Reading about FinTech unicorns and pizzas worth $80 million, you would think that the world was bubbling over with wealth. FinTech investments last year peaked at over $110 billion, more than double the year before, and IPOs for firms like Uber and WeWorks are seeing valuations in the stratosphere.
Everything is just yummy, yea?
For every Uber, there’s a Karhoo and Lyft is losing more than it’s earning – $1.14 billion lost on $776 million revenues in Q1 2019. Is WeWorks, with a valuation nearing $50 billion, is just a cool reboot of Regus with an app? And companies that stand-out as start-ups are not always successful.
This struck me as I read about a firm I’ve watched since meeting its founder, Ollie Purdue, five years ago: Loot. Failing to find further funding, the company went into administration this week. That’s sad but with 175,000 student accounts, it probably wasn’t cracking the profit and loss model its backer, RBS, was looking for.
This followed on news in the same week that Monzo has just reached over two million users.
2,000,000 people are now using Monzo ????
A huge thank you to each and every one of you. We can’t wait for what happens next ????
— Monzo (@monzo) May 20, 2019
Monzo is valued at near $3 billion and Europe’s biggest unicorn is now TransferWise, with a valuation of $3.5 billion. At least TransferWise is making a profit – £6.2 million ($7.9 million) for the fiscal year ending March 2018 with annual revenue almost doubled to £117 million – but these valuations do strike me as similar to the internet bubble.
Is this one going to burst in the same way? Is there going to be lots of FinTech blood on the floor?
Well, that question has been asked a lot, and the same question applies to bitcoin, cryptocurrency, blockchain, artificial intelligence and everything else that is changing the face of banking, finance, commerce and trade.
My answer then was that there is no FinTech bubble bursting. Just a re-architecting of finance through technology that, until it finishes, will see us moving through waves of innovation and change.
I still hold this view, and that’s why FinTech investment doubled last year, has reached record highs, continues to burn higher and sees more and more unicorns arising.
So, is the FinTech bubble about to burst? Not on my watch.
In fact, the main evidence as to why FinTech investments will continue is two-fold: (a) specialising in making boring old banking better and (b) serving people profitably who boring old banks could not serve.
In the former category, there are huge amounts of inefficiencies in banking evidenced best in the customer onboarding and KYC (Know Your Client) processes. If every bank in the world switched to the onboarding processes of firms like N26 (eight minutes online), then we would see massive change to banking and, of course, they could. There are plenty of firms offering innovative KYC solutions and this is one of the major growth areas in FinTech. Equally, there are many others from trading and investing (eToro) to saving and managing assets (Nutmeg). What will be interesting is how many of these end up being invested in by big old boring banks or partnering with big old boring banks, and there is still a long way to go on that dimension (FinTech integration as Phase Four of my FinTech cycle, 2022-2027).
In the latter category, we have only just scratched the surface of small business services, financial wellness, financial literacy and financial inclusion. There’s still a long, long way to go on this axis as there are few firms emerging in this space, but there are more and more each year. In fact, it’s interesting that even the big banks are waking up to this opportunity:
HSBC Hong Kong has introduced a new type of bank account specifically aimed at customers with dementia, a growing public health concern among the city’s rapidly ageing population.
Serving customers the banks historically ignored is a big growth area, as dealing with customers in a physical network created a massive overhead of cost that meant most people were excluded. Eradicate that cost overhead, and everyone can be included.
For these reasons, don’t expect the FinTech bubble to burst in the near-term. Just feel sorry for the few firms that didn’t cut the mustard and make it to the end game.