As the coronavirus upends plans across every industry, it has proven difficult to identify trends across 2020, let alone make projections for future years. For fintech companies, accurate data and analysis is vital for staying ahead of the curve.
Digit spoke with fintech analyst and Burnmark Co-Founder and CEO Devie Mohan ahead of her talk at this year’s Fintech 2020 Financial Technology Summit. She talked about 2020 trends, 2021 predictions and how cooperation between companies and sectors will dictate the future of the industry.
After fintech rose to prominence in the wake of the 2008 recession, the industry experienced a major shift around late 2016. This saw an increase in transaction volumes and a new focus away from consumers towards b2b services and RegTech.
Just as the recession drove the development of fintech, Mohan noted that the coronavirus pandemic will help drive the sector’s next revolution.
“I think 2021 will be the time when we see the next big shift in terms of volumes and the direction of fintech,” she said. “I think the next big change will be in terms of different industries working together.”
Collaborate to Survive
As companies battle to endure a shrinking economy and uncertain economic climate, the coronavirus pandemic has driven companies to collaborate to survive. One of the most prominent areas in which the Covid-19 crisis has driven collaboration is in the convergence of fintech companies with healthcare services.
“Fintech firms are exploring new use cases around providing access to finance for healthcare and providing better information and data about patients and potential patients.
“I think in 2021 we will see different industries collaborate together and share data in a way that’s meaningful for every single industry.”
It is this convergence of industries to share data that Mohan says will drive the next major shift in fintech. “Once the data is shared across industries, the number of use cases that we have increases exponentially,” she said. “I think we will stop seeing differentiation between tech areas as well – I know fintech is a huge industry now, but it doesn’t have to be called fintech. In an ideal world, it will all come together and solve the same problems.”
While smaller companies are focused on surviving, 2020 has seen economic giants in both finance and technology cement their leadership of both industries and make headway into fintech. Partnerships between big tech companies and major financial institutions, such as Goldman Sachs and Amazon providing lending services together or Google partnering with six financial institutions to create a common digital banking platform, give an idea of what 2021 will look like.
The move benefits both groups, Mohan notes, because fundamentally it plays to both sides’ respective strengths: “You have the customer acquisition done by the big techs, which are very good at it, and the regulation and reporting and the backend infrastructure is provided by the finance companies, who are very good at that.”
Problems and Opportunities
For most tech companies, the coronavirus has brought a mix of problems, but it has also created new opportunities. Mohan thinks that the payments segment has seen a resurgence of interest as people move away from cash in favour of digital payments. “We’ve seen a lot of growth. If we look at metrics like app downloads, it’s increased by around 30-40% in the UK.”
Challenger banks, however, were a mixed bag “Some of them have seen downloads go up significantly, like Starling bank, and some of them have been quite flat like Monzo. And some of them have actually been below the 2019 levels.”
Mohan noted that challenger banks’ performances were largely hit by the collapse of the travel industry. “People tend to use challenger banks when they do international travel – for ease of currency exchange and access to lounges and other benefits around travel.”
Challenger banks that were heavily exposed to tourism were hit harder than those that had diversified into offering other incentives.
The entertainment industry was also hit hard by Covid-19, reducing payment volumes from an industry that provides over £60 billion to the UK economy.
While both sectors will recover as the virus recedes, it may be a long time before growth returns. “We expect 2024 to be the year when hospitality and travel will be back to 2019 levels,” Mohan warned.
However, other industries have picked up the slack, such as EdTech taking advantage of online education and PropTech riding a post-lockdown rise in house prices as the UK Government cut stamp duty. “There are quite a few industries that are actually stronger than before thanks to Covid-19, though we probably will still have an economic recession.”
For 2021, uncertainty is the key problem assailing the world. The ongoing pandemic and the quest for a vaccine, combined with the US election in November and the Brexit transition ending in December, make accurate modelling difficult. And if there is one thing investors hate, it is uncertainty.
“One of the biggest things fintech is worried about is the amount of investment coming in,” Mohan warned. “The funding rounds that were due to happen in 2020 have been cancelled or postponed and some of the startups may not get access to those deals ever again.
“Burnmark’s reading is that the amount of funding is likely to drop in the next year, even though it hasn’t dipped greatly yet – the impact will be felt in 2021.”
Without adequate funding, innovation will suffer. Investment helps smaller companies with new ideas and the appetite for risk to grow and mature. “Without investment, it’s going to be profitable companies with more sustainable business models that survive.
“Those who are focused on profitability are mainly b2b startups, such as those working closely with banks and providing software solutions, or large corporates,” Mohan says.
This battle for survival will see less collaboration between smaller startups next year. “It will pick up after that, but the reason why collaboration between startups will fall is because there’s no need to scale for market access.”
With a smaller marketplace for most products and services, fewer groups will want to collaborate to offer a range of the more common products and services, especially in travel and entertainment. However, Mohan noted that collaboration between startups that offer niche products that escaped being hit by the coronavirus will still exist.
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She also warned that collaboration between different countries will also be damaged by Covid-19. For the UK, on the brink of fully leaving the EU and with Europe’s largest fintech sector, this issue is particularly crucial. “The UK Government has been working on establishing fintech bridges with other countries, such as Singapore, with some countries in the Americas, and Africa, where post-Brexit we will be able to bring in talent,” Mohan states.
“There are approximately 50-60 fintech bridges that exist today around the world. And the UK was really looking forward to establishing more.
“With Covid-19, one of the things that we would lose is that momentum in terms of forming relationships with other countries and bringing in people through immigration and sharing resources, primarily due to travel being reduced and fewer students coming into the UK.”
As the world moves past 2021 and the coronavirus, the full effects on increased collaboration will become visible. “Once the ability to share skills develops in this country, that’s one of the best ways to increase collaboration,” Mohan said.
Data sharing is also important, where data can be shared through a trusted platform or decentralised platform like blockchain. “If you’re able to share data in a transparent, honest and authentic way, I think that that also will foster collaboration in a big way.”
Access to the market itself is important to ensure that products and services are launched together by companies on an equal footing. “That is another way in which an ideal collaboration ecosystem can survive,” she said.
While the Covid-19 pandemic has challenged the world in ways unseen for centuries, it has brought opportunities as well. With many fintech companies developing innovative solutions and products, both in the financial sector and beyond, it shows there is still scope for growth across numerous industries. 2020 has set the groundwork for a more collaborative fintech ecosystem.
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