Consumer fintech startups were massively successful in 2019, attracting millions of new users and disrupting traditional retail banks and financial services with mobile-first, consumer-oriented products. Despite the economic downturn in public markets and the massive wave of cuts at public and private companies in recent weeks, fintech startups have been raising a ton of money.
It feels like they’re all building a war chest to survive the economic winter as traditional banks continue to iterate so they can catch up and offer more user-friendly services. This is not the time to raise fees, slow down on product development or plans to acquire new users.
Nine-figure rounds
Back in January, I looked at challenger banks and their growth trajectories, but since then, they have managed to attract even more customers. According to the most recent figures:
- Nubank has 20 million customers;
- Revolut has 10 million users;
- Chime has 8 million users;
- N26 has 5 million users;
- Monzo has 4 million users.
And that’s without mentioning Starling Bank, Atom Bank, Bunq, Bnext, Paysend, etc. At some point, there will be as many challenger banks as non-challenger banks — perhaps we shouldn’t call them challenger banks anymore.
Beyond these startups, trading app Robinhood recently reached 13 million users, international payments startup TransferWise has 7 million customers and cryptocurrency exchange Coinbase has 30 million users.
In recent weeks, Robinhood reported a new $280 million round at an $8.3 billion valuation, Stash, another mobile-first investment startup, raised a $112 million round, and N26 extended its Series D round by adding $100 million at a $3.5 billion valuation.
And of course, there’s the round of all rounds — Stripe raised another $600 million as part of its Series G round ($850 million for the Series G alone), which means the startup is now valued at $36 billion. Clearly, the company is trying to stay private for as long as possible, so it’s hard to call it a “startup” at this point.
Some of them also raised right before the economic downturn — they don’t have a reason to raise again just yet. You can think about Revolut’s $500 million round from February or Lydia, a French peer-to-peer payment app that raised $45 million in a round led by Tencent.
Consolidation is coming
When I talk to fintech CEOs about the market potential of their respective products, they always say it’s a wide ocean of opportunities and they’re not really competing with other startups — legacy players are the industry’s dominant players.
In other words, there is enough room for many different fintech startups, and even better, they could all be growing at the same time. Still, it won’t be easy: Monzo recently laid off 165 customer support staff and offered voluntary furloughs.
Companies operating in this industry generate most of their revenue from paid financial products like credit cards, international transfers and insurance products; referral revenue from the integration of third-party financial products; interchange fees on card transactions, and premium subscriptions like Robinhood Gold and Revolut Premium.
Depending on the company, revenue can be up for some categories and down for others. For challenger bank N26, co-founder and CEO Valentin Stalf told me that spending volume is down “20 to 30% depending on the market,” but subscriptions are “quite stable.”
But many people are losing jobs and burning through their savings right now. And if you don’t have money to invest, transfer back to your family as a remittance or spend in general, you’re not going to generate a ton of revenue for fintech startups — except peer-to-peer lending marketplaces.
That’s why some of the most visible fintech startups have been preparing for consolidation. Brex acquired not one, not two but three companies. It’s a relatively small move as only 12 people are joining Brex as a result.
Revolut is looking at bigger targets, and not necessarily in the fintech space. Revolut co-founder and CEO Nikolay Storonsky told the Financial Times that his company could acquire a travel aggregator as some of those companies are running out of options. You could imagine buying flights or renting cars on Revolut in the future.
The financial sector is highly regulated industry and regulation differs from one country to another, so building a fintech startup in Europe is a very different experience than doing so in the U.S. I wouldn’t have said this last year, but I can envision mergers between fintech startups that allow them to service more markets.
Building the financial super-app
Many fintech startups are trying to build super-apps — one financial hub to access multiple different services. WeChat and Alipay started this trend by bundling payments with e-commerce, transportation, savings accounts and more.
Given that the most popular consumer fintech services received a ton of funding, they have a real shot at achieving this goal. It’ll leave little room to breathe for other fintech companies. And the current economic outlook is going to accelerate that trend toward building these hubs.
