What is a ‘Fintech Unicorn’? (And Why Should Banks Care?)

The term 'fintech unicorn' approaches its ten-year anniversary and this once-rare label has grown more common. Many unicorns compete with banks, while some help them fight rivals. But changing markets may up the ante to attract investors sufficient for a fintech to be able to join the 'Unicorn Club.'
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By itself, the word “unicorn” doesn’t seem to hold much threat or importance for bankers. Unicorns, after all, are the stuff of mythology and legend, nothing to do with the cold, hard numbers of finance.

To investors and venture capital firms, however, a “unicorn” isn’t a beast, real or imagined, but a startup company that has reached the level of $1 billion in funding.

The term unicorn was coined in 2013 by Aileen Lee, Founder of Cowboy Ventures, a seed stage fund, in an article she wrote for TechCrunch.

At the time Lee wrote the article, the population of unicorns was quite small, though there were some companies that had grown into huge unicorns that she dubbed “super unicorns” like Google and Amazon.

She explained the label in a footnote that bred a meme.

“Yes, we know the term ‘unicorn’ is not perfect,” wrote Lee. “Unicorns apparently don’t exist, and these companies do — but we like the term because to us, it means something extremely rare, and magical.”

How ‘Fintech Unicorn’ Became a Badge of Disruptor Accomplishment

In the process of inventing the term, Lee created a kind of club. In fact, in the article she spoke of the “Unicorn Club.”

At the same time that Lee was talking about unicorns in general, the fintech movement was picking up steam. The designation “fintech unicorn” came into being. No cards, no membership kit, but all the same a gift to founders’ self-esteem and headline writers looking to confer status on booming companies.

Nowadays the lists of unicorns in general and fintech unicorns specifically has grown beyond that “rare” factor Lee mentioned. The list maintained by CB Insights runs a bit over 1,000 firms, globally, split into categories.

The Who's Who of Leading Fintech:

The list of fintech unicorns reads like a summary of change agents for the banking business.

Currently fintech unicorns represent the leading category by number of firms on the CB Insights unicorn listing. This is of more than background interest when you consider the names of some of the 200-plus companies on the list of fintech unicorns, many of which should be familiar to regular readers of The Financial Brand.

These are the firms that have been changing the face of consumer financial services, such as Acorns and Betterment (investments), Chime and Varo (fintech banking), and Better.com (mortgages). Buy now, pay later firms are also represented on the list, with names like Klarna and Amount appearing. There are also names that work with both the fintech and banking industries to improve functionality, such as Plaid and MX Technologies.

Fintech unicorns taking part in the booming world of digital assets and cryptocurrencies are also represented. This includes such companies as Anchorage Digital, Kraken and MoonPay.

There are also newer names that have attracted sufficient funding to make it onto the $1 billion-plus list. Among these are Happy Money, a fresh take on marketplace lending; Mobilecoin, which bills itself as the first carbon-negative cryptocurrency; M1 Finance, which has adopted the descriptor “The Finance Super App” and which works with multiple banking-as-a-service institutions; and Mercury, which, also with BaaS involvement, offers both small business banking and access to investors. Other familiar names include Current, Stripe, Monzo, Starling Bank, and Brex.

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How Long Will the Unicorn Boom Last?

As the size of the CB Insights list indicates, the population of unicorns in general has been booming. As Crunchbase indicated in research in early 2022, the hunger for good investments drove venture capitalists and others to pour more money into startups, ushering many more firms into unicorn status at a faster pace. Much has changed since Aileen wrote her unicorn article.

“A quick glance at the numbers show companies in fintech and, specifically, crypto were most likely to hit a big valuation during early funding rounds,” Crunchbase states, based on its own database of unicorns. “20 companies listed under fintech got to a $1 billion-plus valuation last year in early rounds, while 16 listed as crypto companies did similarly.”

How the world of fintech unicorns will evolve going forward remains to be seen. Articles in the venture capital press suggest that 2020-2021 may have been an unusually strong “gold rush” kind of period. Some indications have been seen that investments will be harder to draw.

There have also been suggestions that merely earning the trend moniker “unicorn” may not be enough. Investors want to see results they can bank on.

And new ideas will command a premium. In a much more recent article from Cowboy Ventures, Jillian Williams, Principal, in discussing the firm’s new ideas in finance, suggests that the initial neobank model may not be enough anymore.

“While there have been terrific companies built in this space (e.g. Chime, Current, Varo) we don’t believe the basic checking account will continue to be the needed or impactful starting point for customer needs. As more innovation happens away from the checking account, we are excited to invest in products supporting consumers in earning, spending, and interacting with their money.”

Williams adds that personalization will mark the winners of the next round, for example, tailoring offerings better to consumers’ needs.

Even neobanks, it seems, can be disrupted. And unicorns will have to learn new tricks.

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