Learning from one’s own mistakes may be the most comprehensive way but young businesses often cannot afford that. Therefore, today, we’ll learn about the top fintech startup failure cases and make conclusions
Every day we hear the news about successful startups disrupting industries with innovative solutions and getting lavish funding. However, you may not realise that is just the tip of the iceberg. Out of 100 startups, only ten will survive. Others fail at the early stages of their business journey.
The most common reasons for startup failures are inability to find a market niche, misunderstanding of market needs, bad timing, cash flow issues, poorly drafted business plans, weak partnerships, lack of talent or poor team cooperation, as well as rigidness of the business strategy.
Learning from one’s own mistakes may be the most comprehensive way but young businesses often cannot afford that. Therefore, today, we’ll learn about the top fintech startup failure cases and make conclusions.
Volt Bank (2017 – 2022)
Volt Bank was a licensed Australian consumer neobank. In June 2022, the startup announced it would permanently close its business and voluntarily return the banking licence, citing funding issues.
Namely, the neobank management wanted to reposition Volt as a BaaS supplier after abandoning the original model of retail financial services and life-cycle products. Due to the lack of investor support, that plan failed.
Founder: Steve Weston
Select VC investors: Australian Finance Group, The Collection House
Total disclosed funding: $102M
Number of employees: 140+
Failure reason: lack of additional capital to propel the new business model
One-click checkout startup Fast was funded by industry leaders, including a fintech unicorn Stripe. However, industry support didn’t help the company’s business to last long. The company was growing fast. Perhaps, too fast to remain sustainable. The startup management didn’t take into account the changing economic situation that made investors less risk-tolerant.
Founder: Domm Holland
Select VC investors: Index Ventures, Stripe, Addition, Global Founders Capital
Total disclosed funding: $125M
Number of employees: 400
Failure reason: failing to secure additional investment fast enough, misjudging VC market mood
Another neobank that attempted to disrupt the extremely consolidated Australian banking market failed after three years of operations. The startup blamed its failure mainly on the coronavirus pandemic and the “increasingly difficult capital-raising environment”.
However, the challenger would have stayed afloat if it generated enough profits. Meanwhile, Xinja started taking deposits before it made loans. Having to pay interest before generating income made the bank highly dependent on the investor’s money.
Founder: Eric Wilson
Select VC investors: Equitise, World Investments
Total disclosed funding: $100.6M
Number of employees: 70+
Failure reason: unprofitable business model
Software and financial services startup ScaleFactor collapsed amid the pandemic, as the demand for its software from the core SMB customers declined abruptly. Since businesses strived to cut costs, ScaleFactor’s product didn’t fall into the “necessities” category.
ScaleFactor used to offer software that automated back-office tasks including bookkeeping and payroll. The US-based company reached $7 million in annual recurring revenue at the end of 2019, but the company’s bottom line and customer relations still suffered.
Founder: Kurt Rathmann
Select VC investors: Bessemer Venture Partners, Canaan Partners, Coatue Management
Total disclosed funding: $104M
Number of employees: 100
Failure reason: non-viable product
Koinex was an Indian cryptocurrency exchange platform. When the country’s laws got harsh against cryptocurrencies, legal obstacles and little profit led to its closure.
Koinex operations were regularly disrupted by delays from government agencies in clarifying the regulatory framework for cryptocurrencies. The exchange has been facing denials in payment services from payment gateways too.
Founder: Rahul Raj
Select VC investors: BEENEXT and Pantera Capital
Total disclosed funding: $1.66M
Number of employees: 50+
Failure reason: legal obstacles
The company developed a new Bitcoin platform. However, soon it announced that providing Bitcoin transfer across different regions proved to be impossible. Namely, the delivery of SMS between carriers outside of the US was not reliable.
Founders: Jonathan Zobro, Songyi Lee and Johann Barbie
Select VC investors: Hard Yaka, Terrence Yang, Marc Bell Ventures
Total disclosed funding: $525K
Number of employees: less than 10
Failure reason: could not find the right product-market fit
P2P used-car marketplace Beepi strived to improve the process for buyers and sellers alike. It handled inspection, paperwork and delivery, offering sellers a guaranteed price and a promise to buy the car themselves if it wasn’t sold in thirty days.
Beepi is a classic example of a startup with a good idea stifled by bad execution. The company’s expenses were huge ($7 million per month), but investors soon became unwilling to fuel the startup unreasonably burning existing funds.
Founders: Ale Resnik, Owen Savir
Select VC investors: SAIC Venture Capital, Redpoint, ACME Capital
Total disclosed funding: $149M
Number of employees: 250
Failure reason: misunderstanding of consumer needs, bad money management
Bitpass was an online micropayment system allowing users to deposit money in an online account and pay for digital content and services. The main reason for its closure was fierce competition.
Founders: Kurt Huang and Gyuchang Jun
Select VC investors: Steamboat Ventures, Constantin Partners
Total disclosed funding: $13M
Number of employees: 50+
Failure reason: competition
Reali, a US real estate fintech platform for home-buying and selling, aimed to create a one-stop-shop to make home ownership simple, affordable and stress-free with alternative financing solutions. Just a year ago, it raised $100 million in equity funding. However, the real estate market was deeply affected by rising interest rates. The decrease in buyers brought up a funding decline, which hit companies like Reali hard.
Founders: Ami Avrahami and Amit Haller
Select VC investors: Zeev Ventures, Akkadian Ventures, Signia Ventures
Total disclosed funding: $292M
Number of employees: 200+
Failure reason: unfavourable capital-raising environment
India-based e-commerce enablement startup ShopX helped local Kirana store owners build their digital presence. As it grew, it took loans from Singapore-based Fung Investment, which the company’s faulty business model prevented it from paying off. Thus, the startup filed for insolvency and bankruptcy.
Founders: Amit Sharma and Apoorva Jois
Select VC investors: Nilekani, Fung Investment
Total disclosed funding: $56M
Number of employees: 100+
Failure reason: insufficient cash flow
B3i Services (2016-2022)
B3i was a provider of unique blockchain-backed reinsurance services. Despite significant initial success, the startup collapsed due to the lack of any real industry use cases and the absence of enhanced end-to-end efficiency.
Founders: Blockchain Insurance Industry Initiative (B3i) consortium
Select VC investors: AIG, Allianz, Swiss Re
Total disclosed funding: $22M
Number of employees: 50
Failure reason: no market support, weak use cases
Wingocard, a personal finance platform for teenagers, had more than 75K teens on its waitlist and was able to raise nearly $2M in seed funding. However, the startup failed to find fresh capital to move on with its mission. The company entered an already-crowded teen-banking market without any exclusive solutions.
Founders: Mehdi Mehni, Salvatore D’Agostino, Sebastien Brault
Select VC investors: Panache Ventures, Diagram Ventures
Total disclosed funding: $2M
Number of employees: 25
Failure reason: inability to win competition
Estonia-based askRobin was a credit marketplace for underbanked consumers in emerging markets. It never found a strong product-market fit, though. The startup’s first product was the Financial Education chatbot. Soon the founders discovered their target audience needed easy access to extra money rather than financial advice.
Becoming an intermediary in the lending process was not profitable for the fintech. As the founders put it, “the best deal to our customer was rarely the best deal for us”.
Founders: Rain Sepp, Karl Kaju
Select VC investors: Change Ventures, Vereeni Investments
Total disclosed funding: $1.7M
Number of employees: 10-25
Failure reason: lack of PMF