In a new report titled “FinTech: The Future Post CV-19”, Amsterdam-based Finch Capital predicts a rough road for newcomers, an age of opportunity for agents of digitalisation, and a slow recovery for late-stage funding.
Defining “post-crisis” as the fourth quarter of 2020 and beyond, the VC firm forecasts a 12 to 18 month recovery that contains a few promising and perilous areas for fintech companies and investors.
According to the report, digital-only will become the financial industry default, much faster than it would have otherwise. Legacy institutions will likely turn to tech companies, adopting their solutions rather than building something in house. Such a sea change to digitalisation would be a boon for fintech enablers, particularly in AI and IoT.
Of course, the new norm of digital business will require safe online identification across the board, likely triggering an increase in know your customer (KYC) services that help with security compliance.
Other areas that will win more funding post-crisis could be consumer and SME lending platforms, which inject money directly into vital parts of the economy, and any startups trying to digitalise mortgage and life insurance.
As for a slower flow of funding, Finch predicts that corporate VCs will take the lead on fewer rounds, and startups will have to jump higher hurdles to secure an investment. The two consequences together could put pressure on valuations in later-stage rounds. Scale-ups may be bought and sold rather than building all the way to IPO.
Ultimately, the areas that might feel most pressure are challenger banks, who have high valuations now but could face low activity post-crisis, and wealth management, whose clients will likely be looking to de-risk their assets as the economy recovers.
A slideshow of Finch Capital’s predictions, and a list of tips to help fintech startups get through the short-term crisis phase, can be found here.