Not all FinTech startups grow up to become the next Klarna or Revolut. But at least budding entrepreneurs can learn from failed businesses’ mistakes.
There have been various great FinTech success stories, with another handful joining the fabled unicorn club this year. While media reports might make it look like the sector is nothing but sugar and rainbows, some have been forced to close.
Eyewatering levels of capital has been invested into sector, with the first half of 2019 already seeing around $32bn deployed, putting it on track to match the funding levels last year which totalled $62.4bn. With the sheer volume of capital invested, it is unsurprising there are some very high-valued FinTechs in the market. Online trading platform StockX, cross-border payments company Airwallex and banking app Numbrs, are just some of the companies to become unicorns this year. Moreover, existing FinTech giants Root Insurance and Klarna reached valuations of $3.65bn and $5.5bn, respectively in that period.
However, hidden behind the fanfare of these victors, are the businesses who failed. FinTech Global will explore ten of the FinTech ventures that did not pass muster. Here are five of the ones which initially looked promising but could not quite cut it.
Aiwujiwu
This company is an example of how the mighty can fall. Having achieved unicorn status, the Chinese online property listings platform reportedly entered a liquidation phase earlier this year. Subsequently, the PropTech scaleup has stopped its services on the website and application.
Aiwujiwu had operated as an online real estate brokerage platform designed to help people in the country buy, rent or sell property. It was established in 2014 and supported property in Shanghai, Guangzhou, and Shenzhen.
The PropTech platform had raised over $300m across five separate funding rounds and attained its unicorn status within just 18 months of operation. Its rapid rise emphasised how appealing the platform appeared to be. The platform was even able to get the attention of several major investment firms to support its cause, including Temasek Holdings, GGV Capital, Gaorong Capital and Shunwei Capital.
It is a little unclear why the company closed down. However, jqknews claims that it was not because of money issues. Instead, the site suggests the closure was in the interest of several major investors. There were signs of its problems though, with some previous reports regarding layoffs and store closures between 2016 and 2018.
Other issues in the market look like they also had an impact on its performance, the article claims. In 2016, just under 20 cities in the country issued policies restricting purchases and loans in a bid to bolster the examination and approval of individual housing loans, putting more pressures on the company.
Aiwujiwu’s website and app closed down at the beginning of 2019 and new business has stopped.
DealStruck
DealStruck is a great story of how persistence can save a business.
Back in 2016 SME lender DealStruck appeared to have closed its gates after suffering a turbulent year. The company offers online financing to entrepreneurs, small lending experts and technologists. The online application process gives a borrower real-time feedback on loan options and pre-qualify them instantly for tailored financing. Loans ranging from $2,500 to $500,000 can be taken out to support business growth.
Crowdfund Insider claimed in 2016 that the company had closed its operations following an 11th hour acquisition from a bank based in Utah, US had failed. The FinTech reportedly stopped accepting new loan applications and several employees left the business.
Things were not all doom and gloom for DealStruck. Instead of stopping all operations, it maintained its existing clients with the services they had been promised. After two years, the company rose from the ashes and re-entered the market after a restructuring process.
Its revamp was founded on the idea of expanding its mission and reaching more people while keeping it a personalized service. The company was able to come back from the brink thanks to the support of a new group of private investors that established a new ownership coalition, CrowdCube claims.
Following the restructure, the company’s CEO Anthony Porrata said clients would get quicker approvals to loans and get a more streamlined process.
Finn
Even giant financial institutions can suffer the pitfalls of launching a FinTech service. It would have been a safe bet to assume that JPMorgan Chase, being the US’ largest bank, could launch a FinTech solution without issue and thrive in the marketplace. However, that was not the case for its no-fee banking app aimed at millennials. The app was reportedly unable to lure new customers to its services.
The goal of Finn was to be a mobile banking app tailored towards a younger audience, giving millennials and generation X an easy service to complete transactions and make savings. It did not charge consumers for their accounts or access to partner ATMs.
