Finch Capital a FinTech VC, has published a report in which it notes the challenges and opportunities that the sector will face both during, and after, the crisis.
Covid-19 is reframing the way we work, consume and interact. Finch Capital says start-ups in the earlier stages of their life cycles are particularly vulnerable if growth stagnates or even drops for a period of 3 – 6 months. The uncertainty of the current situation puts pressure on fundraising, cash management, marketing and staff management.
The report, FinTech: The Future Post CV-19 focuses on:
- The short-term impact of the crisis
- The structural implications post-crisis, translating into an ever-swifter adoption of digitalisation and
- The landscape in terms of growth, unit, economics, consolidation, funding dynamics and exits.
“2020 will be challenging for FinTechs to navigate, but there are better times ahead. Post-crisis, disruptive winners will “take all”, as we expect surging demand from financial services for technology to master digital-only interaction, enabled by AI and big-data analytics,” comments Radboud Vlaar, Managing Partner at Finch Capital.
The report’s key findings include:
- Expect crisis mode until Q3 2020, followed by a 12 – 18-month recovery
- Digital-only becomes the new industry norm in financial services, greatly accelerating a trend which started in the last decade
- Shift to digital-only triggers a “Big Pocket” battle between incumbents and challengers to win the (newly) online customer
- Financial Institutions turn to FinTech companies rather than in-house solutions to accelerate digital transformation
Among the FinTech sector winners: consumer and SME lending platforms with the best-adapting mechanism to swiftly and efficiently deliver capital to key segments of the economy; mortgage and life insurance digitalisation disrupting the role of intermediaries, whose role was often face-to-face.
FinTech enablers around AI, IoT and software solutions will be in high demand, said Finch Capital, including AI: bots for call-centres; account-opening procedures; loan automation, etc. There will also be an increased need for safe digital IDs given the volume of digital business transacted and robust solutions required for the protection of client assets.
Challenger banks may have a challenging time, according to Finch Capital with past high valuations called into question as a result of high burn and lower expected activity post-crisis. In wealth management, client de-risking and lower AUMs will impact the bottom line.
Finch Capital also warns of a potential pull-back of corporate VC-led investments in combination with higher hurdles for companies’ access to funding, putting pressure on valuations in later-stage rounds. The firm sees the prospect of increased M&A and trade-sales in the under-$250m category of FinTechs, with fewer IPOs expected.
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