Is the fintech field breeding copycat startups?

Good morning,

Fintechs are fast and furiously forming and evolving. And there’s certainly a business case for it.

“The potential economic gain from building robust digital financial infrastructure is about 20% greater now than it was before the pandemic,” a recent McKinsey & Co. report found. The data is based on a study of 12 government economic disbursement programs for individuals and small and medium-size enterprises in Brazil, India, Nigeria, Singapore, Togo, the U.K. and the U.S. 

Fintechs across the globe expanded, reported growth and showed resiliency, particularly in emerging markets, in 2020, delivering a stronger performance in general compared to 2019, according to a December joint study by the World Bank, the Cambridge Centre for Alternative Finance at the University of Cambridge’s Judge Business School, and the World Economic Forum. “On average, firms in areas including digital asset exchanges, payments, savings, and wealth management reported growth in transaction numbers and volumes of 13% and 11% respectively,” the report noted. 

But is the rush to create a fintech ecosystem resulting in copycat startups?

My colleague Lucinda Shen delves into this topic in a new piece, “Why a million and one startups all seem to do the same thing now.” Shen had a chat with Frank Rotman, a founding partner at QED Investors, who says that younger startups are looking at the seemingly overnight success of fintech companies like the brokerage app Robinhood and seeking to build their own business similarly. “At one point, we literally had four or five companies [pitching] at the same time, all basically raising their Series A with very similar offerings around APIs for payroll,” Rotman says.

In a Q&A, Shen speaks with Rotman about topics including where he’s seeking investments in fintech and his thoughts on the habits of a new generation of small retail investors who use apps like Robinhood. He says they care more about being part of a community than about simply garnering financial returns. 

Shen asks, “So, how does the concept about the habits of this new generation of investors impact your thesis in terms of investing in fintech companies?”

Rotman’s response: “There’s no putting the genie back in the bottle. It’s really obvious that investors, the newer, the next-gen investors in this market, are looking to curate ideas from smart people who they trust.

There’s going to be a next-generation set of companies that are trying to build the social connectivity and education that enables the next-gen trader to trade smartly, not as part of a movement, not as part of the noise, but off of fundamental investment theses that have been curated.

As younger startups seek to attract this new community of investors, they have the option of creating a new blueprint for engagement and growth—or playing it safe by following the herd of existing fintechs.

Read more about Shen’s chat with Rotman

See you tomorrow.

Sheryl Estrada

Big deal

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— Actor Massimo Giordano, who plays the famous scam artist Carlo Ponzi in a one-man show, describing the character to Fortune.

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