JP Morgan already had a separate banking app, which still operates today, named Chase. The online banking app did not differ too much but was for people of any age, giving them tools for checking accounts, receiving free credit scores, taking out a credit care, accessing home and auto loans, and options for investing.
Finn was launched in 2018 but was absorbed into the Chase service within a year.
After the merge, Finn customers were given a new debit card but their account numbers and direct-deposit details remained the same. They also were exempt from the $5 monthly fee typically associated with the basic accounts.
A spokesperson for JPMorgan Chase told Forbes at the time, “We know the Chase brand is already among the most popular banks for millennials, so we’re leaning in on that, rather than continuing to build a brand from scratch. They simply want a bank that gives them the tools to manage their money, along with access to branches when they need them.
“Given all this, we have taken some of the favourite Finn features, such as rules to automatically save, and have already integrated them into our Chase mobile app and have other capabilities we have yet to announce.”
One of the reasons why the service did not take off was because Finn and Chase were too similar. Moreover, Finn failed to offer anything particularly appetising to warrant downloading in place of Chase. Another potential reason for failure was that the younger audience were just not interested in making a new account with the digital bank.
Swell Investing
Swell Investing is one of the latest FinTech forced to close. The startup had enabled individuals to invest into portfolios of companies solving global challenges, such as clean water, green technology and zero waste.
The company officially ended its operations on August 30 2019 after it could not fund its scale.
It said, “Our journey began as a mission that every dollar you invest would have a positive impact on the world. Together, we built a product that allowed you to invest in companies innovating to solve global challenges.
“While we’re incredibly proud of what we accomplished together, Swell was not able to achieve the scale needed to sustain independent operations. As a result, we closed our doors on August 30, 2019.”
Swell was founded in 2015 and during this course, the company grew to roughly 40 employees. Additionally, the company raised $30m in a funding round from its parent company Pacific Life.
The company’s website confirms its closure and informs its clients of what they should do now.
Pay by Touch
Founded in 2002, Pay by Touch had the ambition to “change the way the world pays.” Unfortunately, the company was unable to live up to the herculean challenge it had created for itself, not to mention the questionable leadership of its CEO, and crumbled under the pressure, closing just six years later.
Pay by Touch, which was operated by Solidus Networks, was a biometric authentication and payment solution. It offered businesses in the US, Asia and Europe with technology to link financial accounts, personal identification, and membership accounts to their fingerprint. It also offered a payment processing service for automated clearing house (ACH) systems.
Businesses making use of Pay by Touch could access biometric payment, payment processing and shopper ID services, among others.
The failure of the company, like many others on the list, was a little surprising due to it receiving a lot of attention from the market and investors – just highlighting that raising lots of capital is not always a sure-fire route for success. Over the course of its operations, it had reportedly raised roughly $190m across several funding rounds. It was apparently seeking a $400m before the closure in a likely attempt to salvage the enterprise, according to media reports.
Money was clearly a big issue for the company. According to an email from an investor in Pay by Touch, which VentureBeat was sent, Pay By Touch had failed to pay some of its employees and it had also accumulated a “significant accounts payable balance.” Further to the cash worries, the company had failed to pay many of its vendors and contractors for months, leading to many of these vendors putting a credit hold or ending operations with the company.
Another cause for the problems was placed on the company CEO John Rogers, who was accused of misusing investor money as well as domestic abuse and drug possession. Rogers had control of two-thirds of the shareholder vote which had also meant that it was hard to oppose his direction.
Indicated in the letter sent to Venture Beat were a number of actions which could be taken to save the business (and their investment). This included the removal of the “super voting stock” which let Rogers direct the business path without opposition, as well as the election of a new board which would be capable of making strategic, operational, and financial changes needed.
So why were there cash problems in the first place?
The payments company had a challenge of shifting consumers from PIN and signature transactions to the ACH services needed, reports in the media claim. This move to ACH also caused problem as it was lower costs attributed to it, meaning Pay by Touch could not charge as much per transaction, putting pressures on the business to keep operation costs low.
Additionally, while the business spent much of its time improving its biometric authentication services, there were several problems with the technology. Most notably were cases of the system failing to verify the genuine consumer.
