Fintech funders’ new focus: profits

Protocol Fintech

Hello and welcome to Protocol | Fintech! This Friday: VCs now prefer money-handlers that make money, Addepar's CEO warns of the risks of self-directed investing, and Paysend raised a monster round.

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The Big Story

Profits in the present

After more than a decade of robust growth, fintech startups and their investors are gearing up for the industry's next phase: profitability.

Making money is the "next maturity milestone" for companies that have been dramatically reshaping the financial services market since the 2008-2009 financial crash, according to Capgemini's latest World Fintech Report. The report, which came out this week, was based on surveys and insights from fintech execs and VCs in 33 markets across the U.S., Asia, Europe and the Middle East.

"Fintechs are popular, yet few are profitable!" the report's authors complain. (No need to shout it.) Fintechs "rocked the industry" with "low-to-no-cost" products that made it easier for customers to sign up and manage their money, the report said.

  • That led to rapid expansion — and for many, operating at a loss. VCs are still backing unprofitable fintechs "in anticipation of robust customer and revenue growth."
  • Some of the hottest fintechs today are in the red, the report said: Klarna, the "buy now, pay later" company, with an estimated valuation of $40 billion and 87 million customers; Robinhood, the trading app, with a valuation of $20 billion and 13 million users; and Nubank, the Brazilian challenger bank, with a valuation of $25 billion and 34 million users.
  • A few fintech stars are in the black, including Chime, WeBank and Starling Bank. Revolut, the U.K.-based bank-tech company, is "close to break-even," the report said.

"Investor sentiment around fintechs is maturing." Yes, VCs are still interested in rapid, even explosive, growth. But many investors are now taking the long view.

  • "Change is in the air," the report said. Apps and online tools that made banking, stock trading and debt management more convenient are now a dime a dozen.
  • "Over-the-top optimism for early-stage funding is weakening as enthusiasm heads upward for late-stage mature fintechs," the report said. "Why would an investor fund an early-stage startup when a proven, mature fintech can fill a market gap?"
  • Increasingly, the report argues, investors are becoming drawn to "mature" startups that are on track to long-term growth, particularly companies that have expanded to offer multiple products catering to more customer needs.

Heightened focus on profit means "more intense competition." Traditional banks have been scrambling to meet the fintech challenge. But fintechs may have an advantage, the Capgemini team said.

The report is well worth a read. But please let us know if you can decode this metaphor: "Incumbents told us they felt the heat as customers increasingly think of digital as a productivity vaccine worth seeking from new [financial services] providers."

-- Ben Pimentel


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  • "We see over the next several years that real-time, account-to-account payments is one of the highest growth areas because it has to keep pace with what's happening in society, which is instant gratification on commercial transactions."Raja Gopalakrishnan, FIS executive vice president of global real-time payments.
  • "The increase in complaints directed against Equifax and the other two national CRAs through the CFPB Consumer Complaint Database — particularly during the course of the pandemic — is concerning." — Beverly Anderson, president of global consumer solutions at Equifax, speaking Wednesday at a House hearing on consumer credit reporting.
  • "My compensation is set by the board; they look at multiple factors."Jamie Dimon, responding to criticism at a Senate hearing about his $31.7 million compensation package in 2020.

4 Questions With...

Eric Poirier, CEO, Addepar

What fintech trend are you most excited about?

The category of fintechs that set a higher bar for client outcomes and prioritize that above all else are the ones who increasingly stand out relative to traditional financial services players. Fintechs who are able to actively partner with larger financial services firms who recognize the need to accelerate their pace of innovation will earn a lasting scale advantage.

What trend are you most worried about?

Self-directed investing has become pervasive, and retail investors now have access to a much wider range of investment opportunities than ever before. These trends are positive in general, but they can come at a high cost if the risks inherent in some investment categories are misunderstood or overlooked. Some reasonable safeguards include practical education and best practices to reduce the chance that history repeats itself yet again by having retail investors getting hurt.

What needs to be fixed sooner than later in fintech?

Fintech is becoming a dominant way to deliver financial services to clients. That said, the fintech "category" is vast and lumps together companies with radically different business models and solutions. Some fintechs have novel and differentiated technology foundations, while others are essentially traditional financial services companies with a thin technology veneer. As fintech continues to grow, I anticipate that subcategories will become even more well-defined.

What was your biggest professional blunder and what did you learn from it?

It's essential to make big yet measured bets at growth-stage companies like Addepar. That said, I made multiple big bets simultaneously that ultimately overlapped and intersected in ways that I underestimated. We ultimately delivered, but at a high cost to the team. I took away a life-long lesson.

Need to Know

  • Adyen's bank got Fed approval. The payment processor's application for a licensed bank in San Francisco still needs OCC approval.
  • Coinbase wants to be a media company. The company believes that "misinformation" about crypto — and Coinbase itself — is running rampant, and it wants to provide its own fact-checking.
  • BNY Mellon adopted RTP for bill pay. The bank is using The Clearing House's network for businesses to present digital bills to consumer clients.

Deal Flow

  • Flywire priced its IPO at the top of its range. The payments software and services provider saw shares pop more than 40% early Wednesday, suggesting a slowdown in IPOs may be over.
  • Paymentus's IPO also soared. Shares of the payment technology company surged after pricing above the expected range.
  • Andreessen Horowitz is targeting $2 billion for its new crypto fund. The venture capital firm was previously thought to be raising a mere $1 billion.
  • Paysend raised $125 million. The U.K.-based mobile payments platform provider raised a round led by One Peak.
  • An Affirm spinout grabbed $60 million. Resolve provides "buy now, pay later" services for businesses, and the round was led by Initialized Capital.

Data Point


That's the average annual rise in the Dow Jones Industrial Average, which turned 125 years old this week.


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Thanks for reading — see you Tuesday.

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