The pandemic had a radical impact on the start up universe. This crisis was an accelerator of change and it put pressure on the traditional business mindsets. A lot of start-ups have shifted their focus to better revenues and profitability, and cost-effective ways of acquiring new customers, says Devie Mohan, an influential writer, speaker, and the co-founder and CEO of Burnmark, a fintech research company, that supplies research and data to all players of the fintech ecosystem.
This was a much-needed area of improvement, and despite all the problems that it has caused, Covid-19 is helping firms re-think their strategies and streamline operations around the world.
Devie Mohan has been a keynote speaker at Virtualized: Synergy and Disruption in the financial landscape, an event focused on fintech and financial services, where local and international experts debated upon recent events in the financial industry.
In this interview, Devie continues the conversation started during the expo-conference Virtualized and talks about the pandemic, the challenges of the start-ups în this new context and the need of regulations in fintech.
How has this pandemic affected the development of fintech start-ups
Covid-19 has placed a lot of long-overdue importance on the sustainability and commercial aspects of fintech start-ups. A lot of start-ups have shifted their focus to better revenues and profitability, and cost-effective ways of acquiring new customers. This was a much-needed area of improvement, and despite all the problems that it has caused, Covid-19 is helping firms re-think their strategies and streamline operations around the world.
The lack of funding will be the biggest impact of the pandemic on the start-ups. Those who have been due funding rounds in 2020 are not necessarily getting the deals done - we will see quite a few firms failing to survive the pandemic. Early-stage start-ups are the most affected, with only 50% of total funding going to early-stage startups in Q2 2020, usually, this is close to 70%. The number of deals has fallen in every geography, with almost a 50% dip in the US.
What are the differences in terms of mindset in different regions
All these regions have unique ways of operating. Funding is relatively easy to come through in the US and the start-up industry is very mature with professional funding models - this means that start-ups can focus on quite innovative business models without worrying about appealing to a certain group of investors.
Europe is quite far away from investment maturity, but some hubs like London and Berlin have come a long way in the past few years. Here, the focus seems to be heavily on B2B start-ups and getting revenue and traction early. This is possible due to many traditional banks and financial institutions in the market.
Asia, to me, is the most interesting market and we have a lot we can learn from the business models coming out of the payments, open banking, lending, and inclusion sectors in Asia. They have a superb opportunity for scalability, and these tried-and-tested models will work very well in any part of the world.
What is the adjustment rhythm of banking entities comparing with fintech start-ups
Traditional banks have been observing fintech start-ups for partnerships since 2012 - through accelerator programs, hackathons, joint PoCs, etc. They started investing in fintech start-ups and bringing them on for partnerships from 2015 to 2019.
However, Covid-19 has now made most banks rethink their own internal transformation strategies and I see banks investing in these over the next few years. There will be a radical transformation of KYC programs, regulatory compliance and reporting, lending products, and digital payments. Not all of this may be in partnership with fintechs.
How has the Wirecard scandal influenced the fintech startup financing market
Wirecard is a great example of how quickly things can go wrong without proper governance and the importance of transparency in outsourcing. They scaled up too quickly - this is a lesson for all startups trying to scale up in ways beyond their own capability.
Several fintechs who used Wirecard's payment processing capabilities have been severely impacted, including UK firms like Curve, Anna, and Pockit who were on an e-money license. The need for either a full license or backup payment processing capabilities is so essential in this scenario.
This has affected the credibility of the payments fintech segment, but the real problem will happen if a few more fail from the same industry. We saw this before with the peer to peer lending segment with several collapses happening quite close to each other.
What regulations do you consider necessary in fintech
Regulations are a great way to ensure the fintech industry is stable and has transparent governance. Compliance reporting is not yet common in fintech, but I expect this to evolve over the next few years.
There are regulations around lending and money transfer now, which seem to be working quite well - it is important there is a way to balance between innovation and regulatory pressure. Too much pressure and we will see the number of fintechs and innovative products falling too quickly.
Regulatory sandboxes are also a great way of achieving innovation with close supervision from the regulator. There are currently almost 50 sandboxes around the world, in various stages of development.
Open banking regulations like PSD2 has been great for banks and fintechs partnering more than ever before, and this has also helped third party firms and BigTechs come in for wider partnerships.