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Fintech - 3 reasons why there is a bubble

Let me start by saying that I am not a Fintech basher. I am an ardent student, follower and believer of Fintech. However, over the last few months I have been in several conversations and passionate arguments if Fintech was a bubble. 
I don't believe the whole of the FinTech phenomenon is a bubble - there are some astounding ideas, great entrepreneurs, clever execution and solid valuations. But there are reasons to worry as well. These are the three major reasons why I think Fintech has a bubble.
Reason 1: Baseless Valuation
I have been involved in numerous conversations where I see a half cooked idea, not even in the proof of concept stage valued at £2 to £3 million pounds. When asked to rationalise, the answer often is "yes, we are using Silicon Valley valuations". I would be tempted to respond "But you are not in Silicon Valley, you duffer". However, some Fintech firms have crazy valuations for the right reasons.
For eg: An investment banker or a consulting partner turned entrepreneur, with a strong business idea, all the charm, contacts and execution skills could very well accelerate growth of the start up in a few months, sign corporate deals and establish credibility in the business environment very quickly. And the business might have great synergies with corporate portfolios, synergies that it can leverage. That could justify a high valuation to some extent.
But this is not the case with every Fintech firm. Most don't enjoy the support system that justify the valuation.
Reason 2: VC conundrum
VCs have traditionally been the accelerators to innovation. With Fintech, I am afraid, the reverse could potentially be true. Many VCs have funds to invest in Fintech startups, and due to the buzz created by Fintech, they are under constant pressure from their limited partners to invest. They don't want to be seen as Zombie funds. But it's not an easy task to perform due diligence on Fintech firms and pick a winner.

Tech startups are hard enough to do due diligence on due to technology complexities. With Fintech companies, VCs have two challenges - technology and financial complexities. Many VCs lack the skills to pick a good deal from the bad ones as they need niche and hybrid skills. This results in a lot of money invested in anger in bad deals.
Reason 3: Regulations
It's often tempting to compare the Fintech age we are in with the dot com era. But the dot com companies, inspite of the over valuations didn't have the headwind of regulation. Fintech firms operate in a highly regulated environment, much like the incumbents and would have operational, legal and reputational costs if they ignored regulations. Lending club that IPO'd in 2014 ceased trading temporarily in 2008 to clear regulatory issues. During that quiet period, they had to keep lending using their own money.
I was in a pitch not long ago where the CEO of a payments firm got torn apart for making wrong assumptions about their margins. He had not taken European regulations into account when he projected their margins which effectively drove the valuation. I felt for the entrepreneur as the idea was great and his pitch was very good except for the fact that he didn't have a clue about the regulatory impact.
With all these frictions kicking in, I think there is sound base to argue that valuations within Fintech are often not justified. I think there would be a correction once the dust settles, and the survivors will go big!! Time will tell!!
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