Fintech companies around the world are facing a make or break moment as the coronavirus lockdown spreads and the global economy shrinks.
For some of them, the crisis is already leading to a boost in short-term demand as customer priorities shift, but fintech experts say that other companies will suffer and funding could shrink, leading to questions about their long-term viability.
One company seeing an increase in interest is Anorak, a UK-based online life insurance provider. Chief executive David Vanek says that “it’s a moment where people are thinking about big risks. We’ve had a jump in people looking for life insurance and income protection.”
Over the long term, he adds, the crisis could accelerate the shift away from the face-to-face advice that has traditionally dominated life insurance sales to digital distribution.
Fintech companies that help customers to invest in gold have also seen a jump in traffic, as investors look for safety from the market turbulence. For example Glint, which links gold to a prepaid debit card, says that the amount of gold its clients have been buying has soared in the last few weeks.
And a host of fintech and insurtech companies have adapted their products as the crisis unfolds. Zego, a gig economy insurance specialist, has offered free cover to customers who have been forced to self-isolate. Berlin-based WeFox has expanded its products so that they can be used by insurance brokers who are facing a fall in business.
But for many fintech and insurtech companies, the crisis will derail their business models and funding plans.
Alastair Lukies, chief executive of Pollinate and chair of the UK’s Fintech Alliance, says that fintechs selling services to big financial institutions should be relatively well-protected by the contracts they have in place, but disrupters going directly to consumers could find life more difficult.
“One could argue that people will have more time for financial planning, but my sense is that people aren’t in the mood for big decisions at the moment,” he says. “And a lot of companies in UK fintech have been payments focused. They rely on transaction throughput, and those transactions just aren’t happening.”
According to an analysis this week from Sifted, the fintech subsectors most likely to suffer include challenger banks, foreign exchange services and wealth managers.
The crisis is also likely to have an impact on funding as investors reassess their priorities.
Robin Merttens, co-founder of Instech London, says that early stage companies could be hit hardest. “There has always been a problem in insurtech in getting early-stage funding. They rely on seed money and the angel community, but if you are an angel investor now you just wouldn’t be doing anything.”
But he adds that later stage money from venture capital and private equity firms will be less affected. “They’ve raised quite a lot of money and they have to deploy it,” he says.
Timing will be crucial though. Although the investors might have money available, Mr Lukies expects that it will take some companies between six and nine months to raise new money.
“You might see a reset in valuations,” he says. “But what we want in fintech is companies making it through to sustainability in their own right, not just being driven by valuations.”
“When we emerge from this we’ll still have the vast majority of fintech firms fighting the good fight.”
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Quick Fire Q&A
Company name: Ascent
When founded: 2015
Where based: Chicago
CEO: Brian Clark
What do you sell, and who do you sell it to: Ascent uses artificial intelligence to help financial services companies to automate regulatory change management and compliance.
How did you get started: As a former regulator, Brian Clark witnessed the lax compliance that helped spur the 2008 crisis and the ensuing overregulation.
Amount of money raised so far: $26.3m
Valuation at latest fundraising: n/a
Major shareholders: Drive Capital, ING, Wells Fargo, Alsop Louie, the University of Chicago.
There are lots of fintechs out there — what makes you so special: Ascent’s system processes and analyses regulatory text to do automatically what takes individual staff hundreds of hours to accomplish manually.
Further fintech fascination
Follow the money: Dealflow has not dried up totally. Emirates World Investments is to put A$433m ($251m) into Xinja, an Australian neobank, over the next 24 months, according to Finextra. Xinja was launched in 2017 and has had a full banking licence since September last year. It has more than 45,000 accounts.
Follow the money (2): Staying in Australia, telecoms company Ziptel is to buy Douugh, a US-based money management app, reports Finextra. Douugh is a subscription-based service which helps customers to pay off debts and build up savings. Financial terms were not disclosed.
New frontiers: Undaunted by the expanding crisis, Europe-based fintech Revolut has started operating in the US, says TechCrunch. The company, most recently valued at over $5bn, has teamed up with Metropolitan Commercial Bank in the US and has launched a debit card. More features, such as the ability to purchase cryptocurrencies, are due in the future.
Stumbling blocks: The fallout from the coronavirus crisis could create challenges for “buy now pay later” companies such as Australia’s Afterpay, according to the Financial Times. The sector expanded rapidly by allowing consumers without credit cards to buy products without paying upfront. Australia is a hub for these companies, but regulators have started tightening the rules for them.