A global report by FleishmanHillard in partnership with Money20/20
Fintech Driving Global Change
BUILDING A BETTER FUTURE
CLAUDIA BATE
Head of Technology and Fintech Lead, FleishmanHillard Fishburn
Like virtually every other sector, COVID-19 has sent shockwaves throughout the fintech industry and the economic fallout will continue to apply considerable pressure for some time to come. Funding has dried up as investors grow cautious, expansion plans have been shelved and hyper-growth and unprofitable businesses are feeling the strain. Yet the continued shift to the digitalisation of financial services could accelerate sustainable growth of the fintech sector in the coming decade. It’s already clear that this crisis has hastened the adoption of digital payments globally and will likely provide the impetus for banks to upgrade their legacy systems and move further products and services online. We have collated the views of over 60 experts from leading brands including AXA, City Bank, Currencycloud, Klarna, Ripple and 11:FS to share their insights on how the pandemic has impacted the fintech sector, but also what opportunities might lie ahead as a result.
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Interestingly, our experts identified winners and losers from the current situation; they see smaller start-ups being hit hardest and less likely to receive funding. Meanwhile, ‘unicorns’ and larger scale fintechs are likely to be seen as a safer bet in the eyes of investors, alongside B2B fintechs which are typically more likely to be profitable and appear to have been less exposed to economic shock. Overwhelmingly, partnership business models are viewed as a winning strategy for long-term success, alongside the need for strong leadership to steer the ship and take tough decisions during uncertain times. Our experts also predicted a spate of fintech M&A in 2021 as financial institutions and larger technology players look to snap up attractive deals during the current climate. They see this as a great opportunity for fintechs to innovate in areas where the crisis identified groups that still remain financially excluded, particularly in the domain of SME and consumer credit. We’d love to hear your thoughts – so please get involved in the debate and share your views on the future of fintech using the hashtag #FHFinTech.
TRACEY DAVIES President, Money20/20
In 2020, we witnessed dramatic change in the fintech space. Since the start of the year, ecommerce transactions jumped 43% in the US, 30% in the UK and 117% in Australia. Consumers wanted safer solutions, which has fueled a leap in digital payment adoption with SMEs in the US reporting a 27% increase in contactless payments. As consumers’ desires, habits and needs shift to a postCovid pattern, financial products will need to be rebuilt accordingly. New consumer attitudes, weak economic growth and soaring digital transactions give us the perfect chance to reframe products to match the opportunities we see. This is also the moment to reimagine business models. As consumers become more expensive to reach, partnerships will be a key factor in who grows and who declines. Collaboration is our strongest response to the speed of change we’re all seeing.
organisations and our industry. We are already seeing efforts to remove barriers to opportunity for customers and communities, and we can and will continue together. As we look to the future of money, the financial services industry has an amazing opportunity to reset, rebuild and reimagine its products and processes. If we embrace change as a catalyst and work to include more voices in our plans, 2020 will be looked back on as the year financial services evolved. In light of all that has changed, we’re delighted to share with you the expert insights of more than 60 top minds within our industry. Covering the shift from growth to profitability, how firms are using M&A to ready for the rebound and the critical importance of leadership, there is a wealth of ideas to take action on. As ever, I’m excited to see what the future of money holds.
And finally, we are united as never before to reset the structural biases around diversity and inclusion in our
ABOUT THE REPORT
FleishmanHillard’s TRUE Global Intelligence surveyed 63 fintech experts, including founders, senior business decision makers, investors and advisors. The results were collated between June and August 2020.
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INVESTORS HUNT FOR ‘SAFE BETS’ IN CRISIS Fintech funding reached an all-time high in Q1 of 2020 with the stealthy emergence of a new set of ‘unicorns’ valued at over $1 billion. But funding has dried up dramatically amidst COVID-19. Fintech experts expect early-stage start-ups to be hit hardest as investors look to channel funds to companies with tried and tested business models. In the same vein, B2B and so-called ‘plumping’ fintechs, which are often more profitable and have been less impacted by the crisis, are set to prove more attractive than ever. Cautiousness will govern investor behaviour for the remainder of 2020 and into 2021 and existing unicorns will consolidate their position. Those at the lowest end of the market, however, will be impacted the most, potentially stifling innovation in the longer term.
