Friday Fun: Top 12 U.S. Cities for Fintech Startups

Yesterday, Bank Innovations named five emerging U.S. fintech hubs (outside NYC, Silicon Valley and Boston). Its up-and-comers were: Atlanta, Austin, Lincoln, Miami and Washington DC. While Austin and Atlanta made sense, I was surprised by Miami, DC and especially Lincoln, Nebraska.

The article didn’t include a methodology, so to test their hypothesis I searched AngelList’s database of fintech and financial services startups (financial technology, financial services, payments, fin tech or insurance). Miami did in fact make the top 12, but Lincoln (7 startups) and Washington DC (9 startups) are pretty far out of the running, at least from a startup perspective. Admittedly, Bank Innovations was considering more than just startup activity.

Here’s the 10 most common U.S. homes of fintech startups outside SF and NYC:
(Note: this is by no means clean data, so consider it a proxy only; also it does not include neighboring cities such as San Jose or Brooklyn.)

HQ/Number of Startups

  1. NYC 1,367
  2. San Francisco 1,241
  3. LA 431
  4. Chicago 267
  5. Boston 246
  6. Austin 226
  7. Atlanta 161
  8. San Diego 156
  9. Palo Alto 136
  10. Seattle 116 (tie)
  11. Dallas 116 (tie)
  12. Miami 107

Source: Angel List, 18 Aug 2017

Enjoy your weekend all!

Author: Jim Bruene is Founder & Senior Advisor to Finovate as well as Principal of BUX Advisors, a financial services user-experience consultancy. 


Photo credit, LA Fintech Meetup Aug 22

 

US Bank’s Way-Too-Long Customer Survey

usbank-survey

A few months ago I received an email (above) from US Bank where I’m a long, long-time customer. It was a simple request for my opinion on the bank’s products and services. I was slightly put off by the wordy intro, which concluded with a 31-word sentence telling me how important my opinion was. But that’s just the editor in me. As I was about to press the Begin Survey button, I noticed that I was about to enter a 25-minute questionnaire hell. That was all I needed to know, I left it undone and went on to other things.

Twenty-five minutes! That’s just too long for any normal customer. Ideally, keep online surveys to 5 minutes at most or you risk losing the attention and thoughtful answers of your respondents. If you really need a half-hour of your customers’ time, provide some type of thank-you gift, even if it’s just a chance to win $500. Otherwise it’s almost insulting to ask for that much time with no reciprocation.

Bottom line: While you are not going to lose customers with a lengthy survey, you probably won’t get valid results due to so many dropouts. But you most certainly will irritate a good portion of the recipients. Don’t do it.

 

Reflections on the 8-year Bull Market in Fintech

fintech_nycAs I fly to NYC for the ninth time to host FinovateFall (the biggest ever—Thanks!), I’m in awe of how much the industry has grown since 2007. Fintech wasn’t even a thing then, we were still stuck using the entire six syllables in “financial technology.” And in Sep 2007, we didn’t have a sense of the financial debacle of 2008 we were about to witness, which has shaken things up in many unanticipated ways.

The amount of money going into the sector was a fraction of where we are today. I don’t have good data for 2007, but my guess is that the $12.4 billion raised so far this year is 6x to 8x the amount raised in 2007 (YTD). Is that sustainable? Unlikely, but when you see a single Australian bank (Westpac) spending nearly US$1 billion per year, 80% of it earmarked for new technology, you get a sense of how much pent-up demand there is to modernize financial services.

In total, Celent estimates that worldwide IT spending by banks will be $200 billion this year:

  • North America = $64 billion
  • Europe = $64 billion
  • Asia/Pacific = $70 billion

And that’s banks only. Gartner, which includes securities firms along with banks in its total, says global IT spending will top $500 billion this year.

Similar amounts are spent in the insurance industry where Celent estimates $175 billion will be spent this year:

  • North America = $79 billion
  • Europe = $55 billion
  • Asia/Pacific = $31 billion
  • Other = $11 billion

Adding it all together amounts to nearly $700 billion annually, or more than $3 trillion in the next five years. I think that explains why $12 billion has been invested by VCs and Private Equity so far this year. Granted, much of the financial institution spend is currently directed internally, but that doesn’t mean it will stay that way. The entire API ecosystem is betting otherwise, and seems to be winning in many industries.

