Farewell to contact capture
How the Luca app is reinventing itself
By Hannah Schwar
04/16/2022, 2:09 p.m
The end of contact tracing – the core business of the Luca app – was already indicated at the end of 2021. The startup from Berlin now wants to reinvent itself as a digital wallet. But the question is: are users ready to go along with the shift in strategy?
Preparations are in full swing in the Luca open-plan office on Berlin’s Gendarmenmarkt. While one federal state after another has said goodbye to the contact tracing app in the past few weeks, the startup has been working on a kind of Luca 2.0 for post-pandemic times since January. New functions, new managers, new investors. A “huge upheaval” is imminent, says Luca founder and CEO Patrick Hennig.
For the realignment of the service, the parent company Culture4Life has now collected a total of 30 million euros from investors, as Capital learned in advance. The company intends to focus on the digitization of gastronomy in the future. In the course of this, Luca is to develop into a digital wallet. “Appropriate fintech and ID solutions will be integrated to make booking, ordering and paying in restaurants or check-ins in hotels with the Luca app possible in the future,” says Hennig. For the realignment, the Luca parent company Culture4Life is bringing fintech experts Ramin Niroumand and Julian Teicke on board as investors and advisors. Both have previously built several digital companies.
Niroumand made a name for himself as the founder of the fintech incubator Finleap, where he raised companies such as Solarisbank and insurance manager Clark. The entrepreneur is involved with his fintech fund Embedded Capital. Julian Teicke is the founder of the insurance startup Wefox. With a valuation of around 2.5 billion euros, the company is one of the most valuable start-ups in the country. He joins Luca through his investment company The Delta. The two digital entrepreneurs are also to move into the company’s board of directors. Her industry expertise and network should be of great value to Luca. This is already evident in the composition of the management team: For example, the new Chief Business Developer Sascha Gartenbach, formerly a top manager at Salesforce, comes from Teicke’s network.
A name should cause a stir beyond the industry
In addition, the Berlin venture capitalist Target Global is investing in Luca. The name is likely to cause a stir beyond the industry – because of the investment firm’s close ties to Russia. Target Global, which has invested in leading German startups such as Wefox, Flink and Auto1 in the past, was co-founded by Alexander Frolov. His father, also called Alexander Frolov, is a Russian oligarch and one of the fund’s backers.
Frolov Senior was CEO of the steel multinational Evraz until last year and was on its supervisory board until mid-March. The company is listed on the London Stock Exchange but has its roots in Russia. The largest shareholder was Roman Abramovich, a close friend of Putin. As a result of the British sanctions, the steel group came under pressure because of its Russian business, and ten of the twelve supervisory board members resigned, including Frolov. However, the oligarch is not yet on any sanctions list.
Luca boss Patrick Hennig emphasized that he had already signed the agreement with Target Global in January, weeks before the Russian invasion of Ukraine. Against the background of the war of aggression, Target Global credibly assured him of two things: “First, that no sanctioned persons are involved and no sanctioned money is invested in the fund. Second, that Target Global and all persons involved support the Russian war of aggression in Ukraine in the strongest possible terms judged.”
In the course of the realignment, Hennig will remain CEO of Culture4Life, his co-founder Philipp Berger will take on the role of head of technology. The previous shareholders, including the investment company of the band “Die Fantastischen Vier” and the Berlin club operator Marcus Trojan, are also said to remain loyal to the company.
Criticism about security concerns
The Luca app was launched at the end of 2020 with a digital solution for contact tracing and quickly established itself as the first choice across the country. Back then, financier and rapper Smudo advertised the app and its technical connection to the local health authorities on talk shows. A total of thirteen federal states signed a one-year contract with the operating company Culture4Life in spring 2021. The income from the license fees amounted to around 23 million euros. However, the app was repeatedly criticized for security concerns.
The question of how much Luca was able to contribute to fighting the pandemic is still controversial to this day. Twelve of the thirteen federal states have already decided to let the licenses expire. The health authorities no longer have any use for the Luca data, it says there as a reason. With the move away from individual contact tracking, the app has become superfluous. Only Hamburg has concluded a rest agreement in order to be able to activate them again at short notice. According to the operator Culture4Life, the Luca system for contact tracing should continue to be available on standby if required. The previous income from the Corona licenses should flow into the further development of the app. With the new investment, the company now has a lot of money available for a reorientation.
The end of contact tracing – the core business of the Luca app – was already indicated at the end of 2021. Since then, founder Patrick Hennig has been working on a business model that should be sustainable even without a pandemic. The startup wants to reinvent itself as a gastro app with financial functions. In concrete terms, Luca is to become a digital wallet in which users can store their ID card, vaccination certificate and means of payment. The aim is to completely digitize the restaurant visit “from ordering at the table to payment and tips”.
Lucrative but competitive segment
Probably the most important project in the course of the realignment is Luca Pay. In participating restaurants, users can already call up the menu via the Luca app. In the future, it should also be possible to place, manage and pay for orders via the app. “We concentrate on the user and make ourselves independent of restaurant systems,” says Luca boss Hennig.
In the future, Luca Pay should be compatible with common checkout systems such as Orderbird or Sumup, the app acts as access for the users, the payment service provider Rapyd is connected in the background. The company initially wants to charge 0.5 percent of each transaction as a fee for the service. Luca is thus moving into a lucrative but competitive segment: the processing of mobile payments is considered a strong growth market.
In addition to Luca Pay, the start-up is currently working on a digital identity check that will be used, for example, when checking in at a hotel. In concrete terms, it should be possible in the future to store the ID card in the Luca app via a connection to the service provider IDNow. The positioning in the gastronomy and event industry is obvious: According to the startup, around 450,000 restaurants and cultural institutions and around 40 million citizens registered with Luca during the pandemic. The legal obligation to trace contacts has given the company a valuable head start. Without them, it would have been virtually impossible to build up such a reach in the fragmented catering industry.
There is a practical hurdle for the startup
The question is whether the users of the app are willing to go along with the strategy shift of the Luca makers. In the transition phase, they now face two challenges: On the one hand, they have to gain additional trust from users, because they are ultimately supposed to entrust them with their payment and ID card data. This is not an easy task. The security architecture of the Luca app was criticized from the start due to the central data storage. IT experts had also repeatedly discovered weaknesses in the system, for example when accessing movement profiles. The operator made improvements – but the damage to the image remained.
The company states that in the new Luca app, every user can decide for himself which data he wants to release at what time and for what purpose. The identity data from the ID card would be stored in readable form “only locally on the smartphone”, explains Luca boss Hennig. “In the case of payment data, these are not processed in the Luca backend system at all, but only by the payment provider and the systems required for the payment themselves.”
On the other hand, there is another very practical hurdle for the startup to take users with them. Restaurateurs and private individuals who want to use the new functions must first explicitly agree to them. This is what the General Data Protection Regulation stipulates. So Luca has to get his users to look at the app again. In times when the pandemic is receding more and more into the background, this is no easy task either.
This text is first at capital published.