Fintech Mobile & Online Payments

Looking for a live unicorn

Looking for a live unicorn. Main illustration: maxicam,
Written by Chris Skinner

Chris Skinner looks at the state of the fintech unicorn, and uses Business Insider’s new list of the biggest unicorns of 2016 as reference.

I was chatting about unicorns recently. 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 startup firm that’s dealing in high-volume, low-cost transactions (a small clue), that’s 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 startup 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.

Partnering with the giants

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.

Anyway, 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, robo-advice and financial inclusion. Hence, when looking at the unicorns, I’m thinking there may be two or three giants emerging in these sectors, such as the Zopas, Stripes, Betterments and Ant Financials of this world.

Who are the fintech unicorns today?

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

1Ant FinancialRuns China’s biggest mobile payment product Alipay.$60bn
2LufaxChinese peer-to-peer lender.$18.5bn ($10bn)
3JD FinanceOnline financial services tied to online shopping.$7bn
4QufenqiLets Chinese consumers buy electronics in instalments.$5.9bn ($1.3bn)
5StripeOnline payment processing.$5bn ($5bn)
6SoFiMarketplace for student loan refinancing.$4bn ($1.3bn)
7Credit KarmaFree credit scores.$3.5bn ($3.5bn)
8Oscar HealthOnline health insurance.$2.7bn ($1.5bn)
9MozidoMobile payment and wallet provider.$2.4bn ($1bn)
10AdyenOnline payment processor.$2.3bn ($1.5bn)
11KlarnaOnline payment processing.$2.25bn ($2.25bn)
12=GreenSkyLets businesses offer credit to customers.$2bn
12=ZhongAn InsuranceChina's first online-only insurer.$2bn
12=ZenefitsFree HR software for small businesses.$2bn ($4.5bn)
12=One97Runs India's biggest mobile marketplace and wallet.$2bn ($2bn)
12=Avant CreditOnline lender.$2bn
17ProsperPeer-to-peer lending platform for consumers.$1.9bn ($1.9bn)
18FinancialForce.comSells cloud-based accounting apps.$1.5bn ($1.5bn)
19TransferWiseInternational money transfer service.$1.1bn ($1bn)
20=GustoOnline payroll tools for small businesses.$1bn
20=Funding CirclePeer-to-peer loan platform for small businesses.$1bn ($1bn)
20=KabbageOnline small business lender.$1bn
20=JimuboxChinese peer-to-peer loan provider.$1bn ($1bn)
20=Coupa SoftwareCloud-based spending management tool.$1bn
20=ZuoraSoftware that lets companies take subscriptions.$1bn ($1.5bn)
20=China Rapid FinanceChinese peer-to-peer lender.$1bn
20=Rong360Chinese financial comparison site.$1bn

As BI notes, some of the unicorns have seen spectacular declines in their value, such as Zenefits, while has fallen off the list. iZettle is also off the BI list, though it shouldn’t have been on last year’s list as its valuation was $500m. One of last year’s biggest unicorns has also gone bust – Powa Technologies – though we can blame that on the topless dancers and champagne.

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

Fintech share prices for Lending Club, OnDeck and Square. Source: Yahoo Finance.

Source: Yahoo Finance.

Nevertheless, there are some highlights, with 10 new unicorns added to BI’s list over last year, and most of these are Chinese.

30 largest fintech deals H1 2016. Source: Life.SREDA

Source: Life.SREDA

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

Certainly, Europe could be viewed as down if you read the news about how UK tech firm investments have almost halved since the Brexit vote ($200m of venture capital since the Leave vote, compared with $338m 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 $8.4bn raised during the same period a year ago to $17.4bn 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.

READ NEXT: 25 fintech unicorns stumble, but they’re still stampeding

– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. Read more here. Main illustration: maxicam,

About the author

Chris Skinner

Chris Skinner is an independent commentator on the financial markets through the Finanser, and chair of the European networking forum the Financial Services Club, which he founded in 2004. He is an author of numerous books covering everything from European regulations in banking through to the credit crisis, to the future of banking.

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