Based on those numbers, I’m not sure if we have a bubble. VC investing is high by historical standards, but given the opportunity, it may be relatively reasonable. It will depend a lot on how much the big spenders decide to outsource. And that’s almost impossible to predict.

FinTech Unicorn List: 36 Companies + 34 More Closing In

unicorn_StampedeUpdate: An update of this post was published in July 2015.

———

It’s been a year since we published the first fintech unicorn list. It includes companies (and exits) in the financial sector (either direct services or software) founded since 2000 and worth at least $1 billion (actually we are using $900 million as the floor).

This year, the list has more than tripled to 36 companies, up 25 from the 11 last year. It’s partly a reflection of increased transparency into global valuations. For example, China has four alt-lenders on the list compared to zero last year. But mostly it’s a dramatic increase in private company valuations, especially in the lending sector.

In addition, we’ve listed 34 “semi-unicorns” (narwhals?) with estimated values of $500 million to $800 million. In total, there are 70 companies with a total estimated value of about $100 billion (~ 2 Ubers).

Here is the sector breakdown:

Sector Unicorns Semi-Unicorns Total
Lending 11 11 22
Payments 11 6 17
Investing 1 5 6
Real estate 2 3 5
Insurance 3 1 4
Accounting 2 0 2
Credit reports 2 0 2
Security 1 1 2
Bitcoin 1 2 3
Other


2


5


7


Total 36 34 70

 

Some caveats:
1. For private companies (28 of the 36 unicorns), values are hugely dependent on the terms of the deal (read this), so they are not comparable to public company valuations.
2. About half the unicorn valuations are derived from public statements by the companies or investors during recent rounds or acquisitions. However, half are estimated by analysts/algorithms from tracking firms, especially Funderbeam, an Estonian startup that’s relatively new on the scene. So there is a lot of room for error in these valuations.
3. For the “near-unicorn” list we’ve added a number of companies that have recently raised large rounds, but have not made public statements about valuation. We estimated most of those at $500 million, but these are simply educated guesses.
4. We are using a broad definition of fintech including real estate. Also, we’ve included a few Finovate alums that are not pure-play fintech, but that have a significant financial services business.

