The next dance between incumbents and fintech startups

By all accounts, 2019 was a stellar year for fintech venture funding. And we started 2020 with yet an avalanche of big announcements, including:

• Ally / CardWorks for $2.65 billion
• Intuit / Credit Karma for $7.1 billion 
• Morgan Stanley / E-Trade for $13 billion
• SoFi / Galileo for $1.2 billion
• Visa / Plaid for $5.3 billion
• Worldline SA / Ingenico Group SA for $8.51 billion 

Then came COVID-19. Megadeals have largely stalled. 

As the virus continued to spread, investors have pulled back, especially on early stage companies. Personal Capital, an early entry into the new breed of fintech firms specializing in wealth management, reportedly put itself up for sale on the auction block; the startup has $12 billion AUM and has yet to turn a profit. 

In some cases, even unicorns are not exempt: London-based Monzo is closing in on new funding — at nearly 40% discount to its previous fundraising according to the Financial Times. 

But never let a good crisis go to waste, they say. Just as PayPal and countless other startups were born from the Great Recession, new ideas will be born this time around — just as our economy unravels.  

One might even argue, there is no time like now to be bold. After all, we can’t afford inaction, can we? 

So, with that in mind, how best to proceed from here and where should we focus? 

New bets on the future of work

With more technology and financial firms signaling that they are not in a hurry to send people back to the office, it looks like remote working is here to stay for a while. So while the current health crisis may have decreased investors’ appetite, many new bets are being made on sectors that might best reflect our new way of working and living — digital and personal.

Digitization and automation

Financial institutions are increasingly looking at process automation to drive efficiencies and reduce costs. And as incumbents look to digitize their infrastructure in order to respond to changing market needs and customer demands, cloud-based core providers provide a way for institutions to adapt and stay competitive — by migrating and cherry picking services from the platform. 

Emerging technologies such as artificial intelligence also allows financial institutions to better combat fraud and safeguard the due diligence process.

Conversational AI 

With many workers staying at home, the pandemic has accelerated the demand for more automated call center technology, including speech-to-text services and chatbots. And the trend will likely stay as we emerge from the crisis, as corporates reap the benefits of cost savings and efficiency gains from voice technology. Done right, conversational AI might just offer the next stage of disruption — for both the enterprise and the customers, just as long as we don’t forget about the humans in the process. 

Personal finance and debt management 

As with the Great Recession, this current pandemic crisis will likely dramatically alter our personal financial habits. Consumers are spending less as uncertainty rises, and are looking for more ways to stretch their money as well-paying jobs with benefits become scarcer. With so many people suddenly out of work or forced to work less hours, the demand for better money management solutions designed to identify and reduce spending, as well as improved ways to tackle financial challenges will become increasingly important to a population that is living longer and better. 

Gig Economy and Small Business

The health crisis has also accelerated two decade long trends. The first is the shift toward more transient, ‘gig’ focused work driven through digital applications. As more workers moved into on-demand roles for ride-hailing and grocery delivery, their financial needs fell by the wayside. Enacting real-time payments, smoothing income, managing taxes and expenses, helping to find new income from multiple sources — will serve to improve the well-being of these contingent workers, whose needs are not yet well-served by traditional financial institutions. 

On the other front, the creation of small businesses continued to boom during the past decade, as more people formed their own companies and created the majority of new jobs. During this pandemic, as governments around the globe scrambled to keep these small businesses afloat, it is more important than ever for us to create solutions to help these businesses adjust to new opportunities and ways to survive. Helping create business opportunities and develop new income streams, optimize expenses, and best facilitate tax burdens are just a start. 

True digital transformation

As evidenced by the change in consumer behavior in the past 3 months, COVID-19 has accelerated the move towards digital and there is no turning back. But digital is more than just an additional acquisition channel. We have an opportunity before us — to reimagine the end user experience, and to deploy data-driven solutions that would ultimately be beneficial to the customer.

At the end of the day, digital transformation is not about updating COBOL, or layering emerging technologies on legacy infrastructure. Nor is it a one-time project. Rather, it is a different way of operating. To be successful will require talent — the right skills fostered by the right culture, and a relentless focus on the trinity of customer centricity: transparency, intimacy and trust. And it is not just technology for technology's sake; we must focus on the end business results, and be practical and pragmatic about what and when to deploy. Technology must follow business strategy, as articulated by Clara Durodié.

To hear more about how the financial services industry is coping with the unprecedented crisis and the journey ahead, join us on June 10 and hear from a stellar group of speakers at the first FinTechTalents Virtual Spring. Grab your ticket today!