67% 87% 44%
think early-stage fintech start-ups will find it more difficult to secure funding
do not think late-stage fintechs will find it difficult to secure funding
41%
%
Fintech experts are conflicted over whether there will be a decline in the emergence of ‘unicorns’ in the next year
15%
Unsure
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T
ill be a declin e
re will NO The T
e clin e ad
w re he
be
think B2B companies are more likely to attract more funding than B2C companies
“Companies not far from unicorn status will keep going, the bigger issue is the bottom end of the market, seed.” SIMON TAYLOR Co-Founder and Blockchain Practice Lead at 11:FS
“I believe this pandemic has created an urgency for all financial services solutions. I see two large factors that will play a part in the success or failures of anyone in this market. 1) current employees the ability to be agile to work quickly and adjust and modify the existing strategic plan. 2) partnerships with the fintech companies out there will also be key. We must be cautious when creating those partnerships in these unstable times.” JUSTIN KNOWLES Director of Digital & Payments at City Bank
“Valuations are going down …, making it difficult to achieve unicorn status.” KRISTY DUNCAN CEO at Women in Payments
“B2B will show stronger growth and more resilience. Investment will seek safe, established companies.” TODD LATHAM Chief Growth Officer at Currencycloud
“With increased scarcity in venture capital owing to COVID-19, early stage startups are likely to be affected. B2B companies will be likely to get more funding than B2C because of the impact of COVID-19 on consumer confidence/ spending” JASON ALDERMAN Chief Communications Officer at Fast
“Series A pitches are going to have to be very compelling to get buy-in and will need a really good business plan with a clear path to profitability.” LAUREL WOLFE VP of Marketing at Klarna
“Given the sweeping COVID-19 pandemic, it is much more difficult for VCs to conduct due diligence exercises due to countrywide lockdown. The whole investment pace will be unavoidably slow down. This will particularly have serious impact on those early-stage startup companies as VCs/PE firms will be more prudent and will tend to select those outstanding startups to invest in.” FLORIA CHAN Head of Marketing, Ecosystem & Partnership at Beyond Ventures
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FOCUS SHIFTS FROM HYPER GROWTH & SCALE TO PROFITABILITÂĽ As the fintech ecosystem continues to evolve at pace, all eyes are on the path to profitability (and beyond) for the up-and-coming players. Businesses that have built successful platforms and partnership models are driving growth that is difficult to replicate and are most likely to succeed in the long-term despite short-term challenges presented by the COVID-19 pandemic. A consistent approach to building multiple revenue streams will be key to success down the line. Ultimately, investors will place more importance on sustainable business models than rapid growth.
80%
think that fintechs that have built successful platforms through partnership models are more likely to achieve profitability
40%
cite expansion into new areas and diversifying their offerings is the most crucial factor to fintechs long-term success.
7%
believe that Just platforms through partnership models are not likely to be more profitable and said they didn’t know
13%
Partnerships offer a cost-effective way for fintechs to diversify their offerings
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“In times of uncertainty, partnerships help to drive better outcomes as there is a ‘coalition’ of players driving the same message to a larger audience that helps to reinforce the value for customers to choose that path. Fintechs that partner with known existing brands serve to help that brand deliver the ‘cool’ factor of new technology whilst the fintech benefits from alignment with a strong brand and hence achieves credibility faster than would otherwise be the case.” ROBERT KIRBY Co-Founder and Executive Chairman of Paygora
“I think partnerships offer a multiplier effect (if they’re in fact true partnerships) where both organisations are driven to make the partnership successful and have greater pooled resources.” DEAN NICOLLS VP Global Marketing at Jumio
“Fintechs - and most organisations with a strong partnership model have a diversified risk profile. If many partners plug holes in the fintech’s solution or offering, if one partner collapses, the impact to the fintech will be lesser overall than if they are relying on a single product or a single partner.” DEE BURKE Global Head of Marketing at Finastra
“[Fintechs] reach and customer acquisition strategies are amplified if they have strong partnership models.” KRISTY DUNCAN CEO of Women in Payments
“The ability to leverage domain expertise is key in agile development and scaling.” DAVID RIXTER One United Globe and HCR Consulting LLC
“Diversifying distribution through partnerships is key to lowering the costs of growth.” ALESSANDRO ONANO Chief Marketing Officer at Moneyfarm
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OPPORTUNISTIC ACQUISITIONS WILL BOOST POST-REBOUND SUCCESS
This trend seems set to continue as financial institutions start looking for good deals that may emerge from the current economic situation.
wi ll There
66%
$13B
Do you believe there will be a spike in fintech acquisitions in 2021?
acquisition of Etrade Intuit’s
$7.3B
acquisition of Credit Karma
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Visa’s
$5.3B
acquisition of Plaid
13% No spik e
Morgan Stanley’s
Q1 saw a flurry of high value fintech acquisitions
e
21% Do n’t k
w no
Fintech experts identified payments as a key target for acquisitions as it is a highly saturated market and is a key area where bigger institutions want to innovate.
