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The Future of Disruptive
and Enabling Financial
Technology post CV-19
‘’Backing Future Champions in AI, FinTech and IoT’’
1
2
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. Companies include BUX, Brickblock, Digital Insurance Group, Goodlord,
Grab, Hiber, Twisto and Trussle.
FinchCapital is a team of 12 investment professionals with wide entrepreneurial
experience (e.g. Adyen, Deepmind and Arista), prior investment experience (e.g.Accel,
Atomico, Khazannah) and industry backgrounds (e.g.Facebook, Google,and
McKinsey), located across offices in Amsterdam, London and Jakarta. For more
information see www.finchcapital.com
Contents
3
1 Context, Methodology and Executive Summary
2 CV - 19 impact on Financial Technology
3 A post CV-19 crisis perspective on key FinTech and FinTech enabling sectors
4 How to survive in the short term
4
6
19
24
Context and Methodology
4
Ø COVID-19 has had an inconceivable impact on all of our lives and is reframing our way of life on a
daily basis. Never before have we seen such a drastic and immediate impact across businesses in
multiple sectors.
Ø Despite government’s committing $ trillions to help enterprises, SME’s and employees, the need for
cash management has never been more important.
Ø We believe that the crisis will accelerate fundamental shifts in how we work and interact in private and
business context.
Ø The crisis is and will even more so result in a revisit of how investors and potential buyers perceive
value in this new normal, with some verticals expected to have a rude awakening, while others
embrace opportunities a crisis or recession might bring along.
Ø Since the start of the crisis we have reflected on how we expect the Disrupting and Enabling Financial
Technology landscape to be impacted in terms of growth, profitability, competitive dynamics, Investor
appetite, valuations and exit routes.
Ø This report is based on surveys with Founders of Disurptibe FinTech as well as AI and IoT companies
selling software to Financials, interviews with Financial Institutions in our network and market research
leveraging public data and proprietary Finch Capital research
Executive Summary
5
Ø Expect crisis mode until Q3 2020, followed by a 12-18-month recovery
Ø Digital-only becomes the new industry norm in financial services, accelerating the current trend§
Ø Shift to digital-only triggers a "Big Pocket" online battle between incumbents and challengers to win
Financial Institutions turn to Tech companies rather than inhouse to accelerate digital transformation
Ø 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
Ø 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
Ø Areas under pressure:
• Challenger banks: high valuations, 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
Ø 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
Ø Increased M&A and trade-sales below $250m category of fintech companies, as fewer IPOs
expected. In addition, Banks likely constrained given higher capital preservation requirements
2020 will be challenging for FinTechs to navigate, but prosperous times remain ahead post
crisis where Disruptive winners take it all and demand for AI, Tech and IoT companies that help
financials transform to a digital and Data driven interaction will surge.
Chapter 1
6
How CV is impacting FinTechs
CV-19: Impact on FinTech
Macro economic impact: CV - 19 severe, with
recovery to a new normal starting in Q3 2020
7
Base scenario we expect is:
• Now until Q3 - "Crisis"
• Q4 and Q1 2021 - "Recovery"
• Q1/Q2 2021 - "New normal"
LR
1Q 2Q 3Q 4Q 4Q/4Q
Global -12.0 -1.2 19.1 4.3 0.5
Global ex. China -5.8 -13.7 18.1 4.0 -0.4
Developed -7.5 -16.0 21.9 3.8 -0.8
• US -4.0 -14.0 8.0 4.0 -1.9
• Euro area -15.0 -22.0 45.0 3.5 -0.1
• Japan -3.0 -1.0 5.0 3.5 1.1
• UK -10.0 -30.0 50.0 2.5 -0.8
Emerging -18.8 21.4 14.9 5.0 2.5
EM Asia -26.0 35.4 17.5 5.8 4.1
• China -40.8 57.4 23.9 5.5 5.1
• Others -0.8 -2.0 6.5 6.2 2.4
Latin America -1.2 -11.6 8.4 2.6 -0.8
EMEA EM -2.1 -13.1 9.0 3.8 -1.0
Table 1: Real GDP, 2020 forecast
% chg, SAAR
Source: JP Morgan
New business negatively impacted, and expected to
become more severe in the next few months
8
Where do entrepreneurs feel most of the impact immediately? How does the
immediate impact differ from other crises?
Business Volume Sales Pipeline Working Capital
More than 50% down 25 to 50% down 10 to 25% down Stable (-10% to +10%) Positive 10%+ growth
Source: Finch Capital Survey of 95 Founders in AI, IoT and FinTech in Europe and South East Asia
How does acceleration of
digital adoption by Consumers,
SMEs and Financial Institutions
due to CV-19 change
competitive landscape?
How do FinTech'’ and
Incumbents perform
during the crisis e.g.
do they pass the
"Digital Stress" test?
