2016: Fintech’s breakout, formative year

Reading your Facebook news or Twitter feed you’d have to conclude that 2016 was a pretty awful year, but by all accounts, Fintech had easily its best year yet. In 2015 we saw a net investment in Fintech ventures that has been estimated at $22.3[1] Billion in total, but by January 2016 some $7 Billion[2] had already been invested into the sector globally. While a Series A and Series B crunch took hold in the second half of the year post-Brexit and pre-Trump, we know that 2016 saw similar net investments in Fintech to 2015. This all means that since 2010 more than $60 Billion of venture capital and private equity has made its way into the sector. Roughly in line with what US banks have spent on digital transformation over the same period. PWC estimates Fintech investment will exceed US$150 Billion over the next 3-5 years.

However, more importantly we’re now seeing a clear trend that Fintech’s are deploying capital much more efficiently than their incumbent counterparts, a fact borne out by what has been achieved by the estimated 14,000[3] Fintech startups globally in the last couple of years. Here are a few examples: 

The 800 pound Unicorns

In the US we talk about FANG stocks (Facebook-Amazon-Netflix-Google) as the foundation of NASDAQ’s growth curve coming off the Global Financial Crisis, but in China it’s all about BAT (Baidu-Alibaba-Tencent). The reality is that while the US has given birth to more than 20 Fintech Unicorns, compared with just a dozen in China, the top 8 Chinese Unicorns are worth 3 times their US contemporaries combined. This is largely due to the fact that Fintech in China is outpacing the rest of the globe in terms of both consumer and industry impact writ large. How do we know this to be true?

Ant Financial, the holding company that incorporates AliPay, raised $4.5 Bn at a $60Bn valuation in April of 2016, that’s just a shade under the $68Bn valuation of Uber’s last funding round. That puts Ant Financial’s market valuation at almost 3x that of Deutsche Bank. In fact, at one point earlier in 2016 Ant Financial was worth 4x what Deutsche Bank was worth. Think it’s overvalued?

Let me give you two reasons why it isn’t.

Firstly, Alipay is the world’s largest payments network by far. To illustrate, Visa’s network peaked at 9,000 transactions per second in 2015, Alipay at 87,000 transactions per second. Alipay is now available in 77 countries globally, and that is expanding rapidly. On November 11, 2016, Alipay settled RMB 120.7 billion (USD 17.8 billion) of gross merchandise volume (GMV) through it’s network – 82% via mobile handsets. Apple Pay hit $10Bn in total transaction volume for the year in 2015. Considering Visa’s market cap is $181Bn, Alipay looks like a bargain right now. The mobile payments market in China exceeded US$500Bn in 2016, and it’s growing at 40-60% right now. Alipay and WeChat claim 70% of that market today.

Secondly, Alipay has demonstrated better than any other company in the world, with the possible exception of Starbucks, the ability to leverage mobile for deposit taking. In 2015, Alipay through their Yuebao wealth management platform, managed $96 Billion in AuM – all via mobile and online channels. Alipay has no branches.

This has spurred a mobile deposit war in China with Tencent and Baidu launching competing initatives. WeChat’s online savings fund raked in $130m just on its first day of operation. However, Alipay clearly set the benchmark and established the market. The downside for banks is that the with 20% of the Chinese deposit market shifting to mobile providers, cost of liabilities in the mainland banks has risen 40%.

Dramatic efficiency

Fintech banks like Atom, Simple and ourselves at Moven, are now consistently able to acquire customers at 1/20th of the cost of chartered banks who rely on branch networks[4]. Alipay and Wechat are acquiring deposits at 1/100th of that of US banks.

Name a major retail bank that has been able to build a middleware and cloud-based core system, deploy mobile, wearable and online channels, and acquire hundreds of thousands of customers for under $25m consistently.

Simple, Moven, Atom and Number26 have between them less than 700 employees but have successfully deployed retail banking capabilities in 23 countries.

How long before the market recognizes that Fintech’s are simply more efficient at doing banking than listed banks, especially when it comes to utilizing technology for market growth and customer acquisition. The Neo-Banks and tech payments networks have proven you just don't need branches to acquire customers or deposits, and traditional retail banks won't compete on the same basis. 