b
The COVID-19 pandemic has forced us all to think differently – the focus on innovation is more acute than ever as leading institutions look to boost productivity and efficiency in an increasingly digital world. Consolidation is inevitable and while M&A activity is likely to be stunted in the short term, we expect to see a continued focus on research and analysis around potential acquisition targets as organisations look to diversify and re-model their businesses to ensure they are fit for the future. We may see a spike in activity in early 2021 once businesses emerge from the recovery phase. Many leading companies will be cash crunched and could present an amazing pike acquisition opportunity for a strategic acquirer. as
“Success will be boosted across the board where well capitalised firms want to widen their proposition” CHRIS SKINNER CEO at The Finanser
“If banks and credit unions are set up positively and have resources available, M&A between financial institutions could be a possibility.” JUSTIN KNOWLES Director of Digital & Payments at City Bank
“Payments is an overly saturated space. Europe has to move forward with building its own card scheme and core payment infrastructure to mitigate dependence on Visa and Mastercard. It’s likely to cause a frenzy of M&A activity in the sector.” NASIR ZUBAIRI CEO at The LHoFT Foundation
“Core systems, and cloud propositions in particular, will become more interesting in 2021 as banks strive to reduce operating costs by shifting to hosted models for more core processing.” MARCUS TREACHER SVP Customer Success at Ripple
“Payments will continue being snapped up as will insurance tech platforms - mainly because incumbents will realise that if they don’t buy them now, they’ll continue to take market share. Incumbents can’t match their speed of innovation.”
“Challenger banks will consolidate - there are so many, some of which have stalled out. We’ll also see payments companies be acquired or they themselves acquire ‘addons’ such as loyalty or invoicing to own more of the tech stack.”
CHRIS ADELSBACH Founding Partner at Outrun Ventures
LAUREL WOLFE VP of Marketing at Klarna
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STRONG LEADERSHIP IS KEY TO LONG TERM SUCCESS Clear and decisive leadership during challenging times is critical to longterm business success. For some, the COVID-19 pandemic will see a pivot away from existing business models and a greater need for flexibility across the board. The importance of leadership in setting the tone and maintaining momentum to pave the way to recovery and renewed growth will be critical. Whether a start-up or a fintech operating at scale, tough decisions are having to be made, strategies redefined and new product roadmaps pursued. Founders are being tested to the max and you will see some praised for their direction, while others may be forced to exit as more seasoned stewards are brought in to manage the next stage of growth. Innovation and diversification will be vital to successfully navigate a new landscape, where customer demands and needs are changing rapidly.
What is most crucial for long-term success? CLEAR DIRECTION FROM LEADERSHIP
EMPHASIS ON INNOVATION EXPANSION INTO NEW AREAS & DIVERSIFYING OFFERING
CUSTOMER-ORIENTED APPROACH FLEXIBLE BUSINESS MODEL SUPPORTING EXISTING STAFF EMBRACING NEW TALENT FOCUS ON KEY AREAS OF EXPERTISE COLLOBRATION WITH PEERS
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“Leadership sets everything - tone, culture, direction of travel and inspires the team to achieve great things. Without strong leadership even the best product will fail.” STEVE LEMON Co-founder and VP Corporate Development at Currencycloud
“Companies need to adapt and remain agile during the pandemic. This usually means they have to innovate and innovate quickly to the shifting landscape.” DEAN NICOLLS VP of Global Marketing at Jumio
“The board and exec teams have to lead from the front by being great role-models and communicators, developing a convincing post COVID-19 business & financial strategy and investing in a diverse talent pool and the right fintech innovation and infrastructure to turn the existing global recession into an opportunity for sustainable growth.” SUSANNE CHISHTI CEO at FINTECH Circle
“The management team of the company is like the captain of a ship. If they cannot give a clear direction to the team, the company staff will only busy at their own job, not the company’ s business objectives. The company/ ship might “sink” in one day as everyone might be working at different directions.”
“Without clear direction from leadership, functions and individuals tend to make short-focus decisions which may benefit customers and the organisation for 12 months, but either hinder or provide little value to the longer term vision.” DEE BURKE Global Head of Marketing at Finastra
“All fintechs will need to innovate to win and produce an outstanding product offering.” PHILIP KELVIN Interim CFO at Trussle
FLORIA CHAN Head of Marketing, Ecosystem & Partnership at Beyond Ventures
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BRAND & REPUTATION MORE VITAL THAN EVER BEFORE The impact of COVID-19 is huge, with competition fiercer than ever in a crowded marketplace. We are all being forced to make tough choices to ensure the long-term sustainability of our businesses, so defining your proposition and clearly articulating your value is even more important than usual, and brands that fail to meet up to expectations of their stakeholders will be hit hard. Unsurprisingly respondents identified customer experience as the most important thing to focus on, as COVID-19 exposed some cracks in fintechs’ ability to service customers’ needs. We are already seeing customers voting with their feet and expect to see further fall-out for companies that do not prioritise their focus on protecting their reputation as ethical businesses in the face of crisis. Brands must focus on maintaining an authentic voice amongst the chaos to ride out this crisis.