How will the CV-
19 crisis impact
the Funding
landscape and
valuations?
Impact digital adoption, online stress test and
change in funding dynamics will shape FinTech outlook
9
Once this is over there will be a strong demand for my
product
Once this is over we as a company are stronger
Strongly disagree Disagree Don't know yet Agree Strongly agree
Source: Finch Capital Survey of 95 Founders in AI, IoT and FinTech in Europe and South East Asia
Digital Adoption - CV-19 crisis forces everybody to
accelerate digital adoption….
10
There was already a general shift for people to work
remotely….
Trend % working from home 2009 to 2018….
…..now got accelerated to 100%, forcing people to do business and
manage their financial matters remotely using tech
Example China
Sweden
Iceland
Netherlands
Luxembourg
United Kingdom
Denmark
Finland
Belgium
France
Estonia
Ireland
Austria
Slovenia
European Union
Poland
Portugal
Switzerland
Germany
Norway
Slovakia
Croatia
Hungary
Spain
Greece
Lithuania
Latvia
Italy
Romania
0 5 10 15 20 25 30
2008 2018 Coronavirus outbreak leads to surge in Chinese business apps
Overall App Store rank in China by downloads (position)
Jan 18 Jan 27 Feb 03 Feb 10 Feb 16
1,500
1,000
500
1
Ding Lark Tencent Meeting Huawei Cloud WeLink
Source: App Annie
©FT
….this accelerated shift to digital likely creates a
"digital battle" between incumbents and challengers
11
Branches
Intermediaries
Agents/Brokers
Digital
splash
Websites/
Apps
FinTechs
Money
supermarkets
Banks
Insurers
Branches are the most preferred channel when applying for
new products, Proportion of respondents who prefer branches
Mortgage/
mortgage
refinance
Wealth
management
account
Checking
account
Mexico 75% 73% 70% 53%
Credit Card
Indonesia 68% 69% 67% 66%
Spain 83% 79% 66% 62%
France 79% 75% 64% 64%
Switzerland 84% 74% 64% 49%
Japan 72% 61% 61% 43%
United States 65% 62% 58% 41%
Canada 74% 69% 58% 46%
Germany 74% 65% 56% 51%
Singapore 67% 62% 52% 32%
India 57% 44% 50% 36%
Brazil 61% 55% 49% 27%
Australia 72% 66% 46% 46%
China 55% 39% 43% 40%
United Kingdom 58% 56% 34% 28%
Netherlands 73% 59% 34% 32%
Norway 48% 40% 14% 18%
Source: Deloitte Center for Financial Services analysis Deloitte Insights | deloitte.com/insights
Average % in person as preferred channel
Mortgage Wealth Checking CC Life Non-life
Western Europe 30% ±60% 95% ±60% 80% 40%
Lowest 18% +50% 30% 39% 40% 14%
CV-19remoteexperienceLifeInsuranceP&C
Distribution Channels
Source: Deloitte and Finch analyses
Digital test - Incumbents as well as Fintechs facing
challenges in a digital world….
12
Insert Robin Hood press clipping
FinTechs issues dealing with scale….. Incumbents have issues dealing with remote
...Incumbents stepping up digitalisation, creating
surge in security/KYC and collaborative tools
13
Smart CRM
Branches
Suitable for
WFH?
Branchless banking will become real
What will happen
Salesforce
Central business
units
Product
development
Technology
Operations
Contact center
No
Yes
Tools and mechanisms already exist
to make this happen
Yes
Well positioned if collaboration tools
in place
Yes
Well positioned if collaboration tools
in place
Maybe
Unlikely to move for core, but non
core possible
No
No
Scale down - Push towards AI text
How?
e-identity/KYC/video
Video/productivity
software
Chatbots / home call
centers
Nothing - regulation driven
High confidentiality
requirements
Virtual meeting led by
product managers
Developer collaboration
tools
FinTech enablers expect a boost in demand for AI, IoT
and SaaS to help financials accelerate digital change
14
Increase demand Similar demand Decrease demand
Front
end
Middle
Back
end
Banking and Payments Insurance Property Tech
Chatbots: Call center
disruption
Drive to branchless
banking continues
Remote working,
performance
management
Remain committed to
checks & regulation
More focus on core
products
Innovative payment
projects on hold
Chatbots: Call center
disruption
Shorter term
decrease in new
policy onboarding
Remote working
Fraud will remain top
of mind
Change product
creation architecture
Automated claims
management
Deemphasized with
short term pressure
on new volumes
Deemphasized with
short term pressure
on new volumes
New sales workflow
required
Non-core to business
Need to digitise
creation and
management
Physical surveyor
replacement
Customer
Service
Onboarding
Productivity
tools
AML/KYC/Fraud
Multi-channel
software
Computer vision
Drive to cashless,
remote working
security issues
Telematics hit in short
term
IOT & Not
Present Security
Cameras, drones,
access management
Funding landscape - Bar has been raised, with first
impacts visible in Q1 2020 - CVCs capital can be at risk...
