A few years into the FinTech revolution and the marketplace is getting crowded. Reminiscent of the dotcom boom and subsequent bust, industry experts are predicting an inevitable shakeout.
With more than 10,000 financial technology startups vying for consumer and business attention, it’s a matter of when rather than if. After all with so many to choose from it’s becoming very difficult to stand out.
That’s according to Shachar Bialick, the Chief Executive of Curve, the mobile app that enables consumers to link all of their debit and credit cards to one payment method. He predicts many FinTechs won’t survive the impending shakeup. “There are over 10,000 fintechs globally. I don’t know over 90% of them,” said the executive in a recent interview with Quartz. “When we present the unbundled market of fintech to shareholders and our team, we just pick the leading ones. They likely will continue, and the rest will either die—and we are seeing some going out of business—or they will be bought.”
The FinTech revolution was born out of the Great Recession of 2008 and 2009. With banks reeling from losses, they were reticent to issue loans to consumers and small businesses. They had already exited the student loan refinancing market, leaving a huge gap in their wake. FinTechs like Social Finance, otherwise known as SoFi, stepped in to meet that untapped demand.
It started out with online lending and refinancing student loans and quickly moved into digital payments and mobile banking. Today there are several digital-only banks, multiple digital payment providers and mobile trading apps that offer low cost and passive investing. They have turned the traditional financial industry on its head, doing away with fees and giving customers higher rates on their savings. They are using algorithms and different data sets to underwrite borrowers and better gauge risk.
But just like the heady days of the dot.com boom, there are a lot of them. Some are raising hundreds of millions of dollars, capturing billion dollar valuations, while others are bootstrapping their endeavors. Those that can scale, which requires a lot of money, are the ones expected to succeed.
The good news: there is still plenty of venture capital and private equity dollars going around and it's not just from European investors. Curve’s CEO said funding is coming from investors in Japan, China and the U.S. These investors saw what happened with the likes of Amazon, Spotify, and Netflix and want to assure they are positioned when the winners emerge in the FinTech market. “I don’t believe this market is a winner takes all—ie, one company, like Facebook,” said Bialick. “There's going to be a winner across every region. There’s going to be four or five regions globally, so there’s going to be a total of four or five category kings.”