Why venture capitalists should focus on Fintech


Despite its centuries-old heritage, the banking sector has seen some of its biggest paradigm shifts recently, thanks to the widespread adoption and availability of ground-breaking technologies. Between contactless credit card transactions, digital loyalty point systems, and app-based trading platforms, it is clear that the fintech industry is brimming with potential.

This fact is especially true when one considers more recent breakthroughs such as decentralised ledger technology (DLT) and machine learning, which promise to offer low-cost international payments and revolutionary risk management tools respectively.

With 2020 bringing about a turbulent phase for many industries and increasing risk for even some of the most prominent Fortune 500 firms, let’s take a look at the fintech industry’s recent performance and understand why startups in the space are often amongst the most well-funded ventures.

Coronavirus lockdowns and the Fintech sector

The finance industry has been fortunate enough to avoid most of the complications arising from COVID-19 in early 2020. In fact, by many accounts, a handful of players in the fintech sector have even received a small, unexpected boost amidst the pandemic – largely owing to the belief that physical cash could be a possible transmission vector for the virus.

In certain regions such as China, Africa, and Southeast Asia, this uptick comes after a well-established, multi-year trend of consumer-oriented fintech startups pushing digital transactions as the de facto mode of payment in the retail space.

According to a report by the Hong Kong-based South China Morning Post publication, the offline scan-to-pay transaction market size grew fifteen-fold in China over the past three years alone. The final quarter of 2019 logged cumulative purchases worth a record 9.6 trillion yuan, equivalent to approximately $1.3 trillion. With digital payments still fragmented in large parts of the world and offline scan-to-pay solutions virtually non-existent in most of the developed world, both new and incumbent financial firms are looking to capitalise on this booming market.

The widespread push for digital payment solutions aside, the fintech industry has many other potential products in the pipeline that could revolutionise the lives of over a billion unbanked individuals. According to The Federal Deposit Insurance Corporation in 2017, around 6.5% of US households were unbanked and 16% were underbanked.

In these dire times, delays in the encashment of paychecks are affecting the lives of approximately three quarters of employees in the United States, many of whom would reportedly face great financial difficulties if their payments were delayed by as little as a week. With governments rolling out programs targeted at unemployed and low-income households, fintechs could play a crucial role in facilitating and disbursing these benefits to them.

Emerging opportunities for investors

In light of these new trends, it’s clear that financial institutions and startups of all sizes will have to pivot their business models and focus their efforts on the needs of the masses.

The increasing relevance and importance of smaller players in the fintech space presents a golden opportunity for venture capitalists and other investors that are on the lookout for the next fintech unicorn. Meanwhile, incumbent firms that are looking to move away from the traditional processes of yesteryear and adopt new technologies will likely need to enlist the help of management consultants.

Even though there’s no shortage of opportunities in the fintech sector, both management consultancies and institutional investors are struggling to find reliable and high-quality data on the global startup ecosystem.

The availability of high-quality metrics and data points is critical in discovering startups that would be the right fit for an investor’s portfolio or a potential M&A deal. Platforms like Oddup, however, are solving this problem by offering investment firms and other decision-makers exclusive access to its real-time data streaming platform. Oddup’s range of proprietary solutions includes the Oddup Score and Benchmark Valuation, which represent startup health and valuation respectively.

As the world enters a new post-COVID era and economies are rebuilt, fintech firms stand at an unprecedented juncture where they need to quickly adapt to changing consumer behavior and demand. It’s entirely possible that the 2020s will see an emergence of disruptive new fintech and commerce startups, similar to the post-dotcom era that saw the meteoric rise of PayPal and Amazon.

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