15
Funding volumes already dropping in Q1 2020….
….CVC lead funding represent 10-20% funding as seen in other
recessions CVC's existence might be at risk
Number and volume ($bn) of CVC backed funding rounds in
Europe….
….Total number and volume of venture rounds in Europe
Global funding rounds to private companies, Q1’18 – Q1’20
8,791
10,040 9,566
8,674 9,284 9,929 9,176 9,197
7,337
2,277 2,940 3,245 2,543 2,382 2,421 2,517 2,666
1,599
Q3Q1 Q4 Q3Q1Q2 Q2 Q4 Q1
Global Deals Asia-based deals
SOURCE: CB Insights
2018 2019 2020
$1.3
$3.7
$4.6
$3.3
$5.4
$7.5249
300
2014 2015
368
2016
436
2017
513
2018
608
2019
Annual disclosed CVC-backed funding to Europe, 2014-2019
2019
• % number of deals
CVC: 9%
• % of deal volume
CVC: 11%
Bank CVC-backed deals & funding
0.3 0.6
1.2
0.8
2.9
3.5
$4.0B
$0.0B
$1.0B
$2.0B
50
$3.0B
0
100
150
20182014 2015 2016 20192017
Deals (Right Axis) Funding (Left Axis)
4,599 6,119 7,000 7,200 6,870 6,763
24.5
35.4 33.6
39.1
63.5
4,000
0
3,000
1,000
2,000
5,000
7,000
6,000
8,000
0
10
20
30
40
50
60
70
2014 2016
56.8
20192015 2017 2018
Deal volume (In € Bn) # of rounds
...less capital in system puts pressure on valuations,
and triggers consolidation/shake-out in most sub-sectors
Median Pre-Money Valuation, $M
$7
$20
$56
$0
$10
$20
$30
$40
$50
$60
$70
20172013 2014 20182015 2016
Angel/Seed Series A Series B
Median Pre-Money Valuation, $M
$115
$325
$0
$50
$100
$150
$200
$250
$300
$350
$400
2015 20172013 2014 2016 2018
Series C Series D+
Consumer
Lending
SME
Lending
Wealth
Management
Savings/
Deposits
Insurance
Distribution
Insurance
Products
Mortgages
Payments/FX
Challenger
Banks
Enabling
FinTech
Credit need
Remortgage
More digital
Credit need
De-risk
Less activity
Demand
Less activity
Higher NIM
Higher NIM
Higher NIM
Less AuM
FX Spread
Lower CAC
Relative valuation
Price to revenues
Growth impact
CV-19 post crisis
Unit economics
post crisis
50x+
10-30x
10-30x
10-20x
50x+
50x
50x+
50x+
50x
10-20x
16
+ Consoli-
dation
+ M&A
offline
brokers
+ M&A
+ Valuation
pressure
+ M&A with
traditional
+ Valuation
pressure
+ M&A
+ M&A by
old tech
+ M&A
Valuation & M&A
implicationsExample
Post crisis, expect an increase in funding flow to
mortgage disruptors, and consolidation of payments space
17
€6 Bn
€5.3 Bn
€4.7 Bn
€3.3 Bn
€1.8 Bn
€2.8 Bn
€3.5 Bn
Geo Winners emerge
Consolidation
Digital disruption
Revenue at risk,
flight to safety
Health &
telemedicine
Automate,
automate….
Rent & Remortgages
Source: McKinsey
218 1,033
405
400
246
319
447
High
Low
ROE
Developed markets
Low High
Intensity of customer engagement/data
Retail Deposits
& Payment
Asset
management
Wealth
management
Consumer
finance
Commercial
and transaction
banking
Mortgage
CIMB2
Big tech and fintech focus area, ($2.4 trillion
revenue = 45% of global revenue pool1)
2014-2019 2021 -2024 Theme
Challenger
Banks
Payments
Lending &
Mortgage
Wealth
Management
InsurTech
PropTech
Enabling
FinTech
Exit Landscape - Closing IPO window and lower
valuations increase EUR 0-250m Financials led M&A
18
2020 -
2025
outlook
IPO exit route likely to be more
complicated….resulting in more trade sales….
