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Why market-fit is the most important area of Lighthouse, and what market trends we’re most interested in today

Twice a year, we’re forced to pick 20 Lighthouse companies from a long list of applicants. We do so by evaluating three criteria:

  • Marketability (how much does the market care about your work?)
  • Traction (what results can you show?)
  • Potential (how big can you get? How many lives can you impact?)

The most important factor for acceptance is an element that spans all three criteria: market-fit. To gauge market-fit, we ask all the Lighthouse stakeholders what themes or market areas matter most to them. We then pick partners that are in the right place at the right time. The product matters, but market-fit matters more.

Doconomy, the Swedish payment start-up, illustrates the importance of market-fit for Lighthouse. When the one-year old company applied to Lighthouse last year, it hadn’t yet launched its signature carbon-tracking credit card. But the climate-focused idea behind the company had market-fit. More than a dozen global publications wrote articles anticipating Doconomy’s launch. Earlier that year, at Cannes Lions, the so-called “Olympics of advertising,” Doconomy won a number of trophies including the Grand Prix.

Last fall, Doconomy joined and won Lighthouse. In the process, it received 200+ inbound sales leads from banks–plus an investment from Mastercard. Last week, Doconomy was also accepted to Start Path, Mastercard’s startup engagement program. Their market timing was impeccable, and this allowed their product to catch up.

Given the importance of market-fit, you might be wondering what market areas matter most to Mastercard and its partners right now. Here’s the list of topics we’re paying extra attention to in this year’s application cycle for the bank/fintech partnership track:

  • Financial inclusion/ support
  • Climate action
  • Cyber-security
  • Efficiency / automation (especially for mortgage & SME lending)
  • Reg Tech
  • PFM / micro-savings (especially related to youth)
  • Payments

It’s important to note that this list simply reflects the organizational priorities of Lighthouse’s Nordic & Baltic stakeholders. While we count companies like Mastercard and six of the largest Nordic Banks among these partners, we don’t want to overstate the universality of our agenda. But we don’t want to understate it either.

Perhaps you might think, for instance, that “payments” is included simply because it’s important to Mastercard. That’s not what our research suggests.

Invenio Growth, the Stockholm based consulting firm that runs Lighthouse together with Mastercard, analyzed 68 fintech unicorns created since 2005. We counted all fintechs worth at least $1B as of July 31 2020, and divided them into eight categories including lending, wealth management and foreign exchange (check our list here). We found that payment processing companies made up nearly two-thirds of the total value created by the entire class of unicorns. Moreover, payments is not just the most abundant category – it is also the most valuable category per capita on average.

Payment companies dominate the big leagues of fintech

We don’t think it is a coincidence that the most valuable fintechs coming out of the Nordics and Baltics – from iZettle to Tradeshift – are payments companies, and we suspect that payments will remain a competitive but important area for years to come. Indeed, of the three fintech unicorns founded in 2017 or later (Ovo, Brex and Figure), two provide payment services.

Doconomy’s genius was its ability to combine the market-momentum behind payments with the market-momentum behind climate action. Now that Doconomy is the first Lighthouse company ever to be accepted to Start Path, that market-fit seems to be paying off! 

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