EKMH Innovators Interview Series
An interview series spotlighting global tech influencers, disruptors, visionaries, and of course, innovators.
COVID-19 continues to enormously impact our lives and is reframing the way we work, consume and interact. From Zoom calls to curb-side grocery pickup to food deliveries to social distancing to future planning, we are now negotiating lives that are in constant flux. And everyday we remain thankful to the medical and medical technology community for their dedication, perseverance and research.
Now consider the pandemic’s effect on finance, disruption technology and innovation. Startups in the earlier stages of their life cycles are particularly vulnerable if growth stagnates or even drops for a period of 3 -6 months. The uncertainty of the current situation puts pressure on fundraising, cash management, marketing and staff management. In the short-term we of course see many hurdles that startups need to address in order to survive and the newly limited opportunities; however, post-crisis (Q4 2020+) Finch Capital believes the lasting impact on society creates conditions which favor increased momentum, growth, and the unleashing of a virtuous cycle for Fintech companies.
“2020 will be challenging for FinTechs to navigate, but there are better times ahead. Post-crisis, disruptive winners will “take all”, as we expect surging demand from financial services for technology to master digital-only interaction, enabled by AI and big-data analytics,” commented Finch Capital Co-Founder and Managing Partner Radboud Vlaar regarding the report.
Since 2014 Finch Capital, the Amsterdam-based thematic investor in Financial Technology, AI and IoT companies, has backed several future leaders in Europe and South East Asia, including BUX, Brickblock, Digital Insurance Group, Goodlord, Grab, Hiber, Twisto and Trussle. The company recently released a capital report which covers the Fintech industry, the short-term impact of the crisis, the structural implications post-crisis, translating into an ever-swifter adoption of digitalization and the landscape in terms of growth, unit, economics, consolidation, funding dynamics and exits.
I reached out to Vlaar via email not only to learn more about the Report but also to glean more about his perspective and advice about leading successful global teams who are working from home, his post-pandemic predictions, and on which areas investors should now focus their efforts. Our interview follows.
EKMH: What techniques have you adapted in your daily schedule to ensure you and your team’s connectivity and productivity during the quarantine? What are the keys to not only staying in touch and communicating well, but also effectively troubleshooting and problem solving?
Radboud Vlaar: We all work from home, we allow one person a day to use the office if needed. As a firm were already operating from multiple locations, including Amsterdam, Jakarta, and London, so we had all the tools in place needed to interact remotely and solve problems. In addition, once or twice a week we hold a team social event online, such as playing online games.
EKMH: Finch Capital is a thematic investor in Financial Technology, AI and IoT companies, and has a track-record since 2014 of backing future champions in Europe and South East Asia. How will you lead companies to success post-pandemic?
Radboud Vlaar: We have helped companies in three ways: (1) Faster shifting to positive unit economics, (2) Making product/marketing even clearer to what problem is solved and refocusing if needed to those areas in higher demand, (3) Reducing cost base if needed to extend runway, and (4) Assuming exits will be hard next 12-18 months so assuming a path to profitability.
EKMH: What KYC and digitalization solutions and trends do you anticipate leading the post-crisis landscape?
Radboud Vlaar: re KYC: e-Identity KYC solutions to reduce the in person need; re Digitalization solutions, we see and expect a massive accelerated shift to digital first/only solutions for Banks and Insurers where they need support, e.g. Distribution, Claims Handling, Portals and Order management.
EKMH: How and what partnerships and collaborative efforts can be initiated to (re)enable Fintech, PropTech, InsurTech and AI sector growth?
Radboud Vlaar: Focus on solving as a sector the real burning problems now which will align people and create a sense of urgency to act. Assume that all budgets and resources are frozen, except if it helps immediately. Areas like Wellness, Collections, Cash Distribution and Social Distancing are all the areas in which the sector can work well together and have a real impact.
EKMH: Could you please discuss Finch’s The Future of Disruptive and Enabling Financial Technology post COVID-19 report, specifically the 7-step check list helps leaders navigate through this crisis?
Radboud Vlaar: The Finch Capital report covers for the FinTech industry, the (i) short-term impact of the crisis (ii) structural implications post-crisis, translating into an ever-swifter adoption of digitalisation and (iii) landscape in terms of growth, unit, economics, consolidation, funding dynamics and exits.
Key findings are:
Expect crisis mode until Q3 2020, followed by a 12 -18-month recovery
Digital-only becomes the new industry norm in financial services, greatly accelerating a trend which started in the last decade
Shift to digital-only triggers a “Big Pocket” battle between incumbents and challengers to win the (newly) online customer
Financial Institutions turn to Tech companies rather than in-house solutions to accelerate digital transformation
FinTech sector winners:
Consumer and SME lending platforms: best-adapting mechanism to swiftly and efficiently deliver capital to key segments of the economy
Mortgage and life insurance digitalization: leaping forward with technology to disrupt the role of intermediaries, whose role was often face-to-face
FinTech ‘enablers’ around AI, IoT and software solutions are in high demand:
AI: bots for call-centers; account-opening procedures; loan automation
KYC: increased need for safe digital ID given volume of digital business transacted and robust solutions required for protection of client assets
Areas under pressure:
Challenger banks: high valuations, High burn and lower expected activity post-crisis
Wealth management: client de-risking and lower AUMs impacting bottom line
Payments/FX: decreased transaction activity affecting commission businesses
Pull-back of corporate VC-led investments in combination with higher hurdles for companies’ access to funding put pressure on valuations in later-stage rounds
Increased M&A and trade-sales in under-$250M category of fintech companies, as fewer IPOs expected
This 7-step check list shows what we see as best practice in terms of actions to (a) Safeguard the business by extending cash runway and be thoughtful (a) How to raise money if needed and taking into account government support and existing investors, (b) How to best do sales and marketing, and (c) How to keep staff healthy and motivated during this crisis.
EKMH: And finally, which books are you currently reading and which books would you recommend to readers during the quarantine?
Radboud Vlaar: I am reading the book about the Spanish Flu, called Pale Rider: The Spanish Flu of 1918 and How it Changed the World by Laura Spinney. After that book, I would recommend some forward-looking books include those about holiday destinations.
*Disclaimer: The views and opinions expressed in this series are those of the speakers and do not necessarily reflect the views or positions of any entities they represent.
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