Fintech

Blood on the fintech carpet

Blood on the fintech carpet. Image: Photo_for_You; Mrspopman1985, Shutterstock.com
Written by Chris Skinner

How many sham characters are there in fintech? A few, says Chris Skinner, but these will be weeded out this year as the squeeze in funding hits.

I was reflecting on a friend of mine who runs a fintech startup. Their company was on a funding round, and struggling. They struggled so much that they ended up having to lay off a load of staff, cut budgets and defer income. In fact, they reached the point where they would only survive another week or two if the funding round didn’t drop. Then it did. Everything is well and good, but it gives you an insight into how hard starting a new firm is, fintech or tech, or any really.

This was brought home to me by a Medium blog from August last year, about a young lady who joined a Silicon Valley startup as its head of marketing, only to find it was all a veneer sham set up by a narcissistic founder who had no idea how to run a piss-up in a brewery, let alone a tech startup. How many of those are there in fintech? Well, we’ve seen one and I wonder how many more are out there. There will be a few, and these will be weeded out this year as the squeeze in funding hits.

Looking at the different geographies, America is fairly resilient because Silicon Valley has a vibrant network of investment support. Sure, it’s not what it was, but it’s still bullish when established players such as SoFi can get half a billion dollars from Silver Lake Partners. That’s $1.89bn of funding for a firm valued at just $4.3bn. Interesting, particularly when you look at what’s been happening with Lending Club and others. America is still big on fintech.

Asia is big on fintech. Asia has just woken up to what fintech can do, to be honest, and is about two to three years behind most European and American fintech communities, so it’s no wonder Asia is big on fintech. 2016 was a record year for Asian fintech investments, and 2017 will probably continue that bullish behaviour.

Then you come to Europe. Hmmm – post-Brexit, cynical, divided Europe. We’ve already seen that Brexit had a chilling effect on London investments. Investment in UK fintech startups dropped by a third after June’s Brexit decision, according to Innovate Finance, from $1.2bn in 2015 to $783m last year. But it’s worse than that, according to KPMG, who reckons that UK fintech investments were down 85% from $4.6bn in 2015 to $654m in 2016.

This doesn’t mean London has lost its place. London continues to be seen as one of the truly global financial centres, which, along with a vibrant tech startup sector, has helped create a strong environment for fintech firms to start up and scale. This still sets it apart from Europe, where fintech investment dropped 80% from $10.9bn in 2015 to $2.2bn in 2016.

What this means is that the funding desert in European fintech will lead to several explosions on the 2017 horizon. Looking at the European FinTech50, for example, how many of these firms need funding? Will they find it? If they don’t, will their failures fuel further fear? Will European fintech become a ‘finfail’? I don’t think so, but I do think we’re going to see some stinking great heaps of poop hit the fintech fan if the funding gates dry up.

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– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. Read more here. Image: Photo_for_You; Mrspopman1985, Shutterstock.com

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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