By Ben Edwards, Pensar Media
Global fintech leaders are optimistic that the industry will bounce back rapidly from the coronavirus pandemic as businesses adapt to the new operating environment, according to a new survey from Pensar Media.
The survey—Pandemic Pains: How the Covid-19 Crisis is Impacting the Fintech Industry—found that more than half of senior fintech professionals (55%) expect the industry to recover in a year or less. Some 43% of respondents are also more positive about the health of the industry now than at the start of the pandemic, with only 16% saying they are less optimistic.
“Fintechs have adapted,” says Fabien Ignaccolo, CEO at Okay. “We have a resilient industry—fintechs are innovating and embracing change, and projects have restarted because people understand that we just need to get on.”
While more than two-thirds of survey respondents (69%) say the pandemic has had a negative impact on the fintech industry, that impact has been mixed. Respondents singled out challenger banks and online lenders as sectors that suffered the biggest impact from Covid-19, with regtech firms suffering the least.
That suggests fintechs which are more dependent on direct consumer spending were more likely to feel the squeeze as lockdowns and travel bans curbed economic activity. Meantime, fintechs that are more focused on supporting traditional financial institutions with their digital transformation efforts, or that provide infrastructure underpinning growth in digital payments, were likely to have fared better.
“In recent years, our industry has evolved from analogue to digital while banking has moved from closed to open, making financial services more accessible to both consumers and businesses,” says Rafa Plantier, UK and Ireland country manager at Tink. “The pandemic has accelerated this evolution—forcing radical changes in customer behaviour by shifting significant aspects of the economy online and increasing customers’ willingness to go digital.”
While fintechs responded to the crisis in different ways, the most frequent steps companies have taken include imposing a hiring freeze (38%), cut wages (37%) and make redundancies (33%). Those measures are likely to be reversed fairly quickly, with 43% of firms saying they expect to hire more staff over the next 12 months and 46% saying they expect to increase investment in existing products and services.
A sense of caution remains, however. Some 37% expect there will be further redundancies on the cards over the coming year, with 46% saying there will be pressure to change or refine existing business models to survive. Half of respondents also believe that anywhere between 26% and 50% of fintechs could experience financial difficulties next year.
The funding landscape is also likely to remain strained, having tightened since the start of the pandemic as investors become more circumspect about who they will lend money. While 29% of respondents reckon the ability for fintechs to raise capital over the next 12 months will increase, 43% expect it to be more difficult and 28% expect no change.
“With fewer early-stage investments being made, the metrics that investors are looking for have now increased, making it more difficult for early-stage companies to get funded,” says Todd Clyde, CEO at Token.
Wider industry trends are likely to be supportive for the fintech industry. The pandemic has starkly exposed the lacklustre pace of tech adoption across the banking industry, underscoring the need for rapid change. Almost half of respondents (48%) believe demand for fintech products and services will increase as a result of the pandemic, with almost a third (31%) anticipating the emergence of new growth opportunities that didn’t exist pre-Covid.
“This unprecedented landscape has created a myriad of opportunities for the fintech sector to better support consumers navigating these difficult times,” says Pauline van Brakel, chief product officer of Yolt. “Many consumers have moved their lives online and many want more control of their financial lives without having to leave the comfort of their homes. We’re likely to see increased competition in the fintech sector as financial organisations, big and small, look to improve their online presence and better support the changing needs of their customers.”
More than half of respondents also reckon there will be an upswing in fintech-related M&A activity over the next 12 months, with the payments sector likely to attract the most interest, followed by trading platforms and challenger banks.
“Current market conditions could drive consolidation in the sector, particularly if traditional financial institutions see now as an opportune moment to make strategic acquisitions that can help them digitalise,” says Todd Latham, chief growth officer at Currencycloud.