—————-

The Fintech Unicorn List

Company Sector Finovate Alum? Value ($Bil) Value Source
1. Lufax Lending No 10.0 WSJ (4/15)
2. LendingClub Lending Yes 6.5 Public
3. Square Payments No 6.0 Oct 2014 round
4. Zillow Real estate No 5.4 Public
5. Zenefits Insurance No 4.5 May 2015 round
6. Stripe Payments No 3.5 Dec 2014 round
7. Powa Technologies Payments Yes 2.7 Nov 2014 round
8. Klarna Payments Yes 2.5 Mar 2014 round
9. Xero Accounting Yes 2.4 Public
10. CommonBond Lending No 2.0 Funderbeam
10. CreditKarma (note 1) Credit Reports Yes 2.0 Funderbeam
10. Oscar Insurance No 2.0 Funderbeam
10. One97 Payments No 2.0 Feb 2015 round
14. Prosper Lending Yes 1.9 April 2015 round
15. Dataminr Analytics No 1.6 Funderbeam
16. Zuora Payments No 1.5 Funderbeam
16. FinancialForce Accounting No 1.5 Funderbeam
16. LifeLock Credit Reports No 1.5 Public
16. Adyen Payments No 1.5 Dec 2014 round
20. iZettle Payments No 1.4 Funderbeam
21. SoFI Lending No 1.3 Feb 2015 round
21. Housing.com Real estate No 1.3 Funderbeam
21. Qufenqi Lending No 1.3 Funderbeam
21. Revel Systems Payments No 1.3 Funderbeam
25. On Deck Lending Yes 1.2 Public
26. FundingCircle Lending No 1.0 CB Insights
26. Jimubox Lending No 1.0 Funderbeam
26. Kofax Doc mgmt Yes 1.0 Acquired (Lexmark)
26. TransferWise Payments Yes 1.0 CB Insights
26. Trusteer Security No 1.0 Acquired (IBM)
26. Mozido Payments No 1.0 Finovate est
32. Avant Lending No 0.9 Forbes (4/15)
32. IEX Group Investing No 0.9 Funderbeam
32. RenRenDai Lending No 0.9 Funderbeam
32. Coinbase Bitcoin Yes 0.9 Funderbeam
32. ClimateCorp Insurance No 0.9 Acquired (Monsanto)
Semi-unicorns
Wonga Lending Yes 0.8 Finovate est
Wealthfront Investing Yes 0.8 Funderbeam
Rong360 Lending No 0.8 Funderbeam
Betterment Investing Yes 0.8 Funderbeam
Braintree Payments Yes 0.8 Acquired (PayPal)
Q2 Banking Yes 0.8 Public
WorldRemit Payments Yes 0.7 Funderbeam
Taulia Payments Yes 0.7 Funderbeam
Radius Marketing Yes 0.7 Funderbeam
Oportun (Progreso Financiero) Lending Yes 0.7 Finovate est
Circle Internet Finance Bitcoin No 0.6 Funderbeam
AnJuke Real estate No 0.6 Funderbeam
Kabbage Lending Yes 0.6 Funderbeam
EzBob Lending Yes 0.6 Funderbeam
FangDD Real estate No 0.6 Funderbeam
VivaReal Real estate No 0.5 Funderbeam
Motif Investing Investing Yes 0.5 Funderbeam
Snowball Finance Investing No 0.5 Funderbeam
PolicyBazaar Insurance Yes 0.5 Funderbeam
Credorax Payments No 0.5 Funderbeam
Cardlytics Marketing Yes 0.5 Funderbeam
Zopa Lending Yes 0.5 Finovate est
CAN Capital Lending Yes 0.5 Finovate est
Receivables Exchange Lending Yes 0.5 Finovate est
Affirm Lending No 0.5 Finovate est
Ayadsi Analytics Yes 0.5 Finovate est
21 Inc Bitcoin No 0.5 Finovate est
Bill.com Payments Yes 0.5 Finovate est
FreeCharge Payments No 0.5 Finovate est
U51 Lending No 0.5 Finovate est
Financial Software Systems Risk Mgmt No 0.5 Finovate est
Strategic Funding Source Lending Yes 0.5 Finovate est
Ping Identity Security Yes 0.5 Finovate est

Personal Capital Investing Yes 0.5 Finovate est

————

Source: Compiled by Finovate, 8 May 2015

Notes:
1. Update (24 June 2015): Credit Karma now valued at $3.5 billion (source: Finovate)

Picture credit

The Billion-Dollar Fintech Club (private companies)

image

With Stripe raising $80 million at a $1.75 billion valuation yesterday, I was wondering how many other private fintech companies have reached that milestone recently. It’s not as many as I had hoped, but perhaps I’m missing a few. If so, please tweet @netbanker or email me since blog comments are broken (new system coming in Q1, really). 

Pretty sure:

  • Square valued at $5 billion this month (Techcrunch)
  • Lending Club valued at $2.3 bil in late 2013 (Bloomberg)
  • Wonga has been discussed as a billion-plus company for several years and has annual profit in excess of $100 million (in Sep 2013 Wonga reportedly turned down a $1.6+ billion bid  Sky.com post)
  • Stripe valued at $1.75 billion as of yesterday (Reuters)

Likely:

  • Klarna the Swedish ecommerce giant has raised $250 mil and has a $200 million annual revenue run rate; it recently made a 9-figure acquisition of Sofort (Techcrunch, 18 Dec 2013)

On their way (based on recent fundings):

  • Cardlytics has raised more $100 million and reported a $200 million annual run rate in Q4 2013
  • Credit Karma raised a $30-million series B in April to further its ad-driven free credit report business, which is one of the busiest financial websites and most popular iPhone app (other than the big retail banks) (Finovate post)
  • On Deck Capital raised $42 million in early 2013, bringing the total to $102 million, and projected $80 to $100 million in revenues for 2013 (Venturewire)
  • Paydiant has raised more than $30 million and is powering payments via Subway’s mobile app; looking at Stripe’s $1.7 bil valuation, it seems plausible that Paydiant is closing in on the billion mark
  • Ping Identity — it can be hard to evaluate security plays because there often isn’t much transparency into their traction, but based on Ping’s $78 mil raised, including $44 mil in July ($15 mil of that was debt), they must be doing something very right (Finovate post)
  • Prosper had one-quarter of Lending Club’s loan-origination volume in December, making them potentially worth more than $500 million based on the Lending Club $2+ bil valuation
  • Sofi, with $300 million lent to prestige college grads, it could be the Lending Club of high-income 20- and 30-somethings

