90% of start-ups fail. 10% within the first year. And yet the Fintech world is booming. $5.7bn of VC investment deals in just the first half of this year. Serial entrepreneurs and digital visionaries– they are all gearing up to disrupt the Financial Services (FS) sector. Add to that energy, support from the government - £375m Future Fund for start -ups at the “cutting edge of R&D such as artificial intelligence”; from the regulators – sandbox and tech sprints, large global traditionalists – Barclays Rise Programme and you are bound to feel a Sunday afternoon urge to take a plunge yourself.

Industry visionaries appear convinced of the opportunity and are painting a technologically powered future landscape of FS, a hitherto traditional industry. KPMG Fintech trends are pointing to an “explosion of activity in block chain”, focus on cybersecurity and increasing attention on B2B service while Clifford Chance in their reading of the Fintech world is adding pointers on AI and focus of global regulators as well as the need for operational resilience. 

If it is as good as confirmed by the numbers and valuations, then why such a high rate of failure? Why do Fintechs fail and what can others learn?

With high numbers joining the fast-evolving Fintech history books, reasons for failure make an important read for every start-up founder. The top reason is obvious - ‘ran out of cash/failed to raise new capital’ but interestingly a cumulative of 70% is about misreading customer need, business model issues and inadequate business differentiation. Interesting! 

Seek and you shall find lists of brands that hit the wall and now survive only as a historical contributory participant to lessons for the ones who carry on. Let’s mention a few such brands (in no order of memory or preference) and why they failed:

1. Wonga: Tech based short-term online cash loans - Bad lending decisions and scandals around demand for arrears
2. Lendy: P2P property investment platforms - Loan book full of defaults
3. Xinja: a "neobank" - challenged raising funds particularly after Covid
4. Bó: digital banking venture by RBS now integrated with Mettle, the SME-focused digital banking venture of NatWest - victim of the pandemic, closing 6 months after it launched 
5. Yelo: challenger bank mainly geared toward gig workers - complications with its business model 

So is there something different to be done, something to be learnt?

Yes and let’s explore two observation, suggestions:

For the founders: Think different, act different for if it’s a true Fintech then it needs to be different. But to survive in the real world be aware that there are known/unknown hurdles on the path to success   

So here is a list for founders to reflect on; a snappy summary of numerous readings, discussions with founders (at Fintech events) and advisory engagements with start-ups:

1. Believe in your proposition and how you are addressing the customer need but remember the world changes (daily!) so evolve to stay relevant
2. Underestimating competition and being a “me too but a little different” with subtle points of differentiation cannot be a long play 
3. Seek cultural and aspirational alignment with the investor(s)
4. Building credibility takes time. Stay authentic even when the world around you changes and ‘survival of the fittest’ challenges conviction 
5. Founders’ arrogance and self-indulgence of a belief that they have worked things out, will kill it
6. Unplanned and unexpected shocks including ever increasing costs on technology, compliance, and marketing will happen
7. Not engaging the right advisors with the fear of costs (legal, accountants, compliance, partner vendors) is just not smart. Note: “61% of financial services businesses plan to collaborate with Fintechs to improve services”
8. Not staying focused on the security agenda as the start-up grows will put you in the history books quickly. Note: “Cybercrime is on the rise, with new attacks occurring every 39 seconds.” Businesses need to think about two-factor authorisation, biometric authentication, data encryption and real-time controls.

For all others (Industry visionaries and the Markets): Read the signs and trends not just to celebrate successes and be weary of possible unpalatable possibilities in the future – “Can the Fintech world and its current ballooning bubble be heading for a bust?”

Clearly an alternative reading of a boom is bust. Now is that cynicism or realism? Can a supporter of the Fintech disruption also shine light to a possible bust? Yes, why not?

So, let’s be honest - one can’t deny possible similarities with the late 1990’s and Dot Com bubble. Just see the signs: the high valuations, the number of new businesses, focus on growth over operational spend, the media coverage etc. It’s hard; to deny atleast some similarities. Now for sure the DotCom bubble was just about one technology (the Internet) and now we are talking of an extensive collection of propositions and technologies but being smart now is better than being sorry tomorrow. The Fintech bubble and the monies at risk may head to a bust (with significant financial impacts) unless a realism check brings semblance to the current set of numbers (valuations and start-ups).

In conclusion, my take...

I am fundamentally in favour of the dictate that “a person who never made a mistake never tried anything new (Albert Einstein) so more energy to every Fintech (current and future). And power to the founders and their commitment to carry on saying “I have not failed; I’ve just found 10,000 ways that won’t work” (Thomas Edison) but lets take care as we charge ahead. Let’s question perceived future value and proposition outcomes as we move towards a disrupted FS sector with a plethora of Fintechs as key players; for “the man who asks a question is a fool for a minute. The man who does not ask is a fool for like” (Confucius)