A Complete Guide to Fintech Unicorns
When you think of financial technology, what comes to mind? Is it your bank’s mobile app on your phone? Or maybe it’s the student loan refinancing program that’s part of your benefits package? Whatever you think of, there’s probably a dozen other applications that do the same thing, and a hundred still that can do that and more.The world of financial technology, or fintech, is vaster and faster than most of us know—and it continues to pick up steam. Modern day fintech, or financial technology, is light years beyond its first imaginings in the 1800s. While finance might be a boring topic to some, fintech is more exciting and lucrative than ever.
What is Fintech?
As its name implies, fintech is any technology that is used to improve the delivery, maintenance, transfer, or understanding of financial services.1 Today, that means a variety of different things: a mobile credit card that stays on your phone, a touch payment sensor at the grocery store, or an automatic insurance claim processor. It’s helpful to think of the evolution of fintech as a snowball: it took a few years to gain momentum, but now, it’s growing and adding new components quicker than almost any other industry.
The existence of Fintech as we know it now blossomed in the 2000s, but the first financial technology was actually used in the 1850s. It began with the first transatlantic cable between Valentia, Ireland, and Heart’s Content, Newfoundland (modern day Canada). Although it was initially laid in 1858, there were a few years of hiccups before the cable was fully and continuously functional in 1866.2 With this success, The Federal Reserve Banks started using telegraphs for wire transfers in 1918 to electronically move funds to other banks. This was, officially, the first time electronic fund transfers were widely used.1
It may be funny now to think of plastic cards as “technology,” but when The Diner’s Club Inc. introduced its universal credit cards in 1950, the concept was groundbreaking. Following that, Barclays Bank became the first company to install an automatic teller machine (ATM) in 1967. Shortly after, NASDAQ, the first digital stock exchange and SWIFT (Society For Worldwide Interbank Financial Telecommunications) were established in the 1970s.3 The invention of the Internet in 1981 and the spread of mainframe computers gave people access to their financial accounts and information much quicker than previously possible, and made the idea of online banking a much-welcome reality.
After the dot-com crash in 2000 and the global financial crisis in 2008, many were distrustful of traditional banking and their previously immutable institutions.1 This opened up an opportunity for entrepreneurs and investors to develop new and more personalized ways to think about and interact with money. As smartphones became the preferred method of communication and obtaining information, digital banking moved onto phones and into apps.
An important effect of this transition period was that start-ups began to emerge and replace the legacy banks to which people had always been tied. PayPal (which launched in 1998) gained traction as a personal payment service and is now one of the highest valued fintech platforms to date. Bitcoin, which was introduced in 2009, took several years to gain the right traction and understanding to be accepted as a common form of currency, but is now used by over 83 million people.4
“Financial services is one of the largest industries on the planet, but until recently, the way it operated had remained unchanged for decades,” says Satya Patel, cofounder and general partner of venture capital firm Homebrew. “And because of that, there are huge segments of the population that are underserved or ignored by current financial services players. Fintech is changing all of that by decreasing costs, increasing access and improving experiences for financial products and services.”5
With the floodgates opened, companies like Venmo, C2FO, Chime, and Plaid launched and amassed funding and followers the likes of which had not been seen in the financial sector. With more complex technology and deeper consumer trust behind them, fintech startups exploded. Investors and venture capitalists rushed to join them and capitalize on the chance to be a part of the next big thing.
The Rise of the Unicorn
Named after the mystical creature of storybook lore, a fintech “unicorn” is a private company or start-up (primarily software-based) valued at over $1 billion. The term was coined by Aileen Lee, founder of a seed-stage venture capital fund called Cowboy Ventures in Palo Alto.6 According to Aileen, the first unicorns were founded in the 1990s (e.g., Google), but some of the most popular fintech unicorns came in the early 2000s: Robinhood, SoFi, and Klarna, to name a few.
Fintech unicorns are no longer as rare as their storybook namesakes. Over 320 companies have reached unicorn status in the 21st century, according to Fintech Labs. As for the global demographics, the United States leads the pack with 81 companies, followed by China with 11 and the UK with ten. From July–August 2022 alone, four new members were added for a cumulative 322 unicorns.7
Since each of these organizations are worth more than $1 billion, it’s no surprise, then, that their total market value is impressively high. Fintech investments hit $91.5 billion in 2021, which was nearly double the total for 2020.5 And it keeps growing: as of August 2022, the total market value for all of the fintech unicorns is $1,709 trillion.7
Here are the top 10 fintech unicorns (as of August 2, 2022)7:
- Ant Technology
- Value: $150 billion
- Country: China
- Value: $103 billion
- Country: USA
- Value: $75 billion
- Country: USA
- Value: $57 billion
- Country: Netherlands
- Value: $46 billion
- Country: Canada
- Value: $45 billion
- Country: USA
- Value: $40 billion
- Country: UK
- Value: $33 billion
- Country: UK
- Value: $32 billion
- Country: USA
- Value: $29 billion
- Country: Australia
Bolstered by the massive success of other fintech startups, entrepreneurs and innovators are continuing to push boundaries in the financial industry. For some, that may mean improving upon capabilities at an existing institution (e.g., offering NFTs and cryptocurrency from a legacy bank). For others, that could be founding an entirely new company in an untouched avenue; think humanless interactions, shorter waiting periods, and increased access for all populations.
The future of fintech is difficult to predict—and that’s one of the most exciting parts about it. As bigger and better opportunities crop up around the world, some trends to keep an eye on are cryptocurrency, NFTs, neobanks, artificial intelligence, and DeFi (decentralized finance).8 Blockchain specifically has exponential potential that has yet to be fully harnessed.
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- Retrieved on August 4, 2022, from thepaymentsassociation.org/article/fintech-the-history-and-future-of-financial-technology/
- Retrieved on August 4, 2022, from history.com/news/first-transatlantic-telegraph-cable
- Retrieved on August 4, 2022, from c2fo.com/amer/us/en-us/resource-center/article/07212021/the-history-and-evolution-of-the-fintech-industry
- Retrieved on August 4, 2022, from explodingtopics.com/blog/blockchain-stats
- Retrieved on August 4, 2022, from forbes.com/sites/isabelcontreras/2021/10/18/fintech-investments-have-hit-915-billion-in-2021-nearly-doubling-last-years-total/?sh=26d5b6014a2e
- Retrieved on August 4, 2022, from investopedia.com/terms/u/unicorn.asp
- Retrieved on August 4, 2022, from fintechlabs.com/115-fintech-unicorns-of-the-21st-century-changes-to-the-list-october-2020/
- Retrieved on August 4, 1011, from fintechmagazine.com/sustainability/17-fintech-trends-you-should-know-about-ultimate-guide