JJ Gouin - stock.adobe.com

Fintechs take stock amid economic shocks

Survey reveals that the top priority for 10% of UK fintechs next year will be to survive the double blow of Covid-19 and Brexit

Financial technology (fintech) firms are facing challenges from the disruption brought by the Covid-19 pandemic and Brexit, and although many will switch their priorities to survival, there is underlying confidence.

Fintechs such as startups in all sectors are known for their ambitious growth plans, but according to a report by events company Fintech Connect, 10% will focus on survival in 2021. This puts into perspective the challenges they face navigating Covid-19 and Brexit.

The pandemic has decimated some industries and it has been the first real shock for the fintech industry. As a result, there have been job cuts and a break from the extensive fintech recruitment programmes of recent years.

In June, for example, digital challenger bank Monzo cut 120 jobs as the disruption caused by Covid-19 took its toll. In the US, peer-to-peer lender LendingClub, which was an early market entry after being launched in the US in 2007, announced it was laying off 400 staff as demand for its lending service fell during the Covid-19 crisis. It also announced temporary pay cuts for senior executives.

However, it’s not all about job cuts, according to the Fintech Connect survey, which found that 44% of fintechs are optimising business processes to improve efficiencies, which helps cut costs during the current crisis.

But despite the industry’s first experience of major downsizing, many fintechs are confident of survival and even expect to thrive. The survey found that 36% of fintechs said they have launched new services to address demand as a result of the pandemic, with 34% reporting that their growth had accelerated as a result of Covid-19 disruption.

Meanwhile, fintechs report that having staff at home during periods where going into the office is restricted by lockdown rules has not caused problems, with 65% saying that remote working had driven innovation at their business.

“The spread of Covid-19 has brought the sector’s profitability and long-term business model sustainability into sharp focus – to a point where I believe the path to profitable scale for challenger banks has been structurally altered. But this is not to write off the sector,” said Abhijit Akerkar, non-executive director, at TBC Bank Group.

“Challenger banks have several long-term advantages – they are native to the digital arena, with more efficient cost structures, organisational agility, and – most importantly – higher customer loyalty. These advantages will help challenger banks weather the storm.”

Laurence Coldicott, content director at FinTech Connect, said Covid-19 is defining a new status-quo for the industry. “From regulation to innovation to funding and culture, it is impossible to step out of the shadow cast by the pandemic,” he said.

But Coldicott added: “In response, fintech’s are prioritising digital transformation to meet customers where they are, and improving operational processes to ensure they are as efficient as possible.”

When it comes to Brexit, there is still a high level of confidence, with 40% of respondents expecting London to remain the European capital of fintech. But some are unprepared, with 30% admitting they have not made much progress in preparing for Brexit, despite the transition period ending in a little over a month.

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