$ Billions 2013 - 2019 exit
...gap between P/E and FinTechs remains, continue to
make "Big M&A by Financials Hard short to medium
term
IPOs: $40B
since 2013
Sale to other
Fintech company:
$34B
Sale to private
equity: $18B
Sale to financial
institutions: $4B
92.5x
35.8x 35.6x
21.2x
15.4x
10.9x 10.3x
7.9x 7.3x 7.1x 7.1x
Average
Average
2019 P/E multiples of
Fintech companies
2019 P/E multiples of
traditional banks
P/E 27/3/2020
115 26 35 16 11 19 8 7 6 5 7
Average
±20 ±7
Chapter 2 - New Normal Fintechs outlook
19
A post CV-19 crisis perspective on
key FinTech and FinTech enabling
sectors
Banking & payments: Severe impact now; post
crisis, online mortgage surge, others consolidate
20
Impact on sales/profit: -30% to +15%> +15% <-30%
Challenger
Banks
Payments
Trading
Wealth Managers
SME Lending
Consumer Lending
Mortgage
Challengers
FX
During crisis Post crisis
Interchange and FX revenues collapse
Payment volume doom and gloom with travel
issues
Short term FX solutions to counter volatility
Consolidation and product M&A rebound
Free brokerage has attracted millions of new retail
investors
The end of cash is nigh but travel headaches
Pressure on fees, ETFs hit hard
Accelerated shift to digital disruption
Even less focus from incumbents to drive
consolidation
Recession loan books but attractive pricing
Old and new school FinTech consolidation
Volatility is its best friend
De-risking investors withdraw
SME default worries
Need for credit, but beware of defaulters
Remortgage to get disposable income
Shift to online
Example
InsurTech: Short-term challenged (excl. health & claims)
post-crisis strong in SME, health, and enabling tech
21
Impact on sales/profit: -30% to +15%> +15% <-30%
B2C Challengers
P&C
B2C Challengers
Health
Claims
Handling
Analytics
IoT
Software –
FrontEnd
Software – Mid &
Back-end
B2B Challengers
During crisis Post crisis
No driving, no travelling and pressure on
disposable income
Flight to safety like never before
Lockdown of businesses, lockdown of policies with
self employed hurting
Comparison sites / brand winners lead fightback
Even more eager
Telemedicine and health insurance new reckoning
Accuracy never been more important
Cost overhaul doing away with expensive
consultants
The move to digital will truly be on
New business only on digital interface
Alternative data to lead CAT pricing
Automated claims will be differentiator
How to adjust from COVID-19 “mindset”
Crisis monitoring solutions needed
Need to have digital policies becomes no brainer
No immediate need to jump on bandwagon
Example
PropTech: Low volume during crisis but light visible
at the end of the tunnel
22
Impact on sales/profit: -30% to +15%> +15% <-30%
During crisis Post crisis
Crisis management for agents
Zero volume, no renters, no travellers
Need of the hour but few people are moving
Insurance will be on everyone’s mind
Contact-free digital disruption
Hesitant travellers, market share winners
Savings wipe off will mean help needed
Data becomes ever more important in daily life
Industry mis-selling and scandal pressures
Investment in infrastructure to drive out of
recession
Price correction to re-balance businesses
Remortgage to get disposable income
No one buying houses
Inventory risk damaging
Cannot disappear from projects
Monitor, monitor, monitor (without humans)
Effects of price correction unknownWithdrawals for liquidity
RentRentInvestments
Platforms
Marketplaces
Mortgages
Deposits
iBuying
Development – Con-
struction Software
AVMs
Deposits
Property
investments
Example
Enabling FinTech – Sales delayed during crisis;
post-crisis surge for enabling techs that reduce costs
23
Impact on sales/profit: -30% to +15%> +15% <-30%
During crisis Post crisis
The sell off commences
Never a better time to automate
Chat bot army mobilizes
Clear out of 90% of market
E-Identity becomes norm
SMEs shout for more
Lending and mortgages implementation
breakthroughs
Need to raise AuM cost effectively
Call centers start optimizing
Fight for survival and execution
Challenge to update API standards
Work from home vulnerabilities exposed
No volume through the system
Fast tracking rescue packages
Defaults up and technology is last thing on mind
New initiatives on hold, pressure on fees
No major push to the protocolNo trade, no remittance, XRP issues
AIBlockchain
Crypto
Automate &
analyse
RegTech/
Security
“As-a-service”
software
Open Banking
Trade Finance
Real Estate
Investment
Customer
Service
Capital
Markets
Example
Chapter 3 - How to navigate the crisis
24
How to survive in the short term
7-step checklist to navigate through the crisis
phase and reposition well for the new normal
25
1. MANAGING LOSSES WITH SPEED AND ADEQUACY: cut staff costs (be open and
empathic), use force majeure clauses, renegotiate contracts
2. BE REALISTIC ABOUT FUNDRAISING LANDSCAPE: short term little appetite for
new deals as focus is with protecting portfolio (this will change in +- 6 months)
3. USE EQUITY TO REWARD AND INCENTIVIZE STAFF: your remaining staff needs to
be 100% aboard with the mission of the company and needs to overperform §to survive
4. COMMUNICATE OPENLY WITH STAFF: will help to gain support of staff whilst
making tough decisions
5. PUT AS MUCH EFFORT AS YOU CAN IN PRODUCT DEV: now is the time to make
sure you product stands out amongst the crowd
6. MARKETING SPEND: focus only on high ROI channels
7. GOVERNMENT SUPPORT: make us of local rescue packages where you can and
explore opportunities early(find overview here)
For more information how to navigate short term, please visit www.Finchcapital.com/covid19
26
For questions or feedback about this report, please feel free to contact us.
