Fintech companies around the world are facing a crucial moment as the blocking of corona viruses spreads and the global economy shrinks.
For some of them, the crisis is already driving short-term demand as customers’ priorities shift. However, fintech experts say that other companies will suffer and funding could shrink, leading to questions about their long-term profitability.
One company that is growing in interest is Anorak, a UK-based online life insurer. Managing Director David Vanek says: “It is a moment when people think about big risks. We have made a leap for people looking for life insurance and income protection.”
In the long term, the crisis could accelerate the move away from personal advice, which has traditionally dominated life insurance sales, to digital sales.
Fintech companies that help customers invest in gold have also seen an increase in traffic as investors seek security from the market turmoil. For example, Glint, who combines gold with a prepaid debit card, says that the amount of gold his customers have bought has increased significantly in the past few weeks.
And a large number of fintech and insurtech companies have adapted their products in the course of the crisis. Zego, a gig economy insurance specialist, offered free insurance coverage to customers who were forced to isolate themselves. WeFox, based in Berlin, has expanded its products so that they can be used by insurance brokers who are facing a decline in business.
For many fintech and insurtech companies, however, the crisis will cause their business models and financing plans to fail.
Alastair Lukies, managing director of Pollinate and chairman of the British Fintech Alliance, says that fintechs who sell services to large financial institutions should be relatively well protected by existing contracts, but disturbers who go straight to consumers could find life more difficult .
“You could argue that people will have more time to do financial planning, but I feel like people are not in the mood for big decisions right now,” he says. “And many companies in the UK fintech industry have focused on payments. You rely on transaction throughput, and these transactions simply don’t happen. “
According to a Sifted analysis this week, challenger banks, foreign exchange services and wealth managers are most likely to be affected.
The crisis is also likely to affect funding as investors rethink their priorities.
Robin Merttens, co-founder of Instech London, says early stage companies could be hardest hit. “Insurtech has always had a problem getting funding early. You rely on seed capital and the angel community, but if you were an angel investor now, you simply wouldn’t do anything. “
However, he adds that later money from venture capital and private equity firms will be less affected. “You have collected quite a bit of money and have to use it,” he says.
However, timing will be crucial. Although money may be available to investors, Mr. Lukies believes that it will take some companies between six and nine months to raise new money.
“You may see a reset in the ratings,” he says. “But what we want at Fintech are companies that make it themselves sustainable and are not only driven by evaluations.”
“If we emerge from this, the vast majority of fintech companies will still be fighting the good fight.”
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Quick Fire Q&A
Name of the company: Ascent
When founding: 2015
Where is 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 automate management and regulatory compliance.
How did you start: As a former regulator, Brian Clark witnessed lax compliance that spurred the 2008 crisis and the resulting over-regulation.
Amount of money collected so far: $ 26.3 million
Evaluation at the latest when fundraising: n / A
Major shareholders: Drive Capital, ING, Wells Fargo, Alsop Louie, University of Chicago.
There are many fintechs out there – what makes you so special: Ascent’s system processes and analyzes the regulatory text to automatically do what it takes hundreds of hours for individual employees to work manually.
Another fintech fascination
Follow the money: The deal flow is not completely dry. Emirates World Investments will invest AUD 433 million (USD 251 million) in Xinja, an Australian new bank, over the next 24 months, according to Finextra. Xinja was launched in 2017 and has had a full banking license since September last year. It has more than 45,000 accounts.
Follow the money (2): The telecommunications company Ziptel stays in Australia and buys Douugh, a US-based money management app, reports Finextra. Douugh is a subscription-based service that helps customers pay off debt and make savings. Financial details have not been released.
New frontiers: Unaffected by the growing crisis, European-based fintech Revolut started operating in the United States, TechCrunch says. The company, which was recently valued at over USD 5 billion, has partnered with the Metropolitan Commercial Bank in the United States and introduced a debit card. Other features, such as the ability to purchase cryptocurrencies, will be due in the future.
Stumbling blocks: According to the Financial Times, the consequences of the corona virus crisis could pose challenges for companies such as the Australian afterpay. The sector expanded rapidly by allowing consumers without a credit card to buy products without paying in advance. Australia is a hub for these companies, but regulators have started to tighten the rules for them.