The Wounded Unicorns Of Fintech

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
››
Inert customers. Fintech gurus get excited about each new startup, but few outside of those
business circles know — or care. Consumers rarely switch financial services providers. 21 The
perceived benefits are often insufficient to alter long habits or overcome customers’ lack of trust
or confidence in new providers. 22 And many incumbents have committed to customer centricity to
keep it this way. 23
››
Reactive incumbents. Disruptors win by posing the innovator’s dilemma for incumbents, whose
fear of cannibalization stops them from adapting. 24 But many fintech startups have gone after
underserved customers, demonstrating how digital technology can make serving these customers
profitable. 25 Incumbents have responded swiftly, launching their own crowdfunding platforms,
digital banks, and digital investment managers to target these very same customers. 26 Many have
rearchitected their core systems and embarked on digital transformation to secure their future.
››
Agile copycats. Underpricing incumbents with very different cost structures is easy. But
underpricing other agile startups is less so. P2P lending platforms, digital investment managers,
and digital money managers have proliferated and are now fighting price wars in hope of grabbing
market share. Most startups will fail to differentiate or secure enough funding to keep on fighting. 27
Don’t Give Up On Fintech Just Yet
Digital disruption of financial services will march on, even as the number of unicorns shrinks. Why?
Because its drivers — empowered customers, emboldened entrepreneurs, and the ability to launch
digital businesses quickly and cheaply — haven’t changed. Upstarts will keep trying their luck as:
››
There are plenty of opportunities. High margins and accumulated inefficiencies in financial
services tempt entrepreneurs to innovate and disrupt. But newcomers don’t have to replicate
incumbents’ business models and target interchange or advisor fees to be dangerous; they often
upend markets as a side effect. Transaction or cash flow data, investor mood, or intricate risk
models could become valuable assets to other businesses. 28
››
Investment keeps pouring in. Many startups will spurn going public, opting instead for private
sources of funding — of which there is still plenty at the moment (see Figure 3). 29 After a slow
second half of 2015, investors returned in Q1 2016, investing $5.7 billion in private fintech firms —
a jump of 96% from a year earlier. 30 And when professional investors aren’t interested, upstarts can
try to raise finance through crowdfunding platforms, as UK digital bank Mondo did, although the
sums raised will be much lower than those that professional investors can offer. 31
› › It only takes one company to change the industry forever. Most disruptors will remain niche
players or fail altogether. But Forrester believes that some will gain a foothold as they engage
customers in new ways. Digital disruptors like Alipay and PayPal have demonstrated they can
quickly win market share and grow from startups to major players within a few years.
© 2016 Forrester Research, Inc. Unauthorized copying or distributing is a violation of copyright law.
Citations@forrester.com or +1 866-367-7378
5