When Fintechs go wrong

Many of the headlines we see and the subjects we focus on emphasise the positive side of the Fintech and start-up scenes.

These often take the from of news about successful funding rounds and about the disruption of marketplaces and the growth in market share among challengers to the status quo within financial services, and their supporting industries.

However, not every story has a silver lining and not every Fintech will achieve unicorn status or anything resembling that.

After all, it’s widely believed that 90% of start-ups fail in year one and many of those companies will never even come to our attention but even if a business does survive into year two and beyond that’s no guarantee of success.

Australian neobank Xinja has pulled the plug on its banking ambitions this week citing a tough capital raising environment caused by the global shutdowns that have been imposed by governments over the past 9 months.

Xinja was launched in May 2017 and had first-mover advantage in the Australian neobanking space offering current and savings accounts and more recently share trading to its customers.

However, Xinja ran short of that most precious of commodities for a start-up cash. Auditors warned the banking wannabe that for it to continue in business it needed to raise fresh funds something it was not able to achieve. The net result is that Xinja will hand back its deposit-taking licence and close all accounts on December 23rd.

It could have all been so different for Xinja had a proposed injection of cash from Emirate World Investments materialised in March. An investment of as much AUD433 million had been discussed but was ultimately not forthcoming.

Xinja posted a statement on its website confirming that it would cease operating as a bank. However, it’s not all over for the company as it hopes to refocus the business on its share dealing app Dabble. We haven’t seen Xinja’s books and have no knowledge of its cash burn rate but its perhaps telling that the no one step forward from Australia’s margin trading community to save the neobank. Despite the potential synergies and diversification that could have been achieved by doing so. Perhaps they weren’t invited to do so.

Making a quick delve into the archives of research house CB Insights one can find a long list of 2020 failures that contains names such as Atrium a $75.0 million legal tech business that folded in March. Despite having backers such as Andreessen Horowitz, General Catalyst and New Enterprise Associates. The business was once valued at as much as $250. Million. However much like beauty value is in the eye of the beholder.

Another sizeable casualty in 2020 was ScaleFactor a business which promised to revolutionise finance and accounting and which raised $100.0 million from its backers before shuttering in June having fallen short of sales targets and encountering reliability issues with its technology.

Even having a silicon valley insider in your camp is no guarantee of success it seems. Andy Rubin who is famously credited with creating the Android mobile phone operating systems and then selling the business to Google. Closed his Essential products start-up in February. The business was founded in 2017 but failed to launch a successful product after the failure of its Essential phone. A series of misconduct allegations against the founder also muddied the waters and probably contributed to the closure of the business.

The CB insights list goes on and on. In a report based on its finding the research house said that “In the spirit of failure, we dug into the data on startup death and found that 70% of upstart tech companies fail — usually around 20 months after first raising financing -with around $1.3M in total funding closed”

We don’t expect these sobering facts and stories to put off budding Fintech entrepreneurs but at least by reading about them they will have a clearer idea of the challenges that await them.