Global fintech investments have been booming, reaching $1.75B in 2019 in Israel alone. COVID-19 has had a tremendous impact on the world as we knew it, rapidly accelerating trends and forcing change on the financial world. There is no doubt fintech will not look the same- if the bar was high, now it is even higher.
Historically we have witnessed crises present white spaces pushing an acceleration of innovation, based on necessity and need for certain services. Companies will need to rethink their business models vis-à-vis the new reality, perhaps requiring a pivot in product, go to market strategy, and a fresh vision to thrive in the “new world”.
As long-time investors in the space, we set out to explore the scope and nature of this change together with the help of 4 of the leading global fintech investors:
Hans Morris – Managing Partner, nyca
Melisa C. Guzy – Co-founder & Managing Partner, Arbor Ventures
Patricia Kemp – Co-founder & Managing Partner, Oak HC/FT
Yusuf Ozdalga – Partner, QED Investors
Avi Zeevi – Co-founder of Viola
Below you’ll find the recording of the discussion.
Key insights: Which domains will flourish?
• With the move to digital there is huge potential for startups that provide an ROI-tested infrastructure – financial data aggregators, analytics, and tools that will enable financial institutions to efficiently deliver and process value-add data to their customers.
• With the rapid growth of e-commerce – there is high demand for services focused on advanced fraud tools, payment gateways, and enhanced security.
• COVID-19 pushed governments to pass new digital regulations. In today’s reality – companies can’t beat global payment giants if they need to deal with local regulation like data privacy and security measures. Governments now lead new digital regulations that will enable smaller companies to better compete and identify where new opportunities lie and how to seize them.
• Payment optimization and risk analysis in real-time systems – this is a huge opportunity but very hard to do. With so many SMBs and consumers in financial distress, the ability to make intelligent decisions in real-time holds huge value.
• Capital markets– collateral is the blood supply for the securities industry, thus optimizing collateral could have a very serious impact on the efficiency and risk profile of a financial institution.
• Health care payments – in the US, people are coming out of COVID-19 with different sets of expectations from their health care system. Companies that streamline health care payment processes will benefit in the post-COVID reality.
• SMB-focused services – although this segment was severely hurt, companies that can move fast, be creative, pivot, and offer new products (for ex: PPP loans) will thrive. There is a huge need in this underserved segment.
• With new types of SMBs that are going online, there will also be an opportunity for companies that develop solutions focused on helping traditional large legacy players manage the SMB clients and automate processes.
What will give fintech startups an advantage?
• Have a product that delivers immediate ROI to the client.
• Short sales cycle – companies need to make it easy for financial institutions to implement the solution, in a matter of weeks, not months.
•When it comes to B2B or B2B2C models- think with your customer about how you can help improve or automate services for their customers (For example: banks can help customers better manage their financial assets by implementing a solution like Personetics).
• Nurture relationship and retention.
• Finally, use your investors. Fintech focused VCs have a broad view of the industry and access to key players. This is the time to utilize these assets and gain advantage over the market.