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The future of fintech: our predictions for a post-pandemic world


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The fintech revolution first rose from the ashes of the financial crisis of 2008, and the roots for a similar digital transformation have already begun to grow from the COVID-19 pandemic. Yet, with the number of funding rounds in decline, and investors gravitating towards existing investments, most fintechs will be required to cut some costs in order to keep afloat. 

Whilst some may fall by the wayside, we believe that the best and brightest fintech companies will come out stronger than ever, with new partnerships and novel ways of operating. But what could that look like? We’ve broken down three predictions for how the world of fintech could change post-pandemic.

1. More collaboration with traditional banks

The rate at which many government measures have been introduced to support UK businesses through the crisis has meant that traditional financial institutions (with their solid infrastructure) were initially favoured to quickly implement these schemes. Whilst there is no denying that these institutions have become essential to propping up the UK economy, in the process of doing so, flaws have been exposed.

Many of these flaws have arisen from outdated processes. For example, when the CBILS first launched, banks came under fire for slow processing systems and for rejecting a large proportion of applicants that should have been eligible. This has partly accelerated the need for better access to money management, credit and improved technology models. Fintech startups, known for their agility, speed and advanced AI capabilities are well positioned to fill this void but will need to act fast. A recent comprehensive study, testing how far ahead digital banks really are by Built for Mars has shown that although UK digital banks are on average faster, a number of incumbents are beginning to catching up.

incumbent banks are being disrupted by emerging fintechs

Indeed many fintechs are already ahead, some are utilizing machine learning algorithms to automate credit checks and distribute loans more efficiently, especially for customers that have been excluded by traditional banks. But the very technology that makes many fintechs thrive can also be a source of consumer distrust. Historically, this has been an issue for fintechs trying to grow their customer base, and as the public becomes more risk averse in the face of a global recession, some may be unwilling to put their trust (and money) in new entrants to the market. This will likely results in some partnerships between tech-savy fintechs looking to combat this issue and incumbents needing the technological horsepower to modernise fast.

Nevertheless, the current demand for lenders also provides many fintechs with the opportunity to expand their customer base with government backing. For example, Starling Bank has partnered with Funding Circle to offer £300m through the CBILS. The fintech also became an accredited lender of the Government Bounce Back Loans scheme and lent out £90m within the first day and a half of accepting applications. Other fintechs have followed suit, including Atom bank and iwoca, which have both become lenders for several government schemes

Ava Scott

“Combining the trustworthiness of incumbents with the lithe, automated systems of emerging challengers is vital in bringing the future of fintech to life. However, we must ensure that the rapid combination of these two systems does not result in an exaggeration of both of their weaknesses. While speed is critical in this emergency, so is carrying out proper due diligence to honour public finances.”

2. Rapid digitisation – if investors will fund it

There’s little doubt that the crisis will ultimately end up benefiting the fintech industry by accelerating the rush to digitisation. As COVID-19 continues to reshape how society behaves, digital only services will become commonplace, especially within the financial sector. A recent report from VC Finch Capital claims that this acceleration will trigger a “Big Pocket” battle between fintech incumbents and challengers to win the (newly) online customer and increase the demand for fintechs’ AI and big data analytics. 

With new demand comes opportunity. Some startups are grasping the moment and  launching new products and tools. However, whilst there will be high demand for AI, automation and Digital ID services, other parts of the fintech ecosystem will likely suffer. Those that rely on international payments/FX services have unsurprisingly been hit hard by decreased international trade, travel and money transfers. As such, both FourEx and Travel Money Club, which operate such models, have been marked as critically impacted according to our COVID-19 impact data.

Whilst lockdown restrictions are still in place across the UK it will be harder for many fintechs – especially newer entrants to the scene – to secure investors. In the past month, the largest fundraisings have mainly been follow-on investments e.g. platform Free Trade raised £7m solely from existing investors. The majority of these fintechs are in the Venture or Growth stages of evolution, with early-stage companies receiving little attention. 

Yet, there are some investors willing to champion these younger companies. Balderton Capital led a first time round for seed-stage company Primer in May 2020, which totalled £3.2m. However, with an 83% drop in first time funding for startups since lockdown across the whole ecosystem, compared with the same period last year, more investors need to take risks rather than bolster their existing investments. This is essential if we are to ensure that fintechs can continue innovating and remain resilient through the pandemic. 

Henry Whorwood Head of Research & Consultancy

“The decline in first time rounds is partly caused by where we are in the cycle: there is less demand from new companies than there was two years ago. But this has undeniably been exacerbated by COVID-19: the macroeconomic consequences have made investors more risk averse, and also left in particular angels with less cash than in normal times; add to that the fact that investors can’t meet founding teams face to face and the decline is not surprising.”

3. More community focussed initiatives

One of the positives to come from COVID-19 has been the reshaping of the fintech sector into a more community minded one. Many fintech startups have been offering support with free services, waiving transaction fees and making large donations to charities. 

For instance, Starling Bank has introduced second cards for customers who are vulnerable or self-isolating, so that friends or family can make payments on their behalf. Likewise, Manchester based fintech, Tully, has released a COVID-19 relief and wellbeing network, to help people who are financially impacted get access to payment relief. 

fintechs helping those in quarantine

Truelayer, which develops open banking APIs, has championed for the fintech industry to deliver streamlined processes, reduce costs and enable impactful innovation for those in need.

Meanwhile, other fintechs have joined together. Open banking technology providers Credit Kudos, Fronted and 11:FS recently collaborated to provide a digital solution for the self-employed to prove their eligibility for financial relief.

Already, many fintech business models have become even more customer centric and in many cases, proved the capabilities of the fintech sector as a force for good. We hope that this is an attitude that sticks and shapes companies going forward.

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