The fintech sector, especially the world of cross-border digital payments, has had its share of high-growth “unicorns” that approach their rise in business with the infamous “move fast and break things” mentality.
The strategy certainly makes a lot of messes and lately has left some investors holding the bag. However, it has worked enough times to emerge as the dominant culture in Silicon Valley, where disruption is still very much en vogue.
In other corners of the world, different fintech startup animals are in as much — if not more — demand from the investors.
Kimberly Ofori — a European venture capitalist who focuses on impact companies, or “zebras” — joins the Converge podcast to discuss the European investing style, unicorns, camels, zebras and the latest challenges and opportunities for fintech startups.
Fintech startups today and tomorrow
As fintech insiders agree, the fintech revolution, driven by advancements in financial data and technology, isn’t close to stopping its disruption of the global payments market, banking institutions, financial markets and the finance industry, in general. Globally, the number of fintech startups continues to grow. In 2024, it approached 30,000 companies, up from 12,000 in 2018.
Unicorns
Unicorns, private fintech companies with a market valuation of at least one billion USD, continue to dominate the fintech space and headlines. As of early 2024, in terms of the number of disruptive fintech companies, the United States ranked first with 166 fintech unicorns. That’s over five times more than the next ranked country, the UK (30).
Camels
Camels take a more measured, slow approach to wealth creation. Instead of fast growth at all costs from an early stage, these fintech companies focus on steady profits over a long period.
Camels often start by building a sustainable infrastructure to support their future technological advancements. To that end, they develop a business model, search for a financial services product that fits their market realities, and then develop operations to support it. It’s not about reaching the market first but instead growing and building a business over time.
Zebras
On the other hand, zebras are founder-driven and profitable financial technology companies that focus on solving meaningful problems. Zebras often reject traditional investment strategies and search for alternative funding sources.
The need for more services and solutions
Overall, according to Boston Consulting Group, the global fintech market is expected to continue growing and reach USD 1.5 trillion in revenue by 2030, about five times what it is today.
With more than a billion people without bank accounts, the demand — and need — for innovation and new fintech companies isn’t likely to fade. Additionally, platforms facilitating access to digital assets, such as cryptocurrencies and NFTs, are becoming increasingly important in the fintech landscape.
Fintech entrepreneurs need to build or rethink various solutions, like open banking or crowdfunding platforms, and continue to modernize financial services, credit history tools or payment services.
With emerging technology, such as artificial intelligence (AI), machine learning and generative AI, fintech startups can, for example, continue building resilience for small businesses and enterprises alike, offering better experiences and innovative digital products for consumers and finance institutions. Wealth technology platforms are incorporating portfolio management tools to help retail clients optimize their trading and investment strategies.
Fintech investment landscape and trends
The fintech landscape has undergone significant changes in recent years, driven by advancements in technology, shifting consumer behavior and evolving regulatory frameworks. Key trends shaping the industry include the rise of digital payments, the growth of wealth management platforms and the increasing adoption of sustainable investing practices.
Fintech companies are leveraging artificial intelligence, blockchain and cloud computing to enhance operational efficiency, improve customer experience and accelerate growth. As the industry continues to evolve, experts expect that fintech investments will remain a key driver of innovation and disruption.
Fintech sub-industries and opportunities for startups
Fintech sub-industries, such as payments, lending and wealth management, offer significant opportunities for growth and innovation. Payment services, in particular, have seen rapid adoption, with the rise of mobile wallets, contactless payments and online payment platforms.
Private equity and venture capital firms are actively investing in fintech companies, recognizing the potential for high returns and strategic growth. Institutional investors are also increasingly allocating capital to fintech, driven by the sector’s potential to positively impact financial markets and society.
Venture capital choice for fintech investments
In today’s world, where once-promising unicorn startups occasionally implode, venture capital investors are spending more resources on risk management and due diligence to determine if organizations can realistically execute on their innovation plans. The leader of this trend, Ofori contends, is the camel.
Camels are methodically moving companies that grow at a very careful pace and make sure to never get ahead of themselves. Like a camel keeps a supply of water in its hump, these cost-effective businesses tend to hoard large sums of cash reserves just in case a down market emerges.
Ofori says these fintech startups take calculated risks, don’t accept funding until their products and infrastructure are ready to scale, and are typically built for the “long haul.” It might take longer, but in the end these companies wind up on top more often than many realize, Ofori explains.
Sustainable investing and growth strategies
Europe is uniquely designed to incubate camels, Ofori notes. Because of its sheer size and the many national and cultural borders that can contain potentially disruptive innovations, she says unicorns have a tougher time growing quickly there.
