Fintech startups looking to transform current investing trends or disrupt traditional banking are facing their first major test as Covid-19 pandemic bites into the very fabric of our society. As interest rates fall and fearful consumers seek safety in tradition,
brand new industries like digital banking and online investing that never experienced a major market slump now must prove their business models can withstand a crisis.
Digital banking platforms which thrive on fast and accessible online account services and entice new customers with low fees/high-yield savings accounts now have to face the challenge of having to actually pay those higher rates with central banks slashing
base to- or close to zero. But those who are prepared from the standpoint of technology seem relatively comfortable with their capacity to cope with even a long-term slowdown. Many digital entrepreneurs are becoming increasingly aware that highly technologically
advanced banks and banking-like services will play a crucial role in the eventual recovery from the sharpest economic downturn in history.
The way out of the pandemic-induced crisis is innovation. Through innovation we can and must face the fear of losing customers who in times of market upheavals run for the safest of all possible options - investing in safe-haven assets or simply storing
their cash. The timeliness of the “flight to quality” approach is best illustrated by the setbacks major digital investment platforms suffer due to their unpreparedness. Robinhood had to
draw down its entire $200 million credit facility to stop the unraveling calamity, which goes to show that the best-prepared for the crisis are going to be the fintechs who have been founded on the lessons of the 2008 recession.
We have to face the possibility of scepsis being the overall attitude towards post-crisis fintech. Three, four, five year old fintechs never had to weather a market downturn; their current customers barely passed their teens in 2008. This is all brand new
to the millennials who became purposeful participants in financial markets fairly recently. To keep them excited about the possibilities of the app-based, tech-intensive investing and money management we have to continuously work on refining the existing solutions
and creating new ones. Many of those solutions are going to be based on the fact that in the coming months (and probably years) SMEs and individuals are going to be struggling to raise capital from traditional banks. In that sense, tokenised credit products
and blockchain-based fractional ownership in equity shares/assets are going to have a major impact on the way small merchants access capital in the post-pandemic world. It’s especially important to act fast because the default rate for alternative lenders
remains unknown, which means that the very definitions of “refinancing”, “personal loan” and others will undergo massive scrutiny. The sooner we create a decentralised technological solution for those in need of restructuring (or
new digital commodities to invest in, and new instruments to do it with), the clearer the post-crisis path for the economy would become.
The success of challenger banks and alternative investment platforms will largely depend on the level of consumer confidence governments are going to be able to maintain in the coming months. After all, willingness to spend remains one of the major drivers
of any economy; in order to invest in the future, one has to believe in it strongly. In the declining market, the banking sector’s overexposure to discretionary purchases drives consumer confidence down; travel and shopping have fallen the first victims of
the virus outbreak. However, by the time the epidemic subsides, even if the economy at large remains rattled, the rock-bottom valuations will present a golden opportunity for investors to get in on a ground level. This will be a peculiar situation when both
overvalued and undervalued assets will reenter the market as equals after a reset. This goes first of all for the luxury real estate sector: HNWIs already want to “take
a step back” and reevaluate before committing to major buys.
In the face of a new global financial crisis, fintechs need to make sure their business model meets the challenges of the future, keep calm and carry on. Following this strategy, we have launched our
equity funding round on Seedrs and will move forward with other plans from the pipeline, such as the
tokenisation project with UK Sotheby’s International Realty.
The financial crisis once again shows the importance of portfolio diversification, and tokenised assets are going to be gaining serious momentum in the post-crisis economy. In that same economy, visionary startups will remain a subject of interest for investors.