By Scott Donnelly, CEO, CapitalBox
It has been a big year for fintech, and 2021 will without doubt be another massive year for growth. In recent years we have seen the fintech sector embrace digital transformation with open arms, however 2021 has quickened this development more than ever due to the COVID-19 pandemic.
As our environment picks up pace and we are forced into a flexible working environment, progress in new technology, like acritical intelligence and machine learning are offering new possibilities, especially to new small businesses who are testing the waters in the sector. This has brought a flurry of change into the fintech industry as a whole.
Such change in 2020 has created fertile ground for change and innovation in 2021, which will be a year characterised by expansion through partnerships, technology and consolidation.
1. Acquisition by larger players
2021 will be a year for consolidation in fintech. We expect the leaders of large companies to progress in acquiring smaller players. This will be partially evident in more mature areas, such as lending, alongside emerging areas of the financial market like blockchain. For start-ups, consolidation can fuel and scale international growth and also help them to rebuild themselves, and their balance sheets, after a challenging year. Consolidation offers small businesses a golden ticket to every aspect of the financial services ecosystem.
Take CapitalBox’s recent acquisition of Spotcap Global, one of the most recognised online lenders in the Dutch market. This consolidation has allowed Spotcap Global to grow its business through the combination of expertise and technology, solidifying a strong market position and translating into better funding options for Dutch SMEs.
2. Private equity and venture capital funding are set to rise
Private equity and venture capital are perfectly placed to take advantage of an economic downturn. For investors skilled enough to act on the dry powder in the market, we expect a top buying opportunity for reasonably priced corporations in 2021 – especially as there is a considerable amount of institutional investor money sitting on the side-lines right now.
According to BDO’s Private Capital Pulse Survey, private equity and venture capital managers share the same optimism, with only 15% saying they expect the economy to worsen in 2021.
3. Fintech and eCommerce work hand in hand
With more payment options available, from mobile to pay-later, the eCommerce space has already got a taste for the profits that modern financial technology can bring, and there is only more to come. In a world that is growing more digital by the minute, the COVID-19 driven surge in eCommerce is unlikely to fully subside even when rules are relaxed. The use of chatbots, biometrics and blockchain tech have revitalised the customer experience for good, therefore in 2021 fintech companies that facilitate, assist or fund eCommerce transitions will be thriving.
4. Businesses must turn to eCommerce tools
Many small businesses have had to learn to digitise and sell online during this difficult time in order to survive. A report released by Adobe shows COVID-19 has massively enhanced the growth of eCommerce with a 77% rise, an increase that would have otherwise taken 4-6 years. Therefore, we expect rapid growth in SME eCommerce tools as businesses prepare for the future. To be eCommerce 2021 ready, organisations must prioritise the use of external tools, like digital payment process systems and analytics tracking platforms, that can handle the dynamic environment caused by the coronavirus pandemic. Without these, small players run the risk of getting left behind as a result of a weak consumer experience.
5. Brexit will create optimism for multilingual companies
The US has some really big fintech players and in the UK, there are a lot of businesses in the space albeit small to medium sized. The real opportunities in fintech however, come from targeting smaller countries rather than large markets.
With markets such as the US and UK, companies tend to trade internally as it is easier than getting to grips with multiple languages, currencies and regulations. The latter are difficult to deal with, but if your fintech business can navigate multiple regulatory ecosystems, then there are some serious opportunities to take, like having a bigger presence across the globe.
Brexit will be a benefit for continental fintech players next year, as it will add more regulatory hurdles for companies looking to enter the market. However, it will be even harder to establish as a fintech in the UK. To get past this, the UK Government needs to connect players in the UK to larger players in the environments it wants to expand to and find a way to work together.
2021 will see a noticeable increase in the pace of change and adoption of technology for the fintech space. With such bold developments in the pipeline, next year looks to be another exciting one. We expect to see fintech help to get our economy back on its feet post COVID-19, with a large focus on tech adoption, used to help businesses rebuild and grow again. The likes of AI, blockchain and cryptocurrency becoming commonplace in businesses show a promising start to 2021.