Fintech – Opportunities and Risks during the Covid-19 crisis
4 min to read

Fintech – Opportunities and Risks during the Covid-19 crisis

06 November 2020

Last year saw the FinTech market experience rapid growth both in the UK and internationally. However, the onset of the pandemic and the subsequent global recession this year has left businesses experiencing a significant reduction in revenue and fewer funding opportunities. Whilst these challenges look set to continue for the short to mid-term, shifting consumer habits and the recent acceleration in digital adoption may provide real opportunity for FinTechs to grow their businesses.


The Covid-19 pandemic has altered almost every aspect of life, both from a personal and professional perspective. Whilst businesses across all sectors will have a tough time navigating the evolving economy over the coming months, the crisis has presented some rare opportunities for FinTech businesses to take advantage of.  The most clear example of this is the shift towards use of remote services in the wake of ongoing quarantine measures. Consumers are increasingly adopting digital solutions – from online shopping, video conferencing and mobile financial services – and are becoming more aware of the various advantages in doing so. It is therefore very likely that this trend will continue beyond the Covid crisis as individuals increasingly become accustomed to a “new normal”.

Digital payments services (across the payments ecosystem) in particular will benefit, as the drive towards cashless payments has accelerated rapidly.  Data from Accenture shows that between 17th-25th March, cash usage in the UK declined by 50%, with forecasts expecting the decline to total almost  40% compared to last year. Governments have also actively encouraged contactless payments in order to slow down the spread of the virus, with many European countries taking action to increase contactless transaction limits to EUR 50.00 following a recommendation from European Banking Authority earlier this year.

More broadly, there are a number of factors which indicate that the FinTech market is better positioned than most to weather the current storm. FinTech businesses (as with tech companies more generally) tend to be agile, innovative and better prepared for remote working. Consumer facing FinTechs are, for example, highly geared towards utilising technology to improve the customer journey and user experience. In contrast, the speed at which more traditional financial institutions can adapt to the sweeping digital revolution is limited by legacy core banking systems which are at the heart of many banks’ IT infrastructure. This may provide a unique opportunity for FinTech businesses to expand and gain market share.


Whilst the pandemic has created a number of opportunities, there are challenges for FinTechs going forward.

The shift towards remote and cashless payments has been somewhat overshadowed by the short term reduction in spending (and therefore demand in payment processing services) as personal wealth has been hit due to redundancies and the uptake in furlough schemes. Longer term unemployment is projected to affect economically active millennials the hardest, the demographic FinTechs (particularly challenger banks) most heavily rely upon. Those businesses which are exposed to revenue generated from cross-border spending are also suffering as travel related spending and cross-border business has sharply declined. The challenge will be for FinTechs to preserve their cash flow, as revenue targets are difficult to achieve when the economy is under such pressure and uncertainty.

To this end, securing funding will remain a significant concern amongst many FinTech businesses. Early indications are showing a substantial contraction in funding, with a recent report from Mckinsey revealing that investment fell by 44% in Europe in the first 7 months of 2020. Limited access to capital will likely force several businesses to drop out of the market. That said, there still appears to be a strong appetite from investors for firms operating in the B2B market – so far this year we have seen US B2B payments network Funded complete a Series C extension for $20 million, and German based corporate payments company Treasury Intelligence Solutions raise the same. Investment is also being driven by more traditional banks who are continually searching for new solutions to integrate into their own workflows. It is easy to see why the focus has shifted towards the B2B market; revenues in this space have remained much more stable over the last 12 months when compared to consumer FinTechs, with B2B firms benefitting from loyal customers and highly scalable software-as-a-service models.  This all amounts to a far less risky option for investors.

The surprise of the pandemic and the economic downturn has left many businesses in a state of shock, and the FinTech market is certainly not immune from the effects of the virus. Whilst we are experiencing a period of deep uncertainty,  there is cause for optimism. The FinTech industry is said to have been born out of the 2008 global financial crisis, and it will be interesting to see how the current events shape its future.

Written by
Ash Shah
Ash Shah
Ash is an associate in Bird & Bird's Commercial Group in London, where he advises clients on a variety of transactional and regulatory issues, particularly in the technology and financial services sectors.
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