As the epidemic fades, it becomes obvious how significantly Covid has hastened digitisation throughout the global economy. Covid has established a perfect environment for fintech startups to flourish enormously while providing venture capital funding investors with targeted values.
Over the last year, the internet world has changed dramatically. It now includes large swaths of the mainstream economy that were previously resistant to digital innovation. National lockdowns have compelled customers to embrace digital payment solutions and online buying habits across the board. This has resulted in an increase in demand for financial technology businesses that specialise in mobile, secure, and user-friendly banking services.
While the government and society’s reaction to Covid has unquestionably accelerated technology adoption, it has also created an unstable and, in some respects, unprecedented market picture in the field of fintech. This provides hazards as well as possibilities for ambitious business angels seeking exponential returns on their investments (ROI) and a well-defined exit strategy.
Realignment of structures
Covid’s dramatic shifts in consumer behavior have been matched by bigger industry realignments that occur only once per generation. Historically conservative businesses such as insurance, finance, healthcare, and automobiles are all adopting digital technology with unprecedented zeal. They are broadening their perspectives on the possibility of digital ecosystems, cross-sectoral synergies, and income sources that would not have occurred to them or even existed ten years ago.
Fear is also a factor here. One reason many financial services behemoths are paying strategic premiums to acquire breakthrough fintech firms is the risk of being disrupted by a nimble digital competitor. According to KPMG, global investment in fintech totaled $25.6 billion in the first half of 2020.
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Why should you select fintech
Few possibilities are more appealing to an angel investor than a fintech firm with a respectable staff, a compelling USP, and a compelling set of proven growth estimates. This is due in part to the fact that fintech crosses two industries, technology and financial services, both of which are seeing continuous growth despite the current global slowdown. Despite 2020’s losses, the global fintech sector is expected to expand at a compound annual growth rate of 20% between now and 2025, according to TechSci Research.
Fintech businesses combine the advantages of a technology firm, such as scalability and minimal overheads, with the defensive strengths and low churn rate of a financial services organisation. The substantial regulatory load that any financial services organisation must bear rapidly becomes a significant defensive asset. If a fintech business has the requisite skills on its board to overcome regulatory constraints, those high barriers to entry begin to work in its favor. Potential rivals are put off by the costly and time-consuming bureaucratic barriers that are an unavoidable element of finance and may seek their fortune elsewhere.
Disruptive technology
Regardless of Covid, it is fair to conclude that numerous perhaps over-hyped technologies are now approaching a degree of maturity that puts them within reach of fintech firms with novel ideas for how to use them to disrupt the industry.
While blockchain technologies are still gaining popularity in key industries, cryptocurrencies are already posing a significant challenge to the accepted mainstream paradigm of fiat money supported by central banks. After years of turning a blind eye, the financial elite is now sitting up and taking note. Fintech businesses and their investors are in the same boat. Who can overlook the markets’ tremendous volatility in bitcoin values over the last six months?
Challengers and incumbents
High valuations and even higher-profile failures in the financial industry attest to the dangers and hurdles that angel investors confront while picking and mentoring fintech businesses. In a matter of months, startups like Loot and Lendy moved from hot-ticket investments to insolvency.
On the one hand, entrepreneurs are understandably terrified by the sheer size of established financial service organisations, as well as the regulatory load that continues to elude even the most sophisticated algorithms. Innovative branding tactics and social media marketing channels, on the other hand, are able to overcome many of the barriers that earlier held back fintech rivals. The capacity of fintech to link apparently unconnected areas and mine new revenue sources is inherently appealing to angel investors looking for a fresh opportunity.
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Synergy
Financial technology is deeply intertwined with a wide range of sectors, many of which benefit from increased efficiency and consumer satisfaction. This offers the advantage of protecting an angel investor in financial technology from non-systemic risk, such that if one area of the economy is heavily impacted, such as hospitality or travel in 2020.
Strategic bonus
Many huge incumbents recognise their digital constraints and are ready to pay strategic premiums to acquire innovative startups. Their motivations range from attempting to capitalise on the startup’s skills and innovative ideas to just preventing a competitor from doing the same. In any case, competitive pressures of this nature can generate a “perfect storm” that a savvy angel investor can use to hasten their exit plan and increase the likelihood of a good ROI.
As you can see, this may be the best time to start investing in Fintech. We can only assume that before long Covid-19 will be a distant yet bad memory. The internet is swiftly changing and it is essential to keep up with these changes and get onboard for some of the best investment opportunities in a very long time.
The above information does not constitute any form of advice or recommendation by London Loves Business and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Appropriate independent advice should be obtained before making any such decision. London Loves Business bears no responsibility for any gains or losses.
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