💸 FinTech Gets A FedCheck
As the last few years have seen a rise in Financial Tech (FinTech) start-ups, federal regulators are beginning to take a keen interest in their business ties with traditional banks. A recent deal collapse between Swiss banking giant UBS and the FinTech “robo-advisor” firm Wealthfront has some believing regulators were eyeing the merger, thereby spooking the two companies. “A source familiar with the situation says the deal collapse came suddenly,” Axios writes of the news, “with unspecified regulatory concerns being raised in just the past several weeks.” It remains unclear what, if anything, regulators were concerned by.
In lieu of the scuttled deal, Wealthfront CEO, David Fortunato, told Reuters, “we are continuing to explore ways to work together in a partnership and UBS has given us $70 million in financing at a $1.4 billion valuation.”
The $1.4 billion has some raising eyebrows. In 2017, VC investment put the company's valuation at $500 million, with roughly $70 million in annual revenue, says CityWire, before noting that “the firm’s latest $1.4bn valuation represented a multiple of more than 21x revenue.”
Boom & Bust
One in every five dollars VCs invested in 2021 went to a FinTech start-up, reports The Economist. So, it's no secret the industry is exploding. However, many of the industry's innovations (like the free stock trading of Robinhood, or the buy-now-pay-later solution of Affirm) have been co-opted by bigger players. “Way too many venture-backed fintech start-ups waiting in the wings trying to go public,” Josh Brown, a financial advisor, told CNBC. “Most of them are overlapping each others’ business and most of the problem is that there is just not enough growth to go around for all of them.”
Just as we saw with Crypto and NFTs over the last two years, the incredible rush of investment into FinTech firms also means that firms and their products were not scrutinized. As the industry deflates and regulators turn their attention to these start-ups, it may be a net positive for everyone involved.