As we approach the peak of the current global crisis (Coronavirus), we will travel the world and find the challenges that we, as Fintechs, can overcome. At Holt, we believe that we are entering an era of financial revolution. A Fintech Renaissance.
For our first stop, we took our webinar series Holt’s Startup Guide: Business Challenges & Opportunities, to Europe and brought together three of our advisors to help us comprehend the different issues that are currently in play within the European Financial Industry. We invited Dan Hooper, CEO of Dragonfly, Ethan Pierse, Managing Partner of Borderless Ventures, and Peter E. Braun, Board Member at EBAN.
As multiple challenges arise, one thing is for sure: it is a real opportunity for entrepreneurs to be real entrepreneurs. In moments of crisis, we turn to people who can react quickly and are not afraid to be outside their comfort zone. The cool, calm and collected. Today, we turn to entrepreneurs and Fintechs as they build solutions that are relevant to our current situation. Our ultimate goal is to find the underlying opportunities by having discussions with diverse crowds as it spurs creativity and innovation.
In our series’ European Edition, we cover: Scalability, Business Continuity, Currency Stability, Traditional Banking and Security.
Scalability is possible during challenging times. It’s a question of priority.
Dan perceives FIs scalability in two ways:
- Order of delivery. We notice companies looking into bringing in lending products ahead of payments and how the former can to scale those offerings.
2. Portfolio Management. The larger banks are evaluating their short term portfolio in terms of what will maintain business, and getting services that will aid portfolio management of products across the banking sector.
How much money do I need before everything returns to “normal”?
According to Ethan, business continuity is going to be a constant discussion. In France, we’re seeing huge sums of capital (€4 Billion announcement) put forward to fuel the start-up community (i.e grants, tax rebates, reimbursements for specific things, etc.) They are moving fast in order to ensure the community’s well-being, and most importantly its survival.
In terms of investments, it’s false to say that no investments are happening.
“It feels like there’s a lot of momentum and a lot of “let’s get the red tape and crap out of the way” to make things happen as fast as possible in and and to help a people either survive in terms of keep their businesses afloat or to help them build new things in the midst of all of the problems that could potentially be solved by innovation.” – Ethan Pierse
How stable are currencies going to remain?
Peter points out that the decision makers at the larger institutions are not educated enough and are typically not digital natives resulting in the inability to make the right decisions. A significant problem that will need a lot of time convincing them to actually reach out for support.
Focus on the customer and showcase the benefits of your solution.
As an entrepreneur and a fintech start up, it will be paramount to reach out and convince [customers] that you can help them ease their pains with the solution offered. This is a great opportunity since everyone is sitting home and is probably easier to reach than in “normal” circumstances.
Incumbents & Neo Banks: the end for traditional banking?
Dan believes it’s all about trust. There are two sides to this story: incumbents didn’t do themselves a favour in 2008 and have been left with that legacy. Neo banks, on the other hand, don’t necessarily have the backing but have a growing following, primarily Gen X, and don’t have the legacy of mistrust. What’s important right now is to be seen as a trusted party, and it will be interesting to see who will win this battle of trust. Incumbents have deep pockets, but are stripping a lot more than favorable terms on current accounts and financial products. On the other hand, Neo Banks are not as fast to remove those incentivations for moving which you can do more easily.
There will be very fine margins of success. In sum, between both Neo banks & Traditional banks there is an opportunity for whoever can win consumer trust, but it will be for the one who will be brave enough to take loss in the short term to gain the long term following.
Technology companies might already have a big piece of the financial pie.
It’s interesting what we are seeing. Their versatility, and their wider access to a bigger ecosystem means it’s more convenient to use them as your provider. They have a different and wider range of incentives and deeper pockets (i.e amazon, apple) They seem to tick all the boxes. Their ability to influence consumer behaviour through multiple channels not just for your payment needs but more importantly everything else surrounding that.
It’s a race anyone can win!
“Companies that can connect the network and offer multiple services in a single place can be true contenders especially if they can gain the consumers’ trust.” – Dan Hooper
Digital Currency: a cashless story.
Sweden launched the Krona Initiative, a year-long test to the central banks ability to issue their own digital currency. Sweden has a 10 percent cash usage, one of the lowest on the planet. The main goal was to eliminate any third parties and their fees when a central bank can provide a better alternative. Central Bank Digital Currency was a movement well on its way to implementation with its different tests happening worldwide. Fast forward to today where almost everyone is trying to avoid touching cash because of potential contamination. The use of cashless solutions has significantly skyrocketed and will continue to do so as we move into our new norm. “What’s funny about behaviors is when you change them and once they set in, people don’t necessarily change them back without another stress point”. Surprisingly, on the other side of the “pond”, the United States has shown interest in digital currency as a means to facilitate outgoing payments. Although the initiative failed to be part of the Corona Stimulus fund, discussions continue in order to understand more about it and see what is feasible.
We are moving towards a contactless world that will need digital solutions.
Cash usage will take a big hit. Whether it’s due to the fact that consumers are losing trust in using cash or getting used to a new habit, the use of digital currencies emerging from central banks, corporates (i.e Facebook’s Libra) and decentralized currencies (i.e Bitcoin) will potentially replace money as we know it. Physical. As we are all confined in our homes, paying an invoice, transferring money or receiving money can easily be done through multiple channels already.
Digital Security: Are we moving too fast?
The evolution of security within our “new normal” will be translated through the underlying values of the assets rather than the technology used. The issue resides in the amount of money printed and flooded into the economy to counter the crisis. The idea of going through a recession or maybe even a depression is unfortunately a reality.
After every storm, the sun always shines.
The good news is that the Fintechs and challenger banks will be much more structured but security issues will remain a problem. There is and we are already seeing companies looking at this as an opportunity and taking initiative in finding solutions to make interactions convenient, safer, faster and more secure.
What are my options as an early-stage startup seeking investment during this global crisis?
The most obvious practices are to preserve cash and extend your runway. However, don’t lose hope because the smart investors will seek opportunities to make investments for companies that will be of interest post-crisis. It is also important that startups prepare themselves in a new world order of sorts. According to Peter, there will be a lot of opportunities for FinTechs and the typical giants that we know might even take the back seat.
“There will be a back to a new normal with a different behavior, culture and society.” – Peter E. Braun