From astronomical startup valuations to the NFT frenzy, here are the seven most important fintech stories of 2021.
1. Fintech startup valuations go berserk
In 2021, fintech valuations became hard to fathom. The most striking illustration was the number of startups that saw huge valuation jumps in six months or less. Payroll startup Deel reached $1.3 billion in April, then $5.5 billion in October. Credit card company Ramp went from $1.6 billion to $3.9 billion over a similar time period. Online checkout startup Bolt raised money at $4 billion in July, announced a $6 billion valuation three months later, was seeking $11 billion just three weeks later (which it reportedly achieved) and then looking for $14 billion shortly after that.
Frank Rotman, a cofounder and partner at fintech VC firm QED, tried to make sense of the wacky market in a series of tweets in July. He pointed to a few key factors, including a deluge of cash flowing into venture capital, frothy public markets creating sky-high venture capital returns and startup founders “fueling FOMO” by making hyperbolic growth predictions.
Three-quarters of the way through 2021, fintech funding for the year reached $91.5 billion, or almost double the total from all of 2020, according to CB Insights. During the third quarter, one in every three newly minted unicorns was a fintech startup.
2. Fintechs rush into the public markets
As the stock market kept climbing this year, fintech companies small and large sprinted to go public. Digital bank MoneyLion, payments company Payoneer and homeowner’s insurer Hippo went public through mergers with SPACs—the investment vehicle that involves a “blank check” shell entity going public with the goal of later acquiring a private company to take it public. Bigger names like Robinhood, Affirm and Marqeta pulled off traditional IPOs. Fintech exits (including not just IPOs and SPAC mergers but acquisitions by other companies) hit an all-time high, reaching 723 by the end of the third quarter, or 25% more than all of 2020, reports CB Insights. The stocks’ luster wore off in the last few months of 2021. Nearly all newly public fintechs are down from their peaks earlier this year.
3. The relentless rise of buy now, pay later
The trend of paying for purchases in two-week installments rather than using revolving credit card debt kept growing. In 2019, 17% of Millennials had used a buy-now, pay-later service. This year, that measure hit 41%, according to market research from Cornerstone Advisors.
All of the big buy-now, pay-later companies are rising with the tide. Affirm had a landmark IPO in January, and it grew its active U.S. customers from 3.9 million in the fall of 2020 to 8.7 million a year later. PayPal launched its own buy-now, pay-later product in August 2020, and after 13 months, 9.5 million people had tried it. Stockholm-based Klarna reached 90 million global active users in 2021 and raised funding at a $46 billion valuation. And Square said it would acquire Australia-based Afterpay for $29 billion in August. The surprising move demonstrated that Square’s Cash App, like PayPal, has ambitions to become a financial “super app,” or a one-stop shop for people’s personal finance needs.
4. NFTs become the next big thing
Nonfungible tokens (NFTs)—computer files used to track ownership of unique digital assets like art and music on a ledger known as a blockchain—became one of the most buzzed-about financial products of 2021. In March, artist Beeple sold a piece for a stunning $69 million. Celebrities ranging from Snoop Dogg to Martha Stewart began promoting NFTs. In August, NFT marketplace OpenSea processed a record $3.4 billion in transactions, logging roughly $85 million in revenue in a month where its expenses were likely less than $5 million. The four-year-old startup has been in talks to raise new funding at a $10 billion valuation, which would turn both cofounders into billionaires. Now every top-tier crypto investor is obsessing over NFTs, and many believe the tokens will transform every industry from music to real estate.
5. Plaid escapes Visa’s grasp
In early 2020, just before Covid hit the U.S. hard, Visa announced plans to acquire Plaid, which helps fintech apps connect to consumers’ bank accounts, for $5.3 billion. The deal came at a time when large fintech IPOs and exits were rare, and it was seen as a big win for fintech. But as lockdowns were put in place, Plaid’s customers saw a spike in demand. Robinhood, Coinbase, digital bank Chime and Affirm experienced record growth, and Plaid’s business grew in lockstep.
Near the end of the year, the $5.3 billion price tag wasn’t looking so great after all, and in November, the Department of Justice announced it was suing Visa to block the deal. The two companies called it off a few months later. “We are confident we would have prevailed in court as Plaid’s capabilities are complementary to Visa’s, not competitive,” Visa said at the time. “Waiting for another year or more of regulatory uncertainty didn’t feel like the right decision,” Perret told Forbes. Just three months after it fell through, Plaid raised funding at a $13.4 billion valuation, turning its cofounders into billionaires.
6. Robinhood traders form a movement
In January, Robinhood customers and other online traders banded together with a common mission: to make money by driving GameStop’s stock price through the roof. Convening on the Reddit forum Wall Street Bets, they vowed to go to war with hedge funds like Melvin Capital that were shorting GameStop, or placing bets that would pay off only if GameStop fell in value. The scheme worked—as Robinhood traders bought stock and options in GameStop en masse, its share price went from $18 on January 7 to $348 on January 27. It caused almost $20 billion in mark-to-market losses for Wall Street investors, and it came to symbolize the little guy’s resentment of Wall Street. Robinhood traders deployed the same strategy with other public companies like theater chain AMC and Blackberry, yanking the beaten-down stocks up to wild valuations.
The episode caused Robinhood to temporarily limit trading in GameStop, AMC and Blackberry, a decision that angered users, and to raise $3.4 billion in emergency funding to meet clearinghouse capital requirements. By mid-December 2021, GameStop was trading around $150 a share, up about 700% on the year. AMC was up nearly 1,250%, while Blackberry was up just 40%.
7. Coinbase goes public and reveals huge profitability
For years, top financial services executives like Jamie Dimon have doubted whether cryptocurrencies will provide lasting value. Coinbase’s public debut in April was a major milestone in the industry’s path to building mainstream credibility. In a regulatory filing for its public listing, Coinbase revealed that it had made $320 million in net profit on $1.1 billion in revenue in 2020. Such profitability is highly unusual for a fast-growing startup that’s only 10 years old. The company hit a valuation of $86 billion on its first day of trading but has since fallen to about $70 billion.