Something weird has been happening recently. For a long time whenever someone said “post-crisis” it was obvious what they meant, they meant the period after the global financial crisis. Now when someone says “post-crisis” they have to qualify the statement with either “I mean post the financial crisis” or “I mean post the corona-crisis” (are we calling it the “corona-crisis”?!). It’s weird because my entire investing career has been post-financial crisis. I joined my first deal team in November 2008 and the first investment I worked on closed in early 2009. That means I’ve heard A LOT of “post-crisis” narratives, especially in enterprise fintech, but only ever in one context.
Why start by rambling on about crises? Because fintech is a post financial crisis phenomenon. It’s not really of course; the use of technology to improve financial services was going on well before 2008 but the term “fintech” only began being widely used around 2014. It has come to describe so many things but generally fintech means either an individual early-stage firm using technology to deliver a step change in financial services or the broad movement of society to embrace new financial services providers, largely at the expense of legacy incumbents, and sometimes framed as a backlash to the financial crisis.
But it always, always, always comes back to one word: disruption. Still. In 2020, we still describe fintech as being about disruption.
Yet throughout the current pandemic, fintech firms (I refuse to use the term “fintechs” …ugh) are showing they are not just “disrupters” but robust, dependable, and most importantly, invaluable players in the financial system. So, I think it’s time for a re-think in the way we describe technology-led financial services firms and maybe even whether the term fintech still has any usefulness.
Take for example the British government’s coronavirus economic response package known as CBILS. The scheme provides SMEs access to affordable government sponsored financing (£330bn!) to weather the current pandemic. The idea is simple: government guarantees would enable lenders to push out the stimulus quickly and without needing to perform extended due diligence on the borrowers — i.e. let’s all stop the economy imploding.
For some reason the government decided the first set of authorised CBILS lenders would only be the incumbent high street banks. Why? Presumably because they were seen as a safer pair of hands than the fintech lenders. But prior to the pandemic it was the fintech lenders that had developed fully digital, straight through loan issuance processes — the processes that the high street lenders are now racing to develop. What’s worse is that initially the high street banks were only offering CBILS loans to existing customers so SMEs that had moved to a “fintech” bank were punished for their innovation and technology adoption. Now I know it’s not as simple as “traditional lender bad, digital lender good” and I also know CBILS in particular is complex and has needed tweaking and a redesign to really work but the overall point stands: over time the government has added the fintech lenders and it all seems to be going OK. Maybe they should have been there from the start.
Or take the quiet revolution underway in helping SMEs manage their finances. Everything from banking, accounting, expense management, financing, and payroll has been massively upgraded by tech-enabled firms who understand that most SME entrepreneurs don’t moonlight as CFOs. And it’s not just about user experience, it’s a fundamental reimagining of the way SMEs should interact with their financial personalities. Why, for example, should my banking and accounting happen in two different pieces of software when they are simply different representations of the same data? Or why should an SME need to call their bank for invoice financing when the same process could be automated inside their existing workflow? These advances are immensely helpful to entrepreneurs in normal times but at times of financial stress such as now, they are game changers. We think this crisis will be pivotal for SME fintech — the moment when the real utility of these new tools becomes clear.
These are just a couple of examples of something we see every day at Element. There is a robustness to fintech that has gone unrecognised. Since this pandemic began, we’ve seen fintech firms closing multi-million dollar contracts because their product helps banks digitise; we’ve seen digital insurers doubling revenues because the nature of mobility is changing; and we’ve seen many, many fintech firms helping the real economy to manage through a time of great crisis.
My point is that in so many cases it has been fintech firms that have had the agility, capacity, and capabilities to respond to the COVID-19 crisis. And that doesn’t seem to me like a movement still defined as disrupters or challengers but instead evidence that the new generation is here to stay and will likely continue to lead the innovation and evolution of financial services.
Now, just to hedge for posterity, I’m not saying there won’t be spectacular failures of individual fintech firms. And I do think it’s important that fintech firms take the responsibilities of their new place in the system seriously. Bad business models will always be tested in times of crisis and fintech will not be immune. But I’d really like to read a few more articles about the revolution in SME banking or the application of machine learning in insurance rather than yet another story about neo-bank layoffs.
It’s time to recognise that fintech as a movement has evolved. It’s the new normal and no longer defined by challengers but by category leaders.
Fintech is dead. Long live fintech.