The Wounded Unicorns Of Fintech

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For EBusiness & Channel Strategy Professionals The Wounded Unicorns Of Fintech Falling Valuations Don’t Mean You Should Give Up On Financial Technology August 1, 2016 FIGURE 1 Fintech Unicorns Have Proliferated One97 Communications (Paytm) Source: CB Insights Lufax Zhong An Insurance Stripe Zenefits Social Finance Credit Karma Mozido Adyen Klarna Greensky Avant Prosper Marketplace TransferWise Funding Circle China Rapid Finance Coupa Software Kabbage Gusto Rong360 Valuations of fintech unicorns as of June 2016 (US$ billions) $0 $5 $10 $15 $20 Asia Pacific US Europe © 2016 Forrester Research, Inc. Unauthorized copying or distributing is a violation of copyright law. Citations@forrester.com or +1 866-367-7378 3
For EBusiness & Channel Strategy Professionals The Wounded Unicorns Of Fintech Falling Valuations Don’t Mean You Should Give Up On Financial Technology August 1, 2016 FIGURE 2 The Share Prices Of Lending Club, OnDeck, And Square Have Collapsed Post-IPO $25 $20 Share price of public fintech companies (US$) Share price $15 $10 $5 $0 Dec 2014 Jan 2015 Feb 2015 Mar 2015 Apr 2015 May 2015 Jun 2015 Jul 2015 LendingClub Aug 2015 Sep 2015 Oct 2015 Nov 2015 Dec 2015 OnDeck Square Jan 2016 Feb 2016 Mar 2016 Apri 2016 May 2016 Source: Yahoo Finance Fintech Unicorns Turn Out To Be Rare After All Why are fintech startup valuations falling? Because of the mismatch between these companies’ inflated valuations and their actual revenues. TransferWise, a UK P2P currency exchange startup that achieved unicorn status with a valuation of $1.1 billion, had annual turnover of just £9.7 million ($13.9 million at the time) at the end of March 2015. 14 Investors have hoped that startups would grow into their valuations, but their enthusiasm is waning as they discover that many fintech startups face significant obstacles such as: 15 ›› Stifling regulation. Financial services is a heavily regulated market. Digital disruptors are experimenting with new business models that often let them bypass regulation. 16 But regulators can bite, too. In the early days of US P2P lending, regulatory compliance put a stop to the growth of Loanio (Never heard of it? Exactly.) Regulators have now clouded Zenefits’s prospects. 17 › › Fragmented markets. Fintech startups often undercut incumbents by operating on narrow margins. But to be sustainable, this requires a scale that is difficult to achieve in fragmented financial markets. 18 Widely different financial products, regulation, and consumer behavior compound the usual localization challenges that other industries like retail face. 19 Fintech firms based in London, Europe’s most vibrant fintech center, and elsewhere in the UK now face uncertainty and potential difficulties accessing European markets as a result of Britain’s vote to leave the EU. 20 © 2016 Forrester Research, Inc. Unauthorized copying or distributing is a violation of copyright law. Citations@forrester.com or +1 866-367-7378 4
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The Wounded Unicorns Of Fintech

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