If you like this report, please share it!
Radboud Vlaar
Managing Partner
Radboud@finchcapital.com
Aman Ghei
Principal
Aman@finchcapital.com

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The Future of Disruptive and Enabling Financial Technology post CV-19

  • 1. The Future of Disruptive and Enabling Financial Technology post CV-19 ‘’Backing Future Champions in AI, FinTech and IoT’’ 1
  • 2. 2 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. Companies include BUX, Brickblock, Digital Insurance Group, Goodlord, Grab, Hiber, Twisto and Trussle. FinchCapital is a team of 12 investment professionals with wide entrepreneurial experience (e.g. Adyen, Deepmind and Arista), prior investment experience (e.g.Accel, Atomico, Khazannah) and industry backgrounds (e.g.Facebook, Google,and McKinsey), located across offices in Amsterdam, London and Jakarta. For more information see www.finchcapital.com
  • 3. Contents 3 1 Context, Methodology and Executive Summary 2 CV - 19 impact on Financial Technology 3 A post CV-19 crisis perspective on key FinTech and FinTech enabling sectors 4 How to survive in the short term 4 6 19 24
  • 4. Context and Methodology 4 Ø COVID-19 has had an inconceivable impact on all of our lives and is reframing our way of life on a daily basis. Never before have we seen such a drastic and immediate impact across businesses in multiple sectors. Ø Despite government’s committing $ trillions to help enterprises, SME’s and employees, the need for cash management has never been more important. Ø We believe that the crisis will accelerate fundamental shifts in how we work and interact in private and business context. Ø The crisis is and will even more so result in a revisit of how investors and potential buyers perceive value in this new normal, with some verticals expected to have a rude awakening, while others embrace opportunities a crisis or recession might bring along. Ø Since the start of the crisis we have reflected on how we expect the Disrupting and Enabling Financial Technology landscape to be impacted in terms of growth, profitability, competitive dynamics, Investor appetite, valuations and exit routes. Ø This report is based on surveys with Founders of Disurptibe FinTech as well as AI and IoT companies selling software to Financials, interviews with Financial Institutions in our network and market research leveraging public data and proprietary Finch Capital research
  • 5. Executive Summary 5 Ø Expect crisis mode until Q3 2020, followed by a 12-18-month recovery Ø Digital-only becomes the new industry norm in financial services, accelerating the current trend§ Ø Shift to digital-only triggers a "Big Pocket" online battle between incumbents and challengers to win Financial Institutions turn to Tech companies rather than inhouse to accelerate digital transformation Ø 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 Ø 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 Ø Areas under pressure: • Challenger banks: high valuations, 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 Ø 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 Ø Increased M&A and trade-sales below $250m category of fintech companies, as fewer IPOs expected. In addition, Banks likely constrained given higher capital preservation requirements 2020 will be challenging for FinTechs to navigate, but prosperous times remain ahead post crisis where Disruptive winners take it all and demand for AI, Tech and IoT companies that help financials transform to a digital and Data driven interaction will surge.
  • 6. Chapter 1 6 How CV is impacting FinTechs CV-19: Impact on FinTech
  • 7. Macro economic impact: CV - 19 severe, with recovery to a new normal starting in Q3 2020 7 Base scenario we expect is: • Now until Q3 - "Crisis" • Q4 and Q1 2021 - "Recovery" • Q1/Q2 2021 - "New normal" LR 1Q 2Q 3Q 4Q 4Q/4Q Global -12.0 -1.2 19.1 4.3 0.5 Global ex. China -5.8 -13.7 18.1 4.0 -0.4 Developed -7.5 -16.0 21.9 3.8 -0.8 • US -4.0 -14.0 8.0 4.0 -1.9 • Euro area -15.0 -22.0 45.0 3.5 -0.1 • Japan -3.0 -1.0 5.0 3.5 1.1 • UK -10.0 -30.0 50.0 2.5 -0.8 Emerging -18.8 21.4 14.9 5.0 2.5 EM Asia -26.0 35.4 17.5 5.8 4.1 • China -40.8 57.4 23.9 5.5 5.1 • Others -0.8 -2.0 6.5 6.2 2.4 Latin America -1.2 -11.6 8.4 2.6 -0.8 EMEA EM -2.1 -13.1 9.0 3.8 -1.0 Table 1: Real GDP, 2020 forecast % chg, SAAR Source: JP Morgan
  • 8. New business negatively impacted, and expected to become more severe in the next few months 8 Where do entrepreneurs feel most of the impact immediately? How does the immediate impact differ from other crises? Business Volume Sales Pipeline Working Capital More than 50% down 25 to 50% down 10 to 25% down Stable (-10% to +10%) Positive 10%+ growth Source: Finch Capital Survey of 95 Founders in AI, IoT and FinTech in Europe and South East Asia
