Plenty ventured, plenty gainedSeptember 10, 2020
One of the few bright spots in the last few months is the continuance of fintech innovation in spite of — and in many cases, because of — incredibly challenging circumstances.
An analysis of global investment activity for the first half of 2020 provides insight into the enduring strength of the industry, with the combined value of venture capital deals relatively robust, according to a new report penned by PitchBook for Mastercard Start Path, the award-winning engagement program for later-stage startups. Alongside publication of the report, which highlights data from the world of venture investing through the time of COVID, we spoke to Start Path founders to get their insights on the venture landscape in 2020.
“The need for physical separation in recent months brought technical solutions to the forefront, accelerating the shift that may very well have happened in the near future to one that is taking place today,” says Ellison Anne Williams, founder and CEO of Washington, D.C.-based Enveil, a Start Path company that protects Data in Use to enable search, sharing and collaboration. “Both businesses and consumers have been forced to seek out a new normal and thankfully, in many cases, technology was ready for them. The increased activity ultimately serves to affirm the significance of the fintech sector itself.”
What do the overall economic trends, changing consumer preferences and digital acceleration mean for new entrants? We asked Williams and a handful of startup founders who recently joined Start Path about the findings of the report and the impact of COVID-19.
That startup investment hasn’t flagged in the economic downturn doesn’t surprise Barry Levett, founder and executive chairman of Singapore-based SmartPesa, which develops payments and agency banking solutions for merchants and banks across the globe. The age-old factors of management expertise and a competitive advantage remain decisive factors, he says.
But the pandemic has been a real-life test that investors can use to see how startups fare during these hard economic times, Levett says. “Those startups who have been able to invest in R&D and expand their pipeline through this period would certainly stand out amongst the crowd.”
Investment firms are targeting fintech companies that have adaptability and configurability built into their technology, says Paul Taylor, CEO of Thought Machine, based in London and Singapore, which builds core banking technology that enables banks to deploy modern, cloud-native systems. “These are the companies that are able to improve customer experience in days, not weeks or months, and in ways that also address efficiency.”
The pandemic has highlighted the importance of technology that ‘shockproofs’ a financial organization while simultaneously enabling product managers to respond quickly to changes in customer preferences, Taylor says. “Customers have been requesting bounce-back loans, payment holidays for mortgages and access to money held in fixed-term accounts without early penalty. Banks encumbered by legacy technology, whose customers who suffer consequently, are increasingly partnering with fintech providers which offer modern solutions to support them through times of unprecedented change.”
Even before COVID-19, says Enveil’s Williams, there was a growing awareness of data privacy and a call for privacy-enhancing technologies, and the pandemic — with the sudden shift to remote work and an increased need for secure collaboration as well as contact tracing — has fueled that narrative.
“While innovation is awesome, it is important to ensure that convenience and efficiency never eclipse security,” she says. “That understanding has been prioritized, thanks to an increase in privacy regulations on a global scale. But businesses need to also start acting based on business needs and consumer demand. Security and privacy protections need to specifically be designed into the system rather than added later just to check a regulatory box.”
The changing economic landscape means there will likely be a fair amount of focus on “build vs. buy” in corporate boardrooms, says Brad Bialas, CEO of New York City-based Xformative Payment Systems, which empowers embedded financial services via its cloud-native issuer processor platform. “I’d speculate that the timeline for this topic is being condensed as the economic environment is pushing things to happen faster. For example, if there is a hot topic at a corporate level, the current economic climate may reward those that are able to move faster, thus ratcheting up that pace to make a decision.”
Collaborating across the ecosystem to tackle these changes is creating a silver lining in these tumultuous times. “I personally find it refreshing that both innovation and collaboration seem to be focused in the right place,” Bialas says, “which is fixing things that we all knew were broken but have been further exposed due to the current economic situation.”
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