The past month has seen two US FinTech companies surpass the $10bn valuation mark, but are these outliers or a sign of things to come?
Chime has become the highest valued consumer-focused FinTech in the US after a $485m funding round put its valuation at $14.5bn. What makes this even more impressive is the fact Chime was only valued at $1.5bn 18 months ago, meaning it has seen around 900% growth in such a short time. At the end of 2019, Chime was valued at $5.8bn.
Robinhood is the other FinTech company to have attained decacorn status. The retail investment platform hit a $11.2bn valuation following the close of a $200m Series G round. This week saw the FinTech extend this round, putting the round to a total of $660m.
The investment platform has also seen a rapid growth rate this year. It closed its Series F round in May this year on $280m and then extended that round in July with an additional $320m – Its valuation after this was $8.3bn.
While both of these companies are among the big dogs in the industry, they are still rather short of the US’ biggest FinTech. This title goes to payments software developer Stripe, which is valued at an eye-watering $35bn.
While the coronavirus has placed a lot of uncertainty on the market, Robinhood and Chime have shown companies can still grow at an extraordinary rate and even show the US is a prime place for FinTech. The question is, will there be others to hit the decacorn status or are these FinTechs a rare occasion?
Nilesh Vaidya, executive vice president, banking and capital markets at Capgemini’s Financial Services said, “These high valuations for the US FinTech market are a good sign for adoption of digital banking within the region. It could also mean renewed interest in the FinTech’s providing real time payments online on loans and card products.”
There is clearly a lot of capital being deployed into the US FinTech market. Data from KPMG claims that last year saw a record $59.8bn deployed into the country’s FinTech space. With high levels of capital it is no surprise that companies like Robinhood and Chime can reach the heights they have, but it is not just them to do so well. Becoming a unicorn, which is were a private company is valued at $1bn, is an impressive accolade and should not be diminished by the valuations of Robinhood and Chime.
The US is not short of unicorns and this week alone has seen child-focused banking app Greenlight Financial Technology join the ranks, while small business insurance provider Next Insurance cemented its place in the group with a new $2bn valuation. Despite the country having a lot of these companies, it does not mean they will all grow to be decacorns and these high-valuations could even pose problems for them.
Aire chief operating officer Fred Becker said, “High valuations, in any sector, are a double edged sword. One the one hand, they attract attention, talent and often investment for other players in the sector, but on the other, they can become too frothy – based on future expectations of the same continued growth (and profit) which may fail to materialise. Markets have already corrected in September and depending on what happens with the upcoming US election and the impact of Covid-19 on employment levels, there may be further falls ahead of us.”
Over valuations in FinTech have been a common debate over the years and Chime and Robinhood could be examples of that. Nilesh Vaidya said, “These valuations are quite optimistic. Synchrony Financial has a similar market cap with $96B in assets and a strong digital presence. Chime is quite far in its journey towards building a similar sized robust business over the next couple of years. Within the current landscape we know that top banks in the US are investing a lot in digital at present, so growth has to come from grabbing market share from the small to midsized banks.”
The pandemic has been driving people to the online world and while FinTech platforms like Chime and Robinhood have doing world, it is not the same picture for everyone. The full extent of FinTechs being impacted negatively by the pandemic will be tough to realise at the moment, but signs of some struggling have been seen.
Most notable are UK challenger banks Monzo and Tandem. Monzo recently suffered a 40% down round in June, which saw its valuation drop from $2bn to $1.24bn after it secured a £60m top-up round. One of the alleged causes of this was a number of the investors into Monzo being quite tough on the challenger bank in a hope to lower the price on shares.
It is also suspected that Tandem Bank has suffered a down round, but the details of this are unknown.
Despite this, the US has clearly shown the market is ready for FinTech and there is a huge opportunity for them. Whether the market will see more decacorns is still to be seen, but funding is showing no signs of stopping.
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