrated consumer finance offerings (e.g., Quoka.de, Motoso.de, Auto24, Markt.de).
- Expand into heat pump financing by partnering with major HP installers (e.g., StromTiger, Krieger, Antretter).
- Focus on profitable product niches and verticals with a digital process advantage.
- Disrupt the German market with innovative product concepts, starting with non-credit subscription offerings and transitioning to credit offerings.
- Utilize Inbank's existing distribution and partnership networks to offer unique expansion opportunities to new partners.
- Disrupt customer journeys in selected verticals in the German market, aiming to capture shares from traditional players.
- Benefit from the growing demand in Germany:
- Used car CF volumes projected to reach EUR ~54 bn by 2027.
- Heat pump and merchants CF volumes expected to reach EUR ~2.5 bn and EUR ~15 bn by 2027.
- Micromobility CF volumes estimated to reach EUR ~1 bn by 2027.
- Leverage Inbank's distribution and origination capabilities to build business streams in separate niches and large volume territories.
- Establish a local presence in the German market by acquiring expertise and platform from bob Finance, hiring local business managers, and forming an international cross-functional team.
- Localize subscription offerings to German needs and establish a legal entity for operations.
- Benefit from synergies within Inbank and bob Finance, including partnerships with premium resellers, multinational partners, and e-bike distributors.
- Adapt the tech platform to local requirements, integrating with local digital identification regulations and external registries.
Why now
Momentum
The market is experiencing tailwinds such as the growing relevance of integrated financial solutions with embedded finance disrupting the banking sector, the shift towards rental and subscription business models, the accelerating green transition, and omnipresent digital disruption.
Inbank aims to expand its product offerings and market presence to take advantage of the changing channel mix. Additionally, the company sees potential in leveraging advanced analytics and artificial intelligence to enhance risk assessment and improve efficiency.
While the challenging macroeconomic environment and demanding regulatory landscape present potential limitations and uncertainties, Inbank has demonstrated resilience in managing risk and adapting to market changes, ensuring a focus on verticals with limited downside.
- Inbank has emerged as a clear leader in the Baltic €4.5 bn consumer finance market, with a strong focus on new business volumes.
- Currently, Inbank holds the second-largest portfolio market share, trailing behind long-time market leader Swedbank, but is anticipated to become the market leader in the coming years.
- Traditional banks are experiencing a decline in market share, while digital and partner-based business models are gaining traction.
- Inbanks success in gaining market share is not limited to Estonia, as similar trends can be observed in all Baltic, Polish and Czech markets, driven by their advanced technology and robust distribution model.
Financials
Overview
To give you the highlight, let’s highlight growth between 2021 and 2022:
Net interest income +18%
Net fee and commission & other income +47%
Total net income +21%
Operating expenses +26%
Operating profit +13%
Other income from aff. +3309%
Impairment losses on loans +68%
Net profit +92%
Below, you can also see Key Quarterly Financial for 2022 and Q2 of 2023:
Inbank has continued strong performance and on a growth path across range of metrics despite challenging macroeconomic environment, which is a having an impact on profitability, e.g. raise on the interest rates, increased contributions to national Deposit Guarantee Fund, as well as expansion to Czech market. If looking at the longer cycle then profitability is expected to improve further taking into consideration to taken measures on a portfolio and customers side.
5 year Business Plan
Expected core and new markets represent each ~50% of GMV in 2027 Largest GMV contribution expected to come from Italy reaching €780m with the largest share being issued through auto marketplaces, auto dealers and merchants.
Outstanding portfolio expected to grow 34% p.a. vs 50% p.a. growth for GMV, while OtD, representing ~35% of total outstanding portfolio (incl. OtD) to be originated from core markets, Switzerland and from Italian and German auto financing.
New markets expected to represent ~50% of total net income in 2027, with Nordics and Switzerland being the largest new market with ~€69m and ~€40m total net income in 2027, respectively. Largest net income contribution expected to come from Baltics reaching ~€80m.
Personnel expense growth by 35% p.a. is expected to continue to be the highest operating cost for Inbank as we scale to new markets, reaching 3x GMV per FTE by 2027
Finally, the interest rate environment assumption
Round Terms
Transaction: Secondary
Allocation: 500k€
Price per share: 22.50€ (In case Inbank raises primary round during next 3 months at a lower price that 22.50 then FFF will also receive the same price and a difference will be paid back or more shares allocated)
Minimum ticket: 10 000€ (first come first served)
Fees for fff.vc members: 7% on off fee + 7% carried interest