Made it (recently went public/acquired):

  • Xero, the New Zealand-based cloud accounting company, is valued at US$4 bil on NZ market
  • Qiwi PLC, the Russian payment giant, went public in May 2013 and is currently valued at $2 bil (Nasdaq)
  • Lifelock went public in Oct 2012 and is currently worth $1.8 billion, it recently acquired Lemon to bolster its mobile identity-protection services
  • Trusteer, the online security company, sold to IBM for $1 billion in 2013
  • Climate Corp (formerly Weatherbill), a weather insurance play, sold to Monsanto for $930 mil in Oct 2013 after raising $107 mil (Forbes)
  • Braintree sold to PayPal for $800 million, $200 mil shy of the “club,” but not too shabby

———————–

Picture credit: Fakemillion.com

New OBR Published: Digital Banking Forecast Through 2023

image Alright digital banking fans (note 1), it’s that time of year again for our annual look-back at the previous year, along with a fearless forecast for the rest of the decade and beyond.  

The report, Digital Banking Forecast: 2014 to 2023, includes our take on future U.S. household penetration levels of online banking, mobile banking and billpay. While online banking has been relatively flat, with low-single-digit growth, mobile has exploded, expanding ten-fold in the past 5 years and now reaching about one-third of U.S. households. We are four or five years away from the tipping point where more households bank via smartphone than by desktop.

It also includes a revised 10-year forecast for U.S. peer-to-peer lending. After growing almost eight-fold in the past two years, we expect continued strong growth of 30% compounded annual through 2023. And with the expected blockbuster IPO of Lending Club (note 2), the area will receive a LOT of attention in the press this year.

Finally, we update our list of top-10 project priorities for 2014.

__________________________________________________________________

Top developments of 2013
__________________________________________________________

The report includes a summary of the top-10 developments during the year (in alphabetic order):

  • Bitcoin proves there is demand for a global virtual liquid asset
  • Coin’s programmable credit card is a viral hit
  • Crowdfund investing, both debt and equity, gains serious traction globally
  • Mobile-first banks such as GoBank, Moven and Numbrs arrive on the scene
  • Mobile login gets simplified at Bank of the West, Capital One, GoBank and others
  • P2P lending moves beyond a niche as Lending Club originates $2 billion
  • Photo billpay launches at US Bank and First Financial
  • Regions Bank adds time-based fees to remote mobile deposit
  • Square and Google enable true email-based peer-to-peer payments
  • Yodlee shows the power of mobile in financial collaboration with Tandem

__________________________________________________________________

New entrants into the OBR Hall of Fame
__________________________________________________________________

Each year we rank the top online/mobile innovations of all time (North America). A total of 50 achievements are listed from 51 companies:

  • 18 banks
  • 5 credit unions
  • 11 non-bank financial services companies
  • 17 fintech companies

Two new entrants were added this year:

  • Capital One’s non-alphanumeric mobile login, SureSwipe
  • Yodlee’s mobile financial collaboration tool, Tandem 

__________________________________________________________________

About the report
__________________________________________________________________

Digital Banking (Online/Mobile) Forecast (link)
The next 10 years: 2014 through 2023

Author: Jim Bruene, Editor & Founder

Published: 9 Jan 2014

Length: 36 pages, 29 tables, 13,500 words

Cost: No extra charge to OBR subscribers, US$495 for others here

__________________________________________________________________

Report excerpts:

Left: GoBank and Moven set the mobile bar high
Right: 10-year P2P lending forecast

image        image

———————————

Notes:
1. Can we agree that “digital banking” equals online and/or mobile banking?
2. Lending Club could be the biggest fintech startup IPO of all time.

Metrics: Mobile Traffic at Six Large Prepaid Card Sites

image In March, we reported on the mobile traffic at the 10 larget U.S. banks. Across all ten banks, an average of 20% of users were mobile-only.