  • 9. How does acceleration of digital adoption by Consumers, SMEs and Financial Institutions due to CV-19 change competitive landscape? How do FinTech'’ and Incumbents perform during the crisis e.g. do they pass the "Digital Stress" test? How will the CV- 19 crisis impact the Funding landscape and valuations? Impact digital adoption, online stress test and change in funding dynamics will shape FinTech outlook 9 Once this is over there will be a strong demand for my product Once this is over we as a company are stronger Strongly disagree Disagree Don't know yet Agree Strongly agree Source: Finch Capital Survey of 95 Founders in AI, IoT and FinTech in Europe and South East Asia
  • 10. Digital Adoption - CV-19 crisis forces everybody to accelerate digital adoption…. 10 There was already a general shift for people to work remotely…. Trend % working from home 2009 to 2018…. …..now got accelerated to 100%, forcing people to do business and manage their financial matters remotely using tech Example China Sweden Iceland Netherlands Luxembourg United Kingdom Denmark Finland Belgium France Estonia Ireland Austria Slovenia European Union Poland Portugal Switzerland Germany Norway Slovakia Croatia Hungary Spain Greece Lithuania Latvia Italy Romania 0 5 10 15 20 25 30 2008 2018 Coronavirus outbreak leads to surge in Chinese business apps Overall App Store rank in China by downloads (position) Jan 18 Jan 27 Feb 03 Feb 10 Feb 16 1,500 1,000 500 1 Ding Lark Tencent Meeting Huawei Cloud WeLink Source: App Annie ©FT
  • 11. ….this accelerated shift to digital likely creates a "digital battle" between incumbents and challengers 11 Branches Intermediaries Agents/Brokers Digital splash Websites/ Apps FinTechs Money supermarkets Banks Insurers Branches are the most preferred channel when applying for new products, Proportion of respondents who prefer branches Mortgage/ mortgage refinance Wealth management account Checking account Mexico 75% 73% 70% 53% Credit Card Indonesia 68% 69% 67% 66% Spain 83% 79% 66% 62% France 79% 75% 64% 64% Switzerland 84% 74% 64% 49% Japan 72% 61% 61% 43% United States 65% 62% 58% 41% Canada 74% 69% 58% 46% Germany 74% 65% 56% 51% Singapore 67% 62% 52% 32% India 57% 44% 50% 36% Brazil 61% 55% 49% 27% Australia 72% 66% 46% 46% China 55% 39% 43% 40% United Kingdom 58% 56% 34% 28% Netherlands 73% 59% 34% 32% Norway 48% 40% 14% 18% Source: Deloitte Center for Financial Services analysis Deloitte Insights | deloitte.com/insights Average % in person as preferred channel Mortgage Wealth Checking CC Life Non-life Western Europe 30% ±60% 95% ±60% 80% 40% Lowest 18% +50% 30% 39% 40% 14% CV-19remoteexperienceLifeInsuranceP&C Distribution Channels Source: Deloitte and Finch analyses
  • 12. Digital test - Incumbents as well as Fintechs facing challenges in a digital world…. 12 Insert Robin Hood press clipping FinTechs issues dealing with scale….. Incumbents have issues dealing with remote
  • 13. ...Incumbents stepping up digitalisation, creating surge in security/KYC and collaborative tools 13 Smart CRM Branches Suitable for WFH? Branchless banking will become real What will happen Salesforce Central business units Product development Technology Operations Contact center No Yes Tools and mechanisms already exist to make this happen Yes Well positioned if collaboration tools in place Yes Well positioned if collaboration tools in place Maybe Unlikely to move for core, but non core possible No No Scale down - Push towards AI text How? e-identity/KYC/video Video/productivity software Chatbots / home call centers Nothing - regulation driven High confidentiality requirements Virtual meeting led by product managers Developer collaboration tools
  • 14. FinTech enablers expect a boost in demand for AI, IoT and SaaS to help financials accelerate digital change 14 Increase demand Similar demand Decrease demand Front end Middle Back end Banking and Payments Insurance Property Tech Chatbots: Call center disruption Drive to branchless banking continues Remote working, performance management Remain committed to checks & regulation More focus on core products Innovative payment projects on hold Chatbots: Call center disruption Shorter term decrease in new policy onboarding Remote working Fraud will remain top of mind Change product creation architecture Automated claims management Deemphasized with short term pressure on new volumes Deemphasized with short term pressure on new volumes New sales workflow required Non-core to business Need to digitise creation and management Physical surveyor replacement Customer Service Onboarding Productivity tools AML/KYC/Fraud Multi-channel software Computer vision Drive to cashless, remote working security issues Telematics hit in short term IOT & Not Present Security Cameras, drones, access management