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77%
of respondents expect to see an increased focus on customer experience as fintechs and financial services organisations strive to build their reputations
57% 30%
believe product and service innovation is an area where we will see fintechs focus
believe environment and sustainability will be a key area of focus to drive positive brand awareness, a relatively small figure despite increased public activitism
“I believe fintech firms will focus greatly on financial inclusion and ‘doing well by doing good’ - as part of a genuine effort to make a difference in the world and have a mission employees can get behind.” DEE BURKE Global Head of Marketing at Finastra
“ESG due to change in customer preferences.” OLIVER BUSSMANN Founder and CEO of Bussmann Advisory AG
“CSR and Community impact/ Financial Inclusion is an obvious area where fintech could make a tremendous impact, and to the benefit of traditional banks where they can partner together and has yet to be a key area of focus, but one where the need is great, and increasing.” KARIN LOCKOVITCH Chief Risk and Compliance Executive at ELA Risk Solutions
“Trust, ESG and good ethics are super important especially for the younger customers. That’s what they expect from their firms; negligence will be immediately punished. You have to continue to innovate, because competition is fierce and customers are these days way more prepared to switch to another solution.” PIERRE SUHRCKE Venture Partner at TempoCap
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FINTECHS STEP UP TO DRIVE ECONOMIC RECOVERY Fintech was born out of the 2008 financial crisis, with upstarts aiming to do finance better than the banks which failed. Now, we are in the midst of another economic crisis, one that is potentially greater in degree and different in kind – this time starting from the bottom up and hitting the real-world economy the hardest. We are in unprecedented times that will require new solutions that combine agility from start-ups with scale and distribution of incumbents. Big banks are being asked to act as the transmission vehicles to inject stimulus into the economy, but what role will fintechs play in helping to drive the economic recovery that’s needed? This crisis has exposed gaps where financially excluded groups are not having their needs met, particularly with SME and consumer credit. This presents opportunity for fintechs that could spur a second wave of innovation.
62% 53% 31%
of fintech’s believe that COVID-19 has highlighted the need for innovation in lending both for SMEs and consumers
say this is closely followed by payments and money transfer as more people move to digital payments
or one in three cite regulation/ compliance as in need of further innovation
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“SME credit and personal credit are two areas highlighted with COVID-19 as ailing the end user. I see small businesses struggling to stay afloat during this time and they simply cannot afford to repay loans offered.” DEE BURKE Global Head of Marketing at Finastra
“COVID-19 has laid bare the vulnerability of the traditional analogue insurance model to disruption. Transitioning to a datacentric, digital-first operating model represents a unique opportunity for first movers and an existential threat for those that are convinced that “business as usual” will return.” COLE SIRUCEK CEO, DocDoc
“Removing friction from international funds movement promotes financial inclusion and lays the foundation to build new international markets. Increased focus on the high fixed cost base of financial institutions will drive innovation in hosting for core activities - cloud will come of age in financial services.”
“Online payment gateways, online trading and money management apps. Business going online will drive demand for secure and smooth checkouts. People may start managing their finances better in view of the potential economic downturn.” LYNETTE LIOE PR & Digital Communications Manager at Fortinet
“The reality is, the shift towards noncash transactions begun years ago, driven by mobile payment in emerging markets. We believe this trend will eventually force the banks to adopt an open banking payment ecosystem. China’s recent launch of its own digital currency is a step in this direction and something interesting to watch as it puts the banks back in the driving seat.” WILLIAM CHUANG Portfolio Manager, Asia Equities AXA Investment Managers
“All areas chosen are related to how consumers or SMEs can get better access to money on their terms, when they need it or how they can manage the money they do have better.” LAUREL WOLFE VP Marketing at Klarna
MARCUS TREACHER SVP Customer Success at Ripple
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ABOUT THE REPORT FleishmanHillard’s TRUE Global Intelligence surveyed 63 fintech experts, including founders, senior business decision makers, investors and advisors. The results were collated between June and August 2020.
ABOUT FLEISHMANHILLARD FleishmanHillard is a leading global communications agency with expertise profiling some of the leading financial technology brands in the world – from payment providers, banking software providers, identity-verification providers and more. It has fintech expertise in the core financial hubs around the world, including London, New York, San Francisco, Hong Kong and Singapore.
CONTACT US Claudia Bate Head of Technology, Director and Partner M +44 (0) 7966 158 495 E claudia.bate@fhflondon.co.uk LI Claudia Bate
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Disclaimer: This content is intended for marketing purposes and includes comments sourced from several industry experts, amongst which some are existing clients of FleishmanHillard.