The Coronavirus (COVID-19) outbreak has had a significant impact on our lives and is changing the way we work, interact, and consume products and services.
Finch Capital, an early-stage venture capital firm focusing on Europe and the Southeast Asia region, has published a report, titled “Fintech: The Future Post COVID-19.” It attempts to cover the different challenges and opportunities that the financial technology industry could face during, and after the Coronavirus crisis.
Early-stage Fintech firms might be particularly vulnerable if their growth and operations slow down or are suspended completely for the next 3 to 6 months, the report argues.
It adds that the current economic uncertainty and instability has placed considerable pressure on several major business activities, including fundraising, cash management, marketing and staff management.
According to Finch Capital, there will most likely be many short-term challenges that early-stage or small Fintech companies will have to deal with in order to stay afloat. The report states that there will most probably be very limited opportunities during these challenging times.
However, the lasting impact on society, following the Coronavirus crisis (around Q4 2020), will create favorable conditions for growth and development for most Fintech firms, the report’s authors argue.
Radboud Vlaar, Managing Partner at Finch Capital, stated:
“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 artificial intelligence (AI) and Big Data analytics.”
The Finch Capital team believes that “crisis mode” will last until Q3 2020. They think that it will be followed by a 12 – 18-month growth and recovery period (for Fintechs).
All-digital should become the new financial industry norm, accelerating a trend which began in the previous decade, the VC firm predicts.
It adds that the shift to digital-only will lead to a “Big Pocket” battle between traditional financial institutions and banking challengers to win the new online consumer.
The report notes that financial institutions will increasingly turn to tech firms instead of working with in-house solution providers to accelerate their digital transformation strategies.
Consumer and SME lending platforms will be the “best-adapting mechanism” to quickly and efficiently deliver funding to vital segments of the economy, the report states.
Mortgage and life insurance digitalization will result in a leap forward with technology “to disrupt the role of intermediaries, whose role was often face-to-face,” the report notes.
It adds that Fintech “enablers” around AI, internet-of-things (IoT), and software solutions will be in high demand.
AI bots for call-centers, account-opening procedures, and loan automation will be increasingly adopted, the report predicts. It also mentions that KYC solutions for digital ID verification will be in strong demand, after the Coronavirus crisis has ended.
Areas and entities under pressure during the Coronavirus crisis include challenger banks due to their relatively high valuations, high burn rates, and “lower expected activity post-crisis,” the report mentions.
Wealth management firms are also under pressure at this time because of “client de-risking and lower assets under management impacting their bottom line,” the report states.
It adds that payments and foreign exchange service providers will also experience challenges such as “decreased transaction activity affecting commission businesses.”
The report further notes that the pull-back of corporate venture capital-led investments along with “higher hurdles for companies’ access to funding put pressure on valuations in later-stage rounds” during the Coronavirus crisis.
The report’s authors believe there will be “increased mergers and acquisitions and trade-sales in the under-$250 million category of Fintech companies, as fewer initial public offerings (IPOs) will be expected” during this uncertain time period.