  • 15. Funding landscape - Bar has been raised, with first impacts visible in Q1 2020 - CVCs capital can be at risk... 15 Funding volumes already dropping in Q1 2020…. ….CVC lead funding represent 10-20% funding as seen in other recessions CVC's existence might be at risk Number and volume ($bn) of CVC backed funding rounds in Europe…. ….Total number and volume of venture rounds in Europe Global funding rounds to private companies, Q1’18 – Q1’20 8,791 10,040 9,566 8,674 9,284 9,929 9,176 9,197 7,337 2,277 2,940 3,245 2,543 2,382 2,421 2,517 2,666 1,599 Q3Q1 Q4 Q3Q1Q2 Q2 Q4 Q1 Global Deals Asia-based deals SOURCE: CB Insights 2018 2019 2020 $1.3 $3.7 $4.6 $3.3 $5.4 $7.5249 300 2014 2015 368 2016 436 2017 513 2018 608 2019 Annual disclosed CVC-backed funding to Europe, 2014-2019 2019 • % number of deals CVC: 9% • % of deal volume CVC: 11% Bank CVC-backed deals & funding 0.3 0.6 1.2 0.8 2.9 3.5 $4.0B $0.0B $1.0B $2.0B 50 $3.0B 0 100 150 20182014 2015 2016 20192017 Deals (Right Axis) Funding (Left Axis) 4,599 6,119 7,000 7,200 6,870 6,763 24.5 35.4 33.6 39.1 63.5 4,000 0 3,000 1,000 2,000 5,000 7,000 6,000 8,000 0 10 20 30 40 50 60 70 2014 2016 56.8 20192015 2017 2018 Deal volume (In € Bn) # of rounds
  • 16. ...less capital in system puts pressure on valuations, and triggers consolidation/shake-out in most sub-sectors Median Pre-Money Valuation, $M $7 $20 $56 $0 $10 $20 $30 $40 $50 $60 $70 20172013 2014 20182015 2016 Angel/Seed Series A Series B Median Pre-Money Valuation, $M $115 $325 $0 $50 $100 $150 $200 $250 $300 $350 $400 2015 20172013 2014 2016 2018 Series C Series D+ Consumer Lending SME Lending Wealth Management Savings/ Deposits Insurance Distribution Insurance Products Mortgages Payments/FX Challenger Banks Enabling FinTech Credit need Remortgage More digital Credit need De-risk Less activity Demand Less activity Higher NIM Higher NIM Higher NIM Less AuM FX Spread Lower CAC Relative valuation Price to revenues Growth impact CV-19 post crisis Unit economics post crisis 50x+ 10-30x 10-30x 10-20x 50x+ 50x 50x+ 50x+ 50x 10-20x 16 + Consoli- dation + M&A offline brokers + M&A + Valuation pressure + M&A with traditional + Valuation pressure + M&A + M&A by old tech + M&A Valuation & M&A implicationsExample
  • 17. Post crisis, expect an increase in funding flow to mortgage disruptors, and consolidation of payments space 17 €6 Bn €5.3 Bn €4.7 Bn €3.3 Bn €1.8 Bn €2.8 Bn €3.5 Bn Geo Winners emerge Consolidation Digital disruption Revenue at risk, flight to safety Health & telemedicine Automate, automate…. Rent & Remortgages Source: McKinsey 218 1,033 405 400 246 319 447 High Low ROE Developed markets Low High Intensity of customer engagement/data Retail Deposits & Payment Asset management Wealth management Consumer finance Commercial and transaction banking Mortgage CIMB2 Big tech and fintech focus area, ($2.4 trillion revenue = 45% of global revenue pool1) 2014-2019 2021 -2024 Theme Challenger Banks Payments Lending & Mortgage Wealth Management InsurTech PropTech Enabling FinTech
  • 18. Exit Landscape - Closing IPO window and lower valuations increase EUR 0-250m Financials led M&A 18 2020 - 2025 outlook IPO exit route likely to be more complicated….resulting in more trade sales…. $ Billions 2013 - 2019 exit ...gap between P/E and FinTechs remains, continue to make "Big M&A by Financials Hard short to medium term IPOs: $40B since 2013 Sale to other Fintech company: $34B Sale to private equity: $18B Sale to financial institutions: $4B 92.5x 35.8x 35.6x 21.2x 15.4x 10.9x 10.3x 7.9x 7.3x 7.1x 7.1x Average Average 2019 P/E multiples of Fintech companies 2019 P/E multiples of traditional banks P/E 27/3/2020 115 26 35 16 11 19 8 7 6 5 7 Average ±20 ±7
  • 19. Chapter 2 - New Normal Fintechs outlook 19 A post CV-19 crisis perspective on key FinTech and FinTech enabling sectors
  • 20. Banking & payments: Severe impact now; post crisis, online mortgage surge, others consolidate 20 Impact on sales/profit: -30% to +15%> +15% <-30% Challenger Banks Payments Trading Wealth Managers SME Lending Consumer Lending Mortgage Challengers FX During crisis Post crisis Interchange and FX revenues collapse Payment volume doom and gloom with travel issues Short term FX solutions to counter volatility Consolidation and product M&A rebound Free brokerage has attracted millions of new retail investors The end of cash is nigh but travel headaches Pressure on fees, ETFs hit hard Accelerated shift to digital disruption Even less focus from incumbents to drive consolidation Recession loan books but attractive pricing Old and new school FinTech consolidation Volatility is its best friend De-risking investors withdraw SME default worries Need for credit, but beware of defaulters Remortgage to get disposable income Shift to online Example
