The Biggest Fintech Stories in 2020

It was easy to be absorbed by headlines in 2020 – lockdowns, tiers, travel corridors and presidential elections – but there were some big distractions in fintech.  In fact, some of the stories from the sector were riveting – M&A activity, IPOs, fundraising, regulatory scrutiny, fraud and even a former fintech exec making the list of Interpol’s most wanted.  Here’s my pick of 2020’s top 10 fintech stories:

#10  Chinese fintechs look to US exchanges for listings and exits

In spite of the trade rift between the US and China, Lufax, a Chinese fintech firm with its eye on international expansion went public in New York last month. Founded in 2011 and backed by Ping An, Lufax’s listing (USD2.4bn) lacked the hype of its big brother, Ant Financial’s, listing (see #2)… but it happened.

#9  Klarna raised USD650 million

The Swedish fintech’s fundraising round in September valued the business at nearly USD11 bn. Klarna claimed to be the highest-valued private fintech company in Europe. While it’s expanding significantly – particularly in the US, challenges may be on the horizon (see #8). 

#8  Deferred payment solutions came under increasing regulatory scrutiny 

The UK’s Financial Conduct Authority (FCA) announced it will introduce new rules in the Buy Now Pay Later (BNPL) market impacting firms such as Klarna and AfterPay. The changes will include banning firms from charging backdated interest on money that has been repaid by the consumer.  Australian Securities and Investments Commission (ASIC) also released a report on the sector stating that companies will be required to limit the kinds of customers they target and be able to justify to the regulator those that they do target.

#7  Starling Bank announced it made GBP0.8m operating profit in October

While much sought after, profitability is elusive in the world of fintech and neo banks.  Many neo banks have struggled in the face of Covid (e.g. Monzo announced in July that the pandemic threatened its ability to continue operating), but the announcement by Starling’s Founder and CEO, Anne Boden, demonstrates it’s positioned for profit and growth. Starling is one to watch in 2021.

#6  Underrepresentation continues in funding

When it comes to funding there were exciting as well as disappointing features to 2020.  Starting with the positives, Fintech is Europe’s largest VC investment category receiving 20% of all venture capital in Europe. But, while BME communities represent 14% of the UK population, all-ethnic teams received 1.58% of all venture capital funding for most of the last decade. The data is also disparaging when it comes to funding distribution by gender: 90.8% of all capital went to male-only teams in 2020. There are, however, some developments which have the potential to create change in 2021 and beyond: e.g. the launch of InvestFem, which connects female talent with funds. InvestFem is the leading global database of female-founded businesses and investors committed to investing in female entrepreneurs. Greater representation, diversity and inclusion across the sector is something I hope we’ll see and report on in 2021.

#5  M&A activity gathers pace in developing markets

In a trend we can expect to see more of next year, traditional financial institutions and fintechs are eyeing opportunities in developing markets – and entering them via M&A. In this vein, Stripe purchased Paystack, a Nigerian fintech that, like Stripe, uses APIs to provide easy integration for online or offline payments. Stripe reportedly paid over USD200m.

#4  Bitcoin (BTC) hit an all-time-high

BTC hit an all-time high of almost USD20,000 last month – largely as a result of demand from institutional investors.  BTC rose about 170% in 2020 - to the delight of the BTC community.

#3  Traditional financial services firms use M&A to ensure relevance

With Visa’s (disputed) acquisition of Plaid and Mastercard’s purchase of Finicity this year, card companies are placing bets and putting their money where they believe the future of fintech lies: open banking and leveraging consumer-permissioned data. Visa and Mastercard aren’t finished with their buying spree – expect them to buy or take more stakes in fintech in 2021.

#2  Ant Financial’s IPO that wasn’t
Ant Financial, China’s biggest fintech was set to raise USD37bn last month in the world’s largest IPO – that is before it was abruptly pulled.  There has been much speculation as to why.  Some believe it was because Jack Ma, Alibaba’s founder and Ant Financial’s controlling shareholder, became too big for his boots. Or, because Ant Financial, could pose a systemic risk. Or, maybe, because of new proposed rules which will require online lending platforms in China to provide more of their own funds. Perhaps it was none of those. Perhaps it was a combination. The bigger question is ‘what will be Ant Financial’s next move?’.

#1  Wirecard enters insolvency

In a story that reads like financial crime fiction, Wirecard, a fintech business with a banking licence that once held the same valuation as Deutsche Bank and was part of the DAX index, folded in dramatic fashion.  With EUR1.9bn in funds ‘missing’ and its former COO on Interpol’s most wanted list this was easily the most captivating fintech story in 2020. Wirecard’s demise has also put other parties in the spotlight – not least:

1)     EY which was supposed to have audited the firm for a decade; in 2016 it reportedly ignored a warning by an EY employee that senior managers at Wirecard may have committed fraud and one had attempted to bribe an auditor; in 2018 EY’s fraud unit found ‘red-flag indicators’;

2)     BaFin, Germany’s Federal Financial Supervisory Authority, which was supposed to have supervised Wirecard;

3)     McKinsey which advised Wirecard, in a project codenamed ‘Project Panther’, on an incredulous plan to takeover Deutsche Bank – and why not as they had roughly the same market cap. McKinsey suggested that the combined entity would generate an additional EUR6bn in profit. Which is to suggest that there was some Wirecard profit there to begin with.

I can’t wait for the film. 

As 2020 draws to a close I’m excited about the new year and the developments that will unfold. If you’re wondering what to look out for in fintech in 2021, I’ll shortly publish a piece about the trends, businesses and events to keep an eye on. Until then, stay well! And, enjoy those mince pies.