The pandemic has been a watershed moment for fintechs. Today, a new generation of founders1 finds themselves in demand, facing a myriad of opportunities – and challenges.
Venture capital and private equity have led a surge in fintech investments worth USD98 billion in H1 2021, up from USD87 bn in H2 2020, according to KPMG.2 They are attracted by the possibilities of an increasingly diverse set of technologies – from regtech and lendtech to cryptocurrency – there is a focus of innovation across the world.
Investors are also excited by the potential for growth. In 2020, working from home and limited physical interactions helped lift transaction volumes 20 per cent higher among sectors including digital payments, digital savings and wealthtech.3 Growth in emerging markets led the field.4 The decision of leading US payments fintech Stripe to expand into the Middle East reflects the region’s growth potential.5
Going forward, a supportive regulatory environment, fostering trends including open banking – making financial data more accessible to third parties – looks set to sustain this momentum.6 However, for every Robinhood, Klarna or Revolut, there are many more smaller startups struggling to scale, with founders anxious about access to capital or support.7
Here, two rising global fintech leaders share their advice, together with Standard Chartered’s Global Head of Technology, Cat Rüst – also an experienced tech startup founder – about what new fintech founders need to know.
The turning point
“The evolution of our product-market fit really accelerated our success globally,” says Lucy Liu, Co-founder and President at Australia-based payments fintech Airwallex8. The company has collaborated with Standard Chartered to find new solutions to help businesses make international payments.
In Airwallex’s latest growth phase, up-to-date insights have proven critical, and they may become yet more valuable post-COVID-19. “What our customers need today may change tomorrow, as we’ve seen with the pandemic,” Liu explains. “User research, feedback and data has informed our decision-making across all aspects of the business, from what products to launch or which partnerships to pursue.”
Fintechs have been in the vanguard of the acceleration in digital payments during the pandemic, leading QR code innovations9 and linking national real-time payment systems. Technology has been the key to this growth, in the view of Pieter van der Does, Co-founder and CEO of Adyen10, a Dutch payments company which has partnered with Standard Chartered during its Middle East expansion.
“Focusing on simplicity has allowed us to build a highly scalable platform that doesn’t require constant maintenance or as many resources,” he explains. “Building an in-house, end-to-end platform is a lot more work than building a layer over a patchwork of systems, but it outperforms. We have also invested in having local expertise to support our global offering.”
The biggest challenge
Standard Chartered’s Cat Rüst advises that building relationships of trust with banking partners can be crucial, particularly in a sector where a close relationship with a bank is often needed, such as paytech. “There is such a DNA difference between startups and large corporates, which can look upon fintechs as very risky. Startups don’t sit on 18 months to two years of cash, and often don’t have huge clients or brands behind them,” she says.
In recognition of such barriers to entry, Standard Chartered teams like SC Ventures are working to streamline onboarding processes for new fintech clients11 using APIs (application programming interfaces) to ease integration.
“A lot of fintechs expect things to be done in a technology fashion rather than a physical fashion, so it helps to have partners who really understand the tech industry,” says Rüst.
Nonetheless, once key relationships have been built externally, interpersonal challenges can quickly grow closer to home.
“The biggest challenge is maintaining a strong culture and growing a team which is aligned with that culture,” says van der Does. “This challenge has become even more relevant during the pandemic, as we have had to learn how to be a culture-first company while some people work from home and others in the office.”
Liu agrees that a cohesive vision can be key to startup success. “Having doubled our total headcount in the last 18 months, we are focused on maintaining a strong culture,” she says.
What founders wish they had known
Clarity and understanding can also be crucial advantages, recalls van der Does.
“When going into a funding round, aim for clean investment terms and conditions which are easily explainable,” he advises. “First-time entrepreneurs tend to look too much at the valuation and too little at the conditions. Understanding how they will materialise in different scenarios can save you a lot of headaches.”
Many banks look for scalability in a potential fintech client12, a quality Liu now prioritises.
“It’s important to think big,” she says. “Most business owners start out to resolve a very specific issue or challenge and don’t expand beyond that. Continually growing your product offering is crucial to viability.”
Liu also emphasises the benefits of partnerships and co-creation. “You don’t need to be an expert at everything,” she says. “Partners and teams can fill in the gaps.”
Rüst agrees that collaboration can be critical to take fintechs to the next level. “A lot of fintechs work hand in hand with banks,” she says. “We are also dependent upon each other, for certain sectors to go forward. For certain geographies, Standard Chartered’s footprint also gives us deep local capability in both the developed and the developing world which we can use to partner with our fintech clients as they roll out into new markets.”
An example of this includes Adyen’s continued expansion into the Middle East, where Standard Chartered has used its presence to help the company build a local clearing infrastructure.
“Solutions like FinTech Bridge from SC Ventures13 enable fintechs to work with our clients, as well as us, giving them more access to more opportunities,” says Rüst. “And our fintech advisory team actually works with fintechs to help co-create products – like AlipayHK’s cross-border blockchain remittance service.”14
The latest fintechs are racing to scale up as they jostle to secure new markets and investments. Many tech companies have already become SPAC targets and fintechs are high up on the list, particularly in Standard Chartered’s specialist markets.
“As embedded finance becomes more and more popular with corporations, we will increasingly see fintechs and banks partner to create banking solutions together,” predicts Rüst.
While the innovation of fintech founders will be central to success in a post-pandemic world, the quality of their partnerships looks likely to determine their fortunes.