  • 21. InsurTech: Short-term challenged (excl. health & claims) post-crisis strong in SME, health, and enabling tech 21 Impact on sales/profit: -30% to +15%> +15% <-30% B2C Challengers P&C B2C Challengers Health Claims Handling Analytics IoT Software – FrontEnd Software – Mid & Back-end B2B Challengers During crisis Post crisis No driving, no travelling and pressure on disposable income Flight to safety like never before Lockdown of businesses, lockdown of policies with self employed hurting Comparison sites / brand winners lead fightback Even more eager Telemedicine and health insurance new reckoning Accuracy never been more important Cost overhaul doing away with expensive consultants The move to digital will truly be on New business only on digital interface Alternative data to lead CAT pricing Automated claims will be differentiator How to adjust from COVID-19 “mindset” Crisis monitoring solutions needed Need to have digital policies becomes no brainer No immediate need to jump on bandwagon Example
  • 22. PropTech: Low volume during crisis but light visible at the end of the tunnel 22 Impact on sales/profit: -30% to +15%> +15% <-30% During crisis Post crisis Crisis management for agents Zero volume, no renters, no travellers Need of the hour but few people are moving Insurance will be on everyone’s mind Contact-free digital disruption Hesitant travellers, market share winners Savings wipe off will mean help needed Data becomes ever more important in daily life Industry mis-selling and scandal pressures Investment in infrastructure to drive out of recession Price correction to re-balance businesses Remortgage to get disposable income No one buying houses Inventory risk damaging Cannot disappear from projects Monitor, monitor, monitor (without humans) Effects of price correction unknownWithdrawals for liquidity RentRentInvestments Platforms Marketplaces Mortgages Deposits iBuying Development – Con- struction Software AVMs Deposits Property investments Example
  • 23. Enabling FinTech – Sales delayed during crisis; post-crisis surge for enabling techs that reduce costs 23 Impact on sales/profit: -30% to +15%> +15% <-30% During crisis Post crisis The sell off commences Never a better time to automate Chat bot army mobilizes Clear out of 90% of market E-Identity becomes norm SMEs shout for more Lending and mortgages implementation breakthroughs Need to raise AuM cost effectively Call centers start optimizing Fight for survival and execution Challenge to update API standards Work from home vulnerabilities exposed No volume through the system Fast tracking rescue packages Defaults up and technology is last thing on mind New initiatives on hold, pressure on fees No major push to the protocolNo trade, no remittance, XRP issues AIBlockchain Crypto Automate & analyse RegTech/ Security “As-a-service” software Open Banking Trade Finance Real Estate Investment Customer Service Capital Markets Example
  • 24. Chapter 3 - How to navigate the crisis 24 How to survive in the short term
  • 25. 7-step checklist to navigate through the crisis phase and reposition well for the new normal 25 1. MANAGING LOSSES WITH SPEED AND ADEQUACY: cut staff costs (be open and empathic), use force majeure clauses, renegotiate contracts 2. BE REALISTIC ABOUT FUNDRAISING LANDSCAPE: short term little appetite for new deals as focus is with protecting portfolio (this will change in +- 6 months) 3. USE EQUITY TO REWARD AND INCENTIVIZE STAFF: your remaining staff needs to be 100% aboard with the mission of the company and needs to overperform §to survive 4. COMMUNICATE OPENLY WITH STAFF: will help to gain support of staff whilst making tough decisions 5. PUT AS MUCH EFFORT AS YOU CAN IN PRODUCT DEV: now is the time to make sure you product stands out amongst the crowd 6. MARKETING SPEND: focus only on high ROI channels 7. GOVERNMENT SUPPORT: make us of local rescue packages where you can and explore opportunities early(find overview here) For more information how to navigate short term, please visit www.Finchcapital.com/covid19
  • 26. 26 For questions or feedback about this report, please feel free to contact us. If you like this report, please share it! Radboud Vlaar Managing Partner Radboud@finchcapital.com Aman Ghei Principal Aman@finchcapital.com