Detour: An altered path to profit for European fintechs

To navigate the economic fall-out from COVID-19, Europe’s fintechs will need to adjust their playbook.

 
Fintechs have been on a roll. Fueled by generous amounts of venture capital funding, last year 24 financial services startups hit a valuation of more than $1 billion, bringing the global total of such highly valued “unicorns” to 58. Together, these and other fintechs have ushered in a revolution in customer experience: Consumers can now open an account or get a loan in a matter of minutes (instead of weeks or months), exchange and send money internationally at low or no fees, and buy products with instantly created no-interest installment plans. Fintechs have also upped the ante for speed and agility, launching new features and initiatives in weeks instead of the six- to twelve-month timeframes more typical of banks.

The emergence and spread of COVID-19—in the first place a world health crisis—is also causing unprecedented economic damage across the globe. Most McKinsey COVID-19 scenarios show European economies contracting by 11 percent in 2020 and not returning to pre-crisis levels until 2023. Fintechs are already feeling the squeeze. Venture capital funding has slowed, business model vulnerabilities are being exposed, and competitive dynamics are shifting. This has brought the sector’s underlying profitability and long-term business model sustainability into sharp focus—to a point where we believe the path to profitable scale for many fintechs has been structurally altered.

This is not at all to write off the sector. Fintechs have several long-term advantages—they are native to the digital arena, with more efficient cost structures, organizational agility, and, most importantly, higher customer loyalty. Consumers are now accustomed to quick, easy, low-cost financial transactions, and we believe there is no going back. In this article, we explore how the dynamics for fintechs have changed (particularly in Europe), the opportunities and implications for financial services incumbents, and how fintechs can weather the storm.

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Πηγή: mckinsey