Macro: Sandcastle economics
Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.
Head of Fintech, Saxo Bank
COVID-19 is an unprecedented test of the resilience of businesses large and small. The crisis has plunged vast swathes of the global economy into a deep freeze. Question is, when the markets thaw will the world will be a different place, or will we fall back into existing trappings?
Many firms have already started to reduce their capital expenditure, examine costs and more will adapt and evolve their tactical strategies over the next 12 months. COVID-19 has already led to a shift in mindset for many businesses: from an opportunistic point of view pre-COVID, where they sought to invest in boosting revenue and profits, to a focus on survival as firms plan how to stay afloat while waiting for the economy to thaw.
Facing up to reality and partnering up for success
In this climate, fintechs that have yet to find a viable business model or sufficient investor funding will ultimately face an inevitable demise. The question of fighting for survival becomes a reality for more mature fintechs, which already have a viable business model and started generating revenue along with strong and reliable financial backing from investors. From there, the challenge to survive presents two key considerations. One, a need to shore up their businesses to endure the difficult economic conditions. Two, mature fintechs must prove their fundamental value amidst this post-pandemic crises in order to attract fresh funding from the venture community, competing not only against other fintechs but across other markets and sectors that already exist within a VC’s portfolio.
Fintechs that have grown rapidly - perhaps started their international expansion before the crisis - may now find themselves with disparate operations yet to fully develop or mature, but still an important part of their client offering. Others may have been developing proprietary technology – an expensive and time-consuming task – but now find these projects difficult to continue with a partial and/or remote workforce. Not least the complexities that arise trying to brainstorm and collaborate in this new remote working environment in order to combat these challenges. Never-the-less these projects remain vital to maintaining and building value propositions but evidently require a different approach to suit a new reality.
Critically, fintechs and other financial services firms should evaluate their priorities to determine which services and operations should be kept at the business’s core and which should be added or altered to suit the post-COVID environment. APIs, for example, are the software building blocks critical to improving user experience, adding new functionality and broadening access to new asset classes, and they offer an efficient way for fintechs to implement small but impactful changes for the business and for customers. A key pillar of fintech firms’ survival strategy should therefore include carefully planning which APIs are needed to improve or add functionality – for example, firms need to decide whether they want to add access to markets, improving user experience or building new tools – without the need for considerable internal resources.
We have observed that some companies have made strategic decisions to keep engines running by pausing large projects and focusing resources instead on pumping out smaller projects. To be able to tap into these low-hanging fruits for the business, yet at the same time offer a fresh and consistent experience for customers, even fintechs would do well to partner with new tech providers who offer the tools and resources necessary to successfully deliver quick wins for both the company and customers.
Emerge stronger on the other side of COVID-19
Besides delivering quick and sustainable wins through partnerships, fintechs must also consider how to demonstrate value, pre-empt shifts in demand and boost profitability to maintain attractiveness to current and potential investors and secure critical funding. This means they need to focus on their metrics and underlying results. Successful founders must pivot their story to demonstrate they have extended financial runway, managed productivity, and closed sales with a relevant product during this challenging period.
To survive, cutting costs and complexity becomes a matter of life and death for fintechs that want to live through COVID-19 and come out stronger on the other side. As mentioned earlier, successfully delivering punchy and effective initiatives to enhance offerings and bring in more customers is imperative because it brings in revenue. As the industry adjusts, fintechs must find the formula to plan and implement complex technology projects remotely, while keeping costs down and scaling the business to be relevant to customers in a post-COVID-19 world.
COVID-19’s impact and permanent legacy is perhaps still wide open but what is certain is that there will be seismic shifts to fintechs large and small around the world. Survival no longer boils down to just how much backing fintechs have financially, but how strategic and prudent they are in tapping into third party technologies to relieve cost and operational pressures. Delivering viable projects and the small, quick wins could make a real difference to business and customer experience in the long run and buy fintechs time to strengthen their offerings and fundamentals to emerge stronger on the other side of COVID-19.
This article was first published in Fintech Futures: https://www.fintechfutures.com/2020/06/what-does-survival-of-the-fittest-mean-for-fintechs-in-a-post-covid-19-world/