Today, comScore provided similar numbers (note 1) for major prepaid card issuers in Q1. And the mobile lift was even more dramatic. Across the six major issuers, the incremental traffic through mobile browsers (not including native apps) ranged from 23% at WalmartMoneyCard.com to 80% at Netspend. The weighted average lift across all six was 43%.

Bottom line: While we need conversion rates to gauge channel profitability, it’s clear that mobile users are a large potential market for prepaid issuers.

—————————–

Table: U.S. desktop and mobile browser traffic at six large U.S. prepaid card sites
millions of unique visitors, age 18+ (Feb 2013)

Q1 2013 Total Desktop Mobile* Mobile Only Mobile Incremental**
netSpend 1.4 mil 790,000 670,000 630,000 80%
WalmartMoneyCard 1.1 mil 930,000 230,000 210,000 23%
Rush Card 980,000 710,000 290,000 270,000 38%
Green Dot 820,000 560,000 270,000 260,000 46%
Account Now 600,000 450,000 150,000 140,000 31%
Amex Bluebird* 370,000 240,000 130,000 130,000 54%
  Total*** 5.3 mil 3.7 mil 1.7 mil 1.6 mil 43%

Source: comScore, monthly unique visitors in Q1 2013 (methodology)
*Includes traffic only from mobile browser, except American Express BlueBird, which also includes native app
**Mobile-only divided by desktop base
***Includes some overlap of users visiting multiple prepaid issuers

——————————

Note:
1. The banking numbers in March included native app traffic. The prepaid card traffic estimates exclude any native app traffic, except for American Express Bluebird which has both native and mobile browser traffic.

New Online Banking Report Published: Online & Mobile Forecast Through 2022

imageOur latest research is now available: Online Banking Report 2013 to 2022 Forecast. The report includes our latest 10-year online banking, mobile banking and bill-pay forecast for the U.S. market. Online banking remains relatively flat, growing less than 5%, while mobile expanded by 40% last year (see note 1).

Based on recent mobile growth, we now project that in 2019, mobile account access will equal online account access in the United States (based on household penetration of each service).

The report also includes a revised 10-year forecast for U.S. peer-to-peer lending. After growing almost fifteen-fold in the past three years (2012 vs. 2009), we expect continued strong growth of nearly 30% compounded annually through 2022.

Finally, we took one last look at 2012 and documented the top-10 innovations or trends of the year (see below). We also updated our top-10 project priorities for 2013.

__________________________________________________________________

Top innovations & trends of 2012
__________________________________________________________

The report includes a summary of the top-10 innovations or trends during the past year (in alphabetic order):

  • Alt-biz lending disrupts commercial lending for the smaller business
  • Balance forecasting launched by Simple and Key Bank
  • Banking websites get “simple” makeovers
  • Digital (cloud) wallets find a value proposition, best-case routing
  • iPads appear at the POS and new accounts desk
  • Mobile deposit goes mainstream
  • P2P lending pops!
  • Pay As You Go auto insurance launched by MetroMile
  • Prepaid cards gain as “basic checking”
  • Virtual gift cards get a boost as Square launches 200,000 in a single day

__________________________________________________________________

New entrants to the OBR Hall of Fame
__________________________________________________________________

Each year we rank the top online/mobile innovations of all time (North America). A total of 48 achievements are listed from 50 companies:

  • 17 banks
  • 5 credit unions
  • 11 non-bank financial services companies
  • 17 fintech companies

The class of 2012 included two new entrants:

  • City Bank of Texas’s mobile on/off switch for debit cards (powered by Malauzai)
  • Simple and Key Bank both launched real-time balance forecast tools 

__________________________________________________________________

About the report
__________________________________________________________________

Online & Mobile Banking Forecast (link)
The next 10 years: 2013 through 2022

Author: Jim Bruene, Editor & Founder

Published: 7 Jan 2013

Length: 32 pages, 26 tables, 12,000 words

Cost: No extra charge to OBR subscribers, US$495 for others here

————————-

Report excerpt:

Lending Club is the biggest fintech startup success of 2012 
The company originated nearly three-quarter billion dollars in new loans in 2012 and surpassed $1 billion in cumulative originations in November.

 image

Numbers: Sunny Outlook for Mobile Banking (U.S.)

image ComScore’s latest mobile usage numbers provide useful context as you head in to the 2013 business planning cycle. With 42 million monthly smartphone users, mobile banking penetration (38%) is similar to other specialized information services such as sports (39%), news (49%), and movie info (30%).

