Someone asked me what the coronavirus pandemic means for the future of FinTech. I’ve blogged a bit about that already, referring specifically to this great presentation by Finch Capital:
But equally, you may think that times are dull and boring, locked in at home and nothing going on, but there’s loads happening. Critically, what’s happening is pivoting and switching strategies to deal with the new world.
Some are acting fast to respond to customer needs, like Chime who offered to get government benefits direct to citizen via an app; or Railsbank who created Lightning Aid to get support to people direct during the crisis. Credit Kudos built the COVID Credit tool to allow the self-employed to certify their income through sharing banking data; Funding Circle is helping to lend via the small business rescue schemes (as banks are being criticised for being too slow); and deVere Group saw a huge 72% rise in the use of FinTech Apps earlier this month, as people aren't able to manage their money in traditional ways (in branch) and are utilising contactless payments for safety.
Then there are the major deals that have been struck, such as Stripe’s new $600 million funding round, which values the firm at $36 billion, up $1 billion on the last valuation in September 2019.
Robin Hood just raised another $200 million, valuing the firm at $8 billion; Revolut completed a funding round just before lockdown that also valued the firm at $5.5 billion (Europe’s most valuable FinTech unicorn); and Aussie challenger 86400 just got another $34 million.
So, things aren’t that quiet. Business is still being done, start-ups are still starting and things are moving on.
However, there have been some hits, and I wonder what will happen to those FinTech start-ups that were just reaching a funding round. What will they do with their staff? Their people? Their customers? If they were running out of money, what will they do? How do you do a funding round when you can only reach investors via Zoom? This will be challenging.
We’ve already seen some companies pivot their strategies as a result. For example Moven, the American challenger bank launched in 2011, has now sold off their consumer-facing business to Varo Money and a survey by the Swiss Blockchain Federation found that the crisis will force four out of five blockchain start-up firms to close.
My own feeling is that the coronavirus crisis will force any cash-strapped firm to fold. Cash is king in a crisis like this. Not physically cash notes, but money on tap. Liquidity. Equally, debt and costs are a critical factor. Any firm that has new hires, offices, physical infrastructure and more will struggle. Any cash out and no cash in is the issue.
This was brought home to me when I saw this article about a Silicon Valley start-up called Bird, who sacked a third of their staff in a two minute Zoom call delivered by the CEO’s Personal Assistant. Equally, WeWork and other leading unicorns are clearly struggling before the crisis hit, and most certainly will be worse today.
What’s the answer?
Well, the answer is back to my opening points. Companies that shine in this crisis, doing the right thing for customers and society will exceed expectation post-pandemic. Companies that act like monsters during the crisis, treating their customers and staff badly, will fail.
It will be interesting to see how all this pans out.
p.s. thanks to Forsyth Barnes for the headsup on Credit Kudos, Funding Circle and deVere.
Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...