For decades, legacy financial institutions seldom upgraded their infrastructure and have been providing similar services to clients. The heavily regulated nature of the business also created high barriers to enter, making innovation happen much infrequently in the area. Nevertheless, today's competitive landscape has changed: the global financial services industry is being disrupted by emerging startups which are backed by millions of dollars of funding and are aiming to tackle the mounting challenges in traditional financial services.
As of August 10, 2019, 46 startups have joined the worldwide unicorn club, reaching a valuation of USD 1 billion or higher. The US has far led the competition with 22 unicorn ventures and outside the US, the UK is also a home to financial unicorn startups, followed by China. The article highlights the latest trends in fintech venture markets.
The new joiners in 2019
12 ventures have joined the global unicorn club so far this year and we see private unicorns are surging at a faster rate than before via larger funding rounds. Challenger banks, or digital-only banks appears to be the most attractive sector, as N26 from Europe and Marqeta and Chime from the US are offering mobile banking products to fix the inefficiencies in consumer payments. Accenture says that challenger banking accounts for 14% of banking revenue in Europe while only 3.5% in the US. On the back of the yet low penetration rates, ongoing strong capital supports and tech-savvy millenniums, we see traditional financial services increasingly shift to a cashless and card-less market.
N26, Germany: Backed by Tencent and Peter Thiel's Valar Ventures, this European fintech startup aims to be "a mix of Venmo, Zelle, Mint and Chase" and enables its users to open online bank accounts within seconds. Currently, there are 3.5 million users in the Eurozone, the UK and the US.
Marqeta, USA: Marqeta is a payment processing company servicing other fintech players such as Square, Alipay, Kabbage, Klarna and Affirm. Gardner says Marqeta has doubled its revenues for the consecutive three years and expects the nine-year-old company to go public shortly.
Chime, USA: according to TechCrunch, Chime offers a "no-fee" bank account, which won’t penalize users for things like dropping below a minimum balance or even overdrafts. The point of difference for Chime is that rather than profit from consumers, it profits with consumers. Each time a member uses their Chime Visa debit card, Chime earns a small amount from Visa which is paid by the merchant.
US has far led the competition
Among those 46 unicorns, almost half of them are located in the US, established by fintech industry veterans in California and backed by large incumbents such as Visa and PayPal. Top 5 most-funded companies are Coinbase (USD 8 billion), Robinhood ($ USD 7.6 billion), SoFi (USD 4.5 billion), Gusto (USD 3.8 billion) and Credit Karma (USD 3.5 billion). Those ventures are operated in the online brokerage, online lending and enterprise payment sectors.
Coinbase: Coinbase is a digital currency exchange that provides a venue to trade Bitcoin, Bitcoin Cash, Ethereum, Ethereum Classic, and Litecoin in around 32 countries. The valuation went from USD 1.6 billion to 8 billion in less than a year, thanks to the surge of bitcoin trading volume in 2017 and 2018.
Robinhood: As a popular millennial trading platform, Robinhood is the only platform where investors can trade crypto, stocks, and options all in one place.
SoFi: SoFi is an online personal finance company that mainly offers student loan refinancing. Not limiting itself to student loans, SoFi is moving into broader financial programs such as personal loans and home mortgages as well as investment products like zero-fee ETF.
Gusto: Gusto offers cloud-based payroll, employee benefits and human resource management software and helps client companies comply with tax, labor and immigration laws.
Credit Karma: Credit Karma offers free reports to let users understand their credit scores and personalized tips to improve their score. There were more than 85 million users on the platform as of the beginning of 2019. Leveraging its strong algorithms, it sends suitable ads for its users and charges lenders when Credit Karma successfully matches borrowers to the lenders.
China fintech market
Among the fintech investments in China, the domestic, as well as the global top deal, was Ant Financial raised an unprecedented USD 14 billion in 2018; the fundraising was led by General Atlantic, Warburg Pincus, GIC, Sequoia Capital, Silver Lake, T. Rowe Price, Temasek Holdings, and Primavera Capital. The company is also the most well-funded company which has raised approximately USD 19 billion across four series of investments.
This year, eDaili, invested by K2VC and Lightspeed China, has joined the unicorn club. eDaili provides overseas asset management services to the retail and institutional investors with various asset classes such as fixed income, private equities and overseas insurance.