Not just for Silicon Valley, and not just retail

Whether M-Pesa in Kenya, B-A-T in China, Xero in New Zealand, Housing.com in India, SoFi and Funding Circle for SMEs, Transfer Wise, Klarna, Square, iZettle and Stripe in payments,  Lufax, CommonBond, Prosper, Lending Club and Jimubox on Lending, the reality is that Fintech Unicorns are tackling every part of the financial services sector imaginable.

The 80 odd Fintech unicorns on the planet have a combined market capitalization of more than $200 Billion at the end of 2016, that puts them pretty close to level pegging with ICBC, the largest bank in the world. Considering we added 36 new Fintech Unicorns in 2016 alone, you can expect that number to grow. 

What I’ve seen in 2016

Personally, 2016 was a monster year for myself and the teams at Moven, Breaking Banks and that support me on the speaking circuit. I launched my 5th book Augmented: Life in the Smart Lane in June, and started BANK 4.0: Embedded, Ubiquitous, Extinct. Augmented hit #1 in a bunch of non-banking categories at launch, including Robotics, AI, Biotechnology, and Computing. The book achieved bestseller status within the first week of launch in more than a dozen countries. Bank 3.0 remained the #1 selling English language Banking book in China for the 3rd year in a row too.

I visited 25 countries in 2016, a reduction of about 22% based on 2015, but still more than 72 cities, and almost 200 sectors, most long-haul, eclipsing a total of 275,000 air miles. Or enough to get me to the moon conservatively. Most of that was a combination of speaking and Moven related travel, but I can say that the speaking business hit the US$1m gross fees level in September this year, and with less speaking days than in 2015. 

Breaking Banks continues its almost 4-year unbroken record as the world’s first and the #1 Fintech Radio show and Podcast in the world as we closed out the year with our 175th week of live broadcasts. While others have recently claimed that their podcast has hit #1 on iTunes, BreakingBanks has cast a much broader distribution net and iTunes only represents about 17% of our total traffic. Our WVNJ 1160 AM band listenership in New York alone consistently outperforms iTunes on listeners, and of course, that doesn’t include syndication across American Banker, Asian Banker Journal, Bank Innovation, BankNxt, Next Money, Soundcloud, Google Play, Stitcher Radio, Podcaster, and many other non-iTunes channels. BreakingBanks exceeded 300,000 listeners in September and October, or about the annual listenership of our nearest global podcast competitors a16z in #2, Wharton Fintech in #3 and 11-FS in the #4 slot. BreakingBanks airs live in 76 countries, and is downloaded in close to 150 countries consistently, also making it the #1 Business Show on the Voice America network – the Internet’s longest running talk radio media outlet.

On the Moven front we launched in Canada with TD to critical acclaim under the TD MySpend moniker. TD now boasts over 800,000 registered users, a result that exceeded target projections by almost 400%. Westpac New Zealand launched version 2 of the Moven service in the form of CashNav and got to 90% of their mobile user base in just 6 weeks. TD performance data shows that 30% of TD’s customer base using the app has reduced their spending by around 10% solely because of MySpend. This is the first time a so-called PFM tool has produced such significant savings across a broad cross section of customers, and certainly the only time via a mobile app. 1 million users are live with Moven in 3 countries, and in 2017 we expect to hit somewhere between 5-10 million app users in at least 6 countries. 

In the last quarter of 2016 Moven completed three major commercial deals that will successfully fund us for at least the next 2 years, and gives us line of sight to $20m in revenue for 2017. A 300% increase on our revenue performance in 2016. It was a great way to finish out the year.

A hard act to follow

Personally, even though I was shocked at the Trump election and Brexit results and was, for a time, considering moving to Mars with Elon Musk... The reality is that in terms of Fintech and for me personally, I just don’t think we all could have achieved much more in 2016 than we did. 2017 has a tough act to follow.

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[1] Source: Accenture Estimate – April 13, 2016

[2] Source: FT Partners – Jan 30, 2016

[3] Source: Various

[4] Typical range in cost of acquisition for a neo-bank is $5-40/customer, whereas the US average is $272/customer and the Big 4 generally pay $350/customer+.