• Chris Skinner, Chairman at The Financial Services Club


• 08.08.2016 11:30 am
Fintech

I was chatting about Unicorns yesterday.  I won’t say which one we talked about, but one specific firm was being picked on as unsustainable and incorrectly valued.  I was particularly surprised to hear that their cost of customer acquisition is estimated to be $400 per customer.  For a start-up firm that is dealing in high volume, low cost transactions (a small clue) that is a shocker if true.

We’ve already seen some unicorns stumble of late – Lending Club, Powa, Monetize – and there will be more.  In fact, there will be a large number of dead unicorns.  In January, I said:

“Some are already predicting a landscape full of dead unicorns.  I’m not one of them, but it’s quite clear that so many will not survive.”

And that clarity is coming out this year, to an extent.  It reminds me of the internet boom and bust of the late 1990s actually.  In the 1990s, many start-up internet firms were booming but do you actually remember any of them?  Do you remember eXcite, Boo, Razorfish or GeoCities?  For every Google, there’s a Lycos; for every Facebook, there’s a MySpace; and for every eBay, there’s an Auction Universe.  And this is the key: for every successful breakout brand, there are tens or hundreds or thousands of dead brethren.  After all, if one brand dominates, then traffic moves to that brand.

This is why in most markets there are only ever two or three dominant brands and companies.  Coca-Cola and Pepsi, then who?  Persil, Ariel and Comfort … does anyone else make the wash?  BMW, Mercedes, Volkswagen, Porsche … name the other German car manufacturers.

It is all about when you become a giant, it’s very difficult for anyone to cut the dice.  In fact, you only ever find giants fall because they weren’t looking.  That may be that they weren’t keeping themselves clear – I’m thinking VW emissions here – or because a replacement for their offering appears and they don’t compete with it until it’s too late – I’m thinking Tesla here.

In fact, the Nokia and Kodaks of this world all illustrate the giant failures well, and is the reason why we pick on them so often (although, as I’ve written before, banking is different).

When we talk about banking, most countries have two, three or four dominant players: the Giants.  How will these giants fall?  Because FinTech replaces their offering?  Well, it hasn’t happened so far.  In fact, if anything, we’ve moved from FinTech taking over to FinTech partnering with the giants.

Anyways, there will be some new giants because FinTech is also creating new business models and new markets.  In this area, I include peer-to-peer lending, mobile payments, roboadvice and financial inclusion.  Hence, when looking at the unicorns, I’m thinking there may be two or three giants emerging in these sectors like the Zopa’s, Stripe’s, Betterment’s and Ant Financial’s of this world.

So who are the FinTech unicorns today?

Business Insider summarises them well, listing 27 that make the grade as of August 1 (figures in brackets are last year’s valuations):

1. Ant Financial, runs China’s biggest mobile payment product Alipay, $60 billion.

2. Lufax, Chinese peer-to-peer lender, $18.5 billion ($10 billion).

3. JD Finance, online financial services tied to online shopping, $7 billion.

4. Qufenqi, lets Chinese consumers buy electronics in instalments, $5.9 billion ($1.3 billion).

5. Stripe, online payment processing, $5 billion ($5 billion).

6. SoFi, a marketplace for student loan refinancing, $4 billion ($1.3 billion).

7. Credit Karma, free credit scores, $3.5 billion ($3.5 billion).

8. Oscar Health, online health insurance, $2.7 billion ($1.5 billion).

9. Mozido, a mobile payment and wallet provider, $2.4 billion ($1 billion).

10. Adyen, an online payment processor​, $2.3 billion ($1.5 billion).

11. Klarna, online payment processing, $2.25 billion ($2.25 billion).

T12. GreenSky, lets businesses offer credit to customers, $2 billion.

T12. ZhongAn Insurance, China’s first online-only insurer, $2 billion.

T12. Zenefits, free HR software for small businesses, $2 billion ($4.5 billion).

T12. One97, runs India’s biggest mobile marketplace and wallet, $2 billion ($2 billion).

T12. Avant Credit, online lender, $2 billion.

17. Prosper, a peer-to-peer lending platform for consumers, $1.9 billion ($1.9 billion).

18. FinancialForce.com, sells cloud-based accounting apps, $1.5 billion ($1.5 billion).

19. TransferWise, an international money transfer service, $1.1 billion ($1 billion).

T20. Gusto, online payroll tools for small businesses, $1 billion.

T20. Funding Circle, a peer-to-peer loan platform for small businesses, $1 billion ($1 billion).

T20. Kabbage, online small business lender, $1 billion.

T20. Jimubox, a Chinese peer-to-peer loan provider, $1 billion ($1 billion).

T20. Coupa Software, a cloud-based spending management tool, $1 billion.

T20. Zuora, software that lets companies take subscriptions, $1 billion ($1.5 billion).

T20. China Rapid Finance, Chinese peer-to-peer lender, $1 billion.

T20. Rong360, Chinese financial comparison site, $1 billion.

As BI notes, some of the unicorns have seen spectacular declines in their value, such as Zenefits, whilst Housing.com has fallen off the list.  iZettle are also off the BI list, although they shouldn’t have been on last year’s list as their valuation was $500 million. One of last year’s biggest unicorns last year, has also gone bust, Powa Technologies, although we can blame that on the topless dancers and champagne.

Meantime, some are off the list because they’ve gone public including LendingClub and Square (and Xero and Markit), although it’s interesting to see that their valuations are down.

Nevertheless, there are some highlights, with ten new unicorns added to BI’s list over last year and most of these are Chinese.

In fact, BI are missing a few other unicorns based upon these investments, such as Meituan Dianping.  Meantime, is the FinTech sector going up or down?  Based upon the chart above and BI’s unicorn list, China is up whilst America and Europe are down.

Certainly, Europe could be viewed as down if you read the news about how UK tech firms investments have almost halved since the Brexit vote ($200 million of venture capital since the Leave vote compared with $338 million in the same period last year).

But then you see Finovate, KPMG, and CB Insights are all reporting record investments in FinTech this year.  Jim Bruene notes that the total number of year-to-date deals stands at 737, double last year’s 371. The amount invested has more than doubled also, from $8.4 billion raised during the same period a year ago to $17.4 billion year-to-date.

So the numbers are conflicting in some ways, but I think overall give a clear sign that this sector is still booming with interest.  There will be some dead unicorns along the way – Powa being one of the most notable so far – but everyone is trying to find the FinTech GAFAs (Google, Amazon, Facebook, Apple).  They’re out there somewhere.  You just need to find them.