Granted, banking still trails the gold standard of info services, the weather button, but it’s gaining ground.

————————————

Table: Information services accessed by U.S. mobile users
2012, Q2 monthly average

  Smartphone % Using All Mobile % Using
Total audience 110 mil 100% 230 mil 100%
Weather 75 mil 67% 90 mil 38%
Facebook, Twitter* 71 mil 64% 86 mil 37%
Search 67 mil 60% 80 mil 34%
Map 59 mil 53% 68 mil 29%
News 54 mil 49% 64 mil 27%
Sports 43 mil 39% 51 mil 22%
Bank account 42 mil 38% 49 mil 21%
Entertainment news 42 mil 38% 51 mil 22%
Movie info 34 mil 30% 40 mil 17%

Source: ComScore MobileLens as cited in Advertising Age, 20 Aug 2012; 3-month average ending in June 2012; usage counted is the user accessed info in the category at least once in past 30 days; *any social networking site; percentages may be off by 1% due to rounding of the numbers to two significant digits

The 43 Financial Sites With the Most Unique U.S. Visitors in January per Compete

image Every month, Compete publishes a list of the 1,000 websites with the most U.S. monthly unique visitors. In January 2011, 43 were financial sites (banking, payments, brokerages, cards, credit reports, lending, or personal finance). Of the 43, 14 were banks (see note 1).

For a little context, Google topped the list with 145 million. The largest banks were similar to Apple (34 mil), Twitter (28 mil), Flickr (21 mil), or Yelp (12 mil).

Company Traffic Type
1. paypal.com 30 mil    Payments
2. chase.com 25 Bank (#1)
3. bankofamerica.com 24 Bank (#2)
4. intuit.com 20 Personal finance
5. wellsfargo.com 16 Bank (#3)
6. capitalone.com 13 Bank (#4)
7. citibank.com 12 Bank (#5)
8. hrblock.com 12 Tax
9. lowermybills.com 8.5 Personal finance
10. americanexpress.com 8.4 Cards
11. taxactonline.com 7.7 Tax
12. discovercard.com 7.3 Cards
13. taxact.com 7.3 Tax
14. wachovia.com 6.2 Bank (#6)
15. fidelity.com 5.6 Investments
16. usbank.com 5.4 Bank (#7)
17. hsbccreditcard.com 4.9 Bank (#8))
18. netteller.com 4.5 Banking services (Jack Henry)
19. pnc.com 3.9 Bank (#9)
20. bankrate.com 3.9 Personal finance
21. usaa.com 3.8 Bank (#10)
22. progressive.com 3.8 Insurance
23. creditreport.com 3.4 Credit reports
24. allstate.com 3.4 Insurance
25. freescore360.com 3.2 Credit reports
26. freecreditscore.com 3.2 Credit reports
27. turbotax.com 3.2 Tax
28. orchardbank.com 2.8 Credit cards
29. ingdirect.com 2.7 Bank (#11)
30. hrsaccount.com 2.7 Credit cards (HSBC)
31. salliemae.com 2.7 Student loans
32. statefarm.com 2.6 Insurance
33. mycheckfree.com 2.6 Payments
34. suntrust.com 2.4 Bank (#12)
35. vanguard.com 2.3 Investments
36. speedpay.com 2.2 Payments (Western Union)
37. regions.com 2.2 Bank (#13)
38. tdbank.com 2.1 Bank (#14)
39. sharebuilder.com 2.0 Investments
40. bbt.com 2.0 Bank (#15)
41. gemoney.com 2.0 Lending
42. annualcreditreport.com 2.0 Credit reports
43. bbandt.com 1.9 Bank (#16)

—————–

Note:
1. There are 16 bank URLs in the top 1,000, but wachovia.com is part of Wells Fargo. And bbt.com and bbandt.com are both BB&T Bank.