The fintech rollercoaster: is today’s unicorn tomorrow’s write-off?

Every now and again I look at the week’s fintech headlines and realise they tell a much bigger story than anyone intended. This week was one of those weeks.

One headline celebrated the UK cementing its position as Europe’s fintech powerhouse, with 24 unicorns collectively worth almost $160 billion. Another reported that PayEm, a fintech that had raised tens of millions of dollars from investors, had been sold for just $500,000. At the same time, JPMorgan signalled its intention to take on Revolut and Monzo across Europe, whilst commentators wondered whether Europe’s fintech champions are now ready to invade America. Finally came the sting in the tail: HSBC has admitted losing more than $162 million on its attempt to build Zing, its answer to Wise and Revolut.

Five stories:

UK Fintech Dominance: Unicorn Count Hits 24 with £121.8bn…

After raising tens of millions, fintech PayEm acquired for just $500,000

JPMorgan Wants to Challenge Revolut, Monzo in Europe Bank Expansion

Are US Banks Ready for Europe's Fintech Invasion?

HSBC stung by $162m of losses from fintech flop Zing

… but completely different outcomes. That’s fintech.

The sector has always been characterised by enormous highs and spectacular lows. One company becomes a unicorn. Another quietly disappears. One raises hundreds of millions. Another sells for less than the price of a London house. The difference between success and failure often looks obvious in hindsight, but almost impossible to predict at the time.

Take PayEm.

Like many fintechs, it had a good idea, raised serious money and attracted impressive investors. Yet funding is not validation. Venture capital buys time, not customers. Raising $50 million doesn’t make you successful. It simply means investors have given you permission to try to become successful. Sometimes the market agrees and sometimes it doesn’t.

Then there is Zing.

This may be the most interesting story of all because it demonstrates that traditional banks cannot simply buy or build fintech magic. HSBC invested more than $200 million trying to create a digital challenger that could compete with Wise and Revolut. The technology, the brand and the balance sheet wasn’t the problem. The problem is that fintech isn’t a product. It’s a culture.

Banks tend to think they are competing with fintechs by launching a new app. They aren’t. They’re competing against organisations designed from day one to move faster, experiment continuously and obsess over customer experience. You cannot replicate that simply by giving an internal team a startup logo and separate office space.

Meanwhile, the challengers have become the incumbents.

Ten years ago, JPMorgan was the institution fintech founders wanted to disrupt. Today, JPMorgan wants to disrupt the disruptors. Jamie Dimon clearly understands that the next battle for customers will be fought through digital experience rather than marble branches. If anyone thought fintech versus banking was over, think again.

At the same time, Europe’s champions are looking west. For years American fintech firms expanded into Europe. Increasingly the traffic is reversing. Revolut, Monzo, Wise and others have reached a scale where the obvious next prize is the United States. That creates one of the most fascinating competitive battles in finance: Europe’s digital-native banks versus America’s banking giants.

The irony is that both sides increasingly resemble each other. The fintechs are becoming banks whilst the banks are becoming fintechs. Which brings us back to the UK’s unicorns.

People often celebrate unicorn valuations as though they represent victory. They don’t. A unicorn is not the finish line. It is merely confirmation that investors have very high expectations. The difficult part comes afterwards. Can you generate sustainable profits? Can you survive regulation? Can you expand internationally? Can you continue innovating after becoming large enough to develop bureaucracy?

History suggests that many cannot.

What separates the long-term winners from everyone else is rarely the original idea. Almost everything in fintech can eventually be copied, from the technology and the product to the features and even the funding. The things that prove remarkably difficult to replicate are culture, leadership and the ability to execute consistently over many years. That is why the winners are rarely those with the best ideas. They are the organisations that turn good ideas into great businesses.

The UK’s fintech sector should celebrate producing 24 unicorns worth more than £120 billion because that represents one of the country’s greatest technology success stories. But it should also remember that every unicorn casts a shadow. For every Revolut, there are dozens of companies that never reached profitability. For every Wise, there is another PayEm. For every Monzo, there is another Zing.

That isn’t failure … it’s creative destruction.