Research by industry body Innovate Finance maps out the havoc caused by Covid-19 on the UK fintech industry highlighting the problems smaller firms could face. With nearly 80 per cent of larger UK fintechs fielding a cash runway of 12 months or more, there are worries in the industry that a number of smaller firms just won’t make it.
Charlotte Croswell, CEO, Innovate Finance said: “It’s evident that the fintech sector faces a significant funding gap as a direct result of COVID-19. We need to act fast before it’s too late. If we fail to address this, we risk losing many companies in the fastest-growing sector in the UK economy.”
But some of the survey’s findings are contradicted by fintechs The Fintech Times spoke to, which felt they had managed to weather the Covid-19 storm and, in some cases, had benefited from lockdown.
The research (which involved 126 companies, 61 per cent of them smaller fintechs with 25 or less employees) found that some smaller UK fintechs have a cash runway of six months or less while over 75 per cent of smaller fintechs are worried about the next funding round. Over 70 per cent of all respondents had received no private funding from the start of lockdown in an industry, which received a record level of $4.9 billion (£3.9bn) investment last year.
Interestingly, more than 75 per cent of smaller fintechs have turned to government support to help them stay on their feet. A split between smaller fintechs, which are most at risk from coronavirus, and larger fintechs (those with 100 or more employees) which are less worried about future funding, was evident in the survey.
A further finding from the research is 60 per cent of fintechs are looking at adapting their strategy to survive the crisis while 32 per cent are considering diversifying their revenues, 30 per cent pivoting their business, and 11 per cent are looking at closing or mothballing their business.
The Fintech Times spoke to four fintechs: pension specialist PensionBee, software company Intuit Quickbooks, savings app Plum and currency exchange fintech Travel Money Club, asking if the findings chimed with their own experiences.
Romi Savova, CEO of PensionBee, which has over 100 employees, said some of the key findings didn’t resonate with PensionBee’s experience during coronavirus. Savova said: “Covid-19 in many ways has enabled fintechs to accelerate the transition to digital.”
Future funding is not a concern for PensionBee, said Savova, pointing to PensionBee’s high retention rate of customers during the pandemic and that it’s not suffered the fate of those impacted by transactional revenue.
“We have a very stable and resilient business model to begin with,” Savova adds, pointing out that PensionBee has not pivoted its business model during the pandemic or taken advantage of government-backed loans or the job retention scheme.
“We think people will need our service more,” Savova says, coming out of lockdown.
“There is going to be a huge transition within the economy, with people changing jobs and moving hopefully into more digital roles.
“I think there will be a temporary spike in unemployment, and all of that means a lot of people will be leaving their pensions behind. And will need to really find a way to take control of their pension finances digitally.”
Likewise, Victor Trokoudes, the founder of savings app Plum, said some of the findings were at odds with what the savings app had experienced.
During the pandemic, Trokoudes said Plum had almost doubled its headcount to nearly 70, as people signed up to Plum “to get a bit more control of their finances” as people saved five times more than before the pandemic.
On fundraising and cash runway, Trokoudes said Plum has not been “negatively affected”.
And Plum, which has not furloughed staff during the pandemic, is not pivoting its business model but “doubling down” on its existing model.
One fintech which did take a hit because of Covid-19 is currency exchange fintech Travel Money Club.
The business is two-pronged- retail brand, Travel Money Club, and sister B2B firm Spendology.
Martin Taylor, managing director, Travel Money Club, said: “Quite literally, our revenues fell off a cliff and plunged all the way to the bottom.”
The fintech employs less than 20 staff and has made use of the job retention scheme and plans to take out a government-backed loan.
It has not made any redundancies during the pandemic, before which the fintech was close to finalising an equity-financing round.
“Unsurprisingly, the appetite for that fell away with the appetite for travel. We weren’t able to complete the round,” says Taylor, who is still looking to raise the finances and is upbeat about the prospects of the business.
“The travel industry is inevitably now going to move even more online than it was before, with people avoiding the high street as much as possible,” he adds.
Saka Nuru, head of product marketing for fintech ecosystems and payments at Intuit Quickbooks, has called for continued government support as it battles for its future.
Nuru said: “And whilst Covid-19 has hit an abundance of industries very hard, and many businesses are beyond the point of recovery, it’s absolutely imperative that the same fate does not befall smaller fintechs – who have been the backbone of British business and our economy for many years.
“Thus, moving forward, we should hope to see continued support from the government in order to help the fintech industry remain buoyant during these final, difficult moments of Covid-19.”