“The camels that are scaling internationally, they are tip-toeing into it. You do see some of the camels say, ‘We’re going to strategically build out some of our portfolio companies to be able to scale under either a separate brand or as a small part of our portfolio,’” Ofori says. “For Europe, I think it makes more sense to double down on how we’re building sustainable companies now — looking to the future versus changing everything and trying to be Silicon Valley [simply] because it’s so cool.”
Start slow
Another strategy that camels can pursue is to grow through a niche product and launch it in the US without spreading the core business too thin. Ofori notes that many European camels will launch a product with a waiting list of customers and slow-play the rollout to avoid having to borrow or give up equity just to ramp up production.
The key, she says, is to commit to the time horizon by asking important questions in the beginning.
“What can we build that is so strong that will sustain us throughout the next 10 years, that we’re still able to innovate on — but it doesn’t have to be as fast?” Ofori suggests.
It’s a far cry from a unicorn’s upbringing in the US, where a fintech company usually tries to get off the ground and grow at all costs, Ofori says.
Don’t jump into other solutions and markets
When it comes time to expand into other markets or other countries, camels normally pause and proceed without any undue pressure, Ofori adds.
“Scaling internationally is optional,” Ofori explains. “It’s no longer something that is required for you to consider doing to grow. So what you see happening is that they will probably first deepen their penetration in markets before they even consider expanding with their existing portfolio. The first question to camels is typically, ‘What does growth and scale look like to us?’”
Transforming unicorn businesses into camel companies
According to Ofori, entrepreneurs can transform their fast-growing fintech unicorn into a cross-border payments camel by, for example, hiring an experienced president for the company who will make sure it doesn’t run before it can walk.
She thinks a lot of consolidation will happen in this financial technology space, making the market less saturated with brands that have a single good feature. Additionally, fintechs are starting to work more with traditional banking systems, which are more camel-like.
“Traditional banks still have the money and the infrastructure,” Ofori says. “The fintech market working with traditional banking systems, the momentum feels like that of a camel. But working together and consolidating is the most sustainable way toward the future.”
Opportunities for camels
Camel startup companies can, for instance, develop financial technology to improve financial inclusion worldwide. In emerging markets, cash is still the primary foundation of commerce, and traditional financial institutions are often largely removed from day-to-day life. Consumers don’t use a bank account or debit cards to pay bills or make online purchases; even business owners may find it simplest to get by using cash.
This presents a unique opportunity for the industry and startups to build a new infrastructure and financial services that facilitate instant payments, mobile money services and seamless international transactions, unlocking new value for the next generation of customers worldwide.
Cautionary unicorn investments
Even when unicorns work out, Ofori notes that the greater good is often not served very well.
“They come and go. You can’t build economies on this. You can’t build … industries on things that we cannot predict very well,” she says. “It just doesn’t work, and we need to have some kind of structure and foundational organization that we can fall back on … and this is where camels come in.”
Ofori says that investors and businesses need to adjust their expectations for growth and timelines, because it’s incentivizing founders to over-project on their plans and timelines. Letting entrepreneurs chart a more realistic path gives everyone a better chance at a successful outcome, she adds.
“When you feel like you should be doing something in ten years and you don’t have to promise that you’ll do it in seven, that helps” Ofori explains. “That’s going to open up the space for you to actually build it that way. Once the pressure gets removed from that angle, you’ll release a completely different kind of roadmap toward getting that unicorn status.”
Zebras — fintech impact companies
While unicorns and camels tend to suck up a lot of the oxygen in the fintech jungle, Ofori gives major credit to zebras — companies that exist to make money, and do so while having a positive impact on people and communities.
“They are looking to be profitable, but they are also looking to connect their profit and growth with purpose,” Ofori says of the zebras.
Using an “activist voice,” these zebras are aggressively making money and proving that markets exist in support of their cause. A zebra company is likely to do good because it does well. Fintech is a perfect example because so many revolutionary positive services are coming from blockchain technology, Ofori explains.
“Camels and zebras are hyper-focused on building one really good product, so they don’t let go of that first initial product until they are sure that one product can ensure a business,” Ofori says. “A lot of times, you underestimate the power and the value of what you’ve built. If it’s disruptive, you can probably disrupt many more industries. You can probably disrupt many different sectors, and you can reach a completely different target audience who wasn’t even looking to use your products or services.”
Measuring success in fintech
For startups, measuring success in fintech requires a nuanced approach, considering both financial and non-financial metrics. Key performance indicators (KPIs) may include revenue growth, customer acquisition costs, retention rates and net promoter scores. Fintech companies must also prioritize regulatory compliance, data security and risk management to ensure long-term sustainability. Impact companies, in particular, must balance financial returns with social and environmental impact, demonstrating a positive correlation between financial performance and positive outcomes.
Want more insights on the topics shaping the future of cross-border payments? Tune in to Converge, with new episodes every Wednesday.
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