The Fintech Pandemic Playbook - MAKING IT "WORC" - Marlin & Associates
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MAKING IT “WORC”
The Fintech
Pandemic Playbook
A Navigational Framework for Founders,
CEOs and Investors
1
Preface
Being a founder is lonely. So imagine what it’s like being a fintech founder or CEO
quarantined indefinitely and cut off from your team and customers.
The genesis of the Fintech Pandemic Playbook was hearing consistent pain points
of isolation from founders and C-suite executives, identifying a communication gap
between fintech firms, and wanting to bridge the divide.
Every business that has weathered the first phases of the pandemic has done so in large
part because of its leadership team. Consistent among these leaders are quick, decisive,
and continuous communications to their employees, customers, regulators, and
investors. Most founders are looking for validation they are doing the right thing, which
resonates most effectively when communicated from other founders experiencing the
same pressures in the crisis.
That is the intention of this playbook. It is built on data contributed by fintech founders
for fintech founders and meant to serve as a resource to the fintech community at large.
Our study is a synthesis of data and commentary from three sources:
• A primary research survey of more than 100 fintech founders and C-suite executives,
plus venture capital firms (VCs), investment bankers and corporate investors with
fintech portfolios
• Interviews with more than 60 of those respondents for verbatim commentary and
further illumination of the survey findings
• Secondary research, including analysis of alternative market data, government
databases, third-party surveys, media coverage of business operations during the
pandemic, among other sources cited where the data is public
COVID-19 reports and surveys have flooded the market, and some are referenced in
this report. However, few are targeted to the financial technology ecosystem, and most
stop short of turning insights into actions for founders.
There is no playbook for operating in a global humanitarian crisis of indefinite duration
– until now. Our goal was to build an intelligent fintech report, a hybrid of data analytics
and market context, and provide a framework for navigating not only the current crisis,
but the path forward.
2
Contents
Preface 2
Put to the test 4-6
The “ WORC” framework 7
W Working business models 8-21
O Operations 22-25
R Regulation 26-31
C Customers 32-43
Conclusion 44-45
What’s next? The next normal for fintech
Acknowledgements 46-47
About the author 48-49
About Caliber Intelligence 50-51
Sources 52-56
3
Put to the test 4
Put to the test
“When in August 1932, a reporter for the Saturday Evening Post asked
John Maynard Keynes if there had ever been anything like the Great
Depression before, Keynes replied,
‘Yes. It was called the Dark Ages, and it lasted 400 years.’”
Liaquat Ahamed, “Lords of Finance: The Bankers Who Broke the World”1
The 2020 COVID-19 pandemic is the first fintech stress test. The modern financial technology
ecosystem was born out of the financial crisis of 2008. Until the global pandemic, fintech has
been operating in the longest bull market in history, with a lush private funding environment.
The pandemic is an inflection point in fintech’s lifecycle, pushing trading volumes into uncharted
territory and straining application capacity beyond the mainstream customer’s expectations.
For most leaders at the helm, COVID-19 is their first crisis as a fintech founder and CEO. And
overwhelmingly, fintech has executed successfully under the harshest financial shock since 2008.
Indeed, the consensus narrative is that fintech is accelerating, as indicated by the growing mentions
of “fintech acceleration” in the media among investors, incumbents, and even startups.
Without capital, fintech will struggle to scale up to hype
Without capital,
Mentions of “fintechfintech will struggle
acceleration” to scale
in the media upsurged
to the hypeahead of fintech deals amid mass
consumer adoption
Mentions of “fintech acceleration” in the media surged ahead of fintech deals amid mass consumer adoption.
January 2019
January - July-2020
2019 July 2020
8,000 350
7,234
7,000 300
6,000
Global fintech deals
250
Media Mentions
5,000
200
175
4,000
150
3,000
100
2,000
1,000 50
Jan 2019 Mar 2019 May 2019 Jul 2019 Sep 2019 Nov 2019 Jan 2020 Mar 2020 May 2020 Jul 2020
Sources: Caliber Intelligence proprietary research Critical Mentions, CB Insights 2
Source: Critical Mentions, CB Insights
5
For founders, it is more valuable to understand what has accelerated and why. If we pair media
mentions of fintech acceleration with actual fintech deals, for example, we see that the media are
cementing 2020 as a “zeitgeist” for fintech, but investment is in fact down. This is counterintuitive
– usually because media coverage follows capital and crises spawn investment opportunities.
Without capital, fintech will struggle to scale up to the hype.
Broadly, the velocity of technology adoption and regulatory actions have accelerated. These
accelerations are not instantaneous. It has taken over 13 years and upwards of $174 billion in
venture investments globally to get to the current state of fintech. The forces driving the inflections
are economic lockdowns, which may not be permanent, but have impacted customer behaviors.
In response, regulators have been quick to remove barriers for fintech firms – enabling them, for
example, to distribute stimulus funds.
Among founders and C-suite executives that took part in this study, over 56% believe the changes
wrought by the pandemic are permanent, 38% think they are temporary, and 6% believe there is
no change. Identifying which changes are short-term versus long-term is important.
Most founders areMost
prepared
founders arefor permanent
preparing for permanentimpacts of
COVID-19 on theirimpacts
businesses
of COVID-19 on their businesses
No Impact
6%
Temporary
Permanent
38%
56%
Source: Caliber Intelligence proprietary research
Source: Caliber Intelligence proprietary research
It is our hypothesis that how leaders execute during this crisis will differentiate good businesses
from great businesses. Not all businesses are great and some will have good outcomes, but others
will fail faster or sell, which started to occur in the first half of 2020. With private capital on the
sidelines waiting for valuations to drop, more M&A activity is likely. However, great businesses will
use this opportunity to fortify their positions and will be more resilient on the other side.
6
The WORC framework
From our analysis of the findings, we designed a repeatable framework for
others to assess their own strategies based on key themes identified through
our research. We call this framework “ WORC” TM:
W Working business models
O Operations
R Regulation
C Customers
Within each of these key themes, we analyze:
1 What is it – the central message of each theme
2 Why it matters for founders and C-Suite executives
3 Benchmarks and examples
4 Next steps
7
THEME I
WORC
Working business models
8
WO R C
Working business models
“In downturns, revenue and cash always goes down quicker
than expenses.”
Sequoia Capital, “Coronavirus: Black Swan of 2020” 3
1. What is it
Two of the biggest threats to fintech business models at the onset of COVID-19 were cash and
customers. Regardless of industry focus or financing history, firms’ first moves in the crisis were
defensive. Fintech firms started shoring up cash and reevaluating costs to extend their financial
runway.
There wasn’t enough historical data on a coronavirus outbreak to forecast how many months of
runway was enough and how much to cut. Using China as the earliest benchmark for the time from
infection to recovery would be too optimistic for businesses in countries like the US or Brazil, with
a longer time horizon to recovery. Unanimously, though, fintech players scrapped their 2020 and
2021 financial plans.
Founders are under pressure to get their business models profitable and get the unit economics to
work.
2. Why it matters
Some business models broke immediately as a result of having a heavy concentration among
customers in at-risk industries, such as travel or entertainment, or exposed customer segments,
such as small business (SMBs) and non-essential workers. Others thrived during lockdowns,
notably retail investment and banking technology.
Fintech businesses reported a 28% drop in revenue since the beginning of the pandemic. For
perspective, travel businesses, which were hit the hardest, took a 70% drop. 4 Declines have been
steeper for business models targeting industries that were severely impacted by COVID-19, like
restaurant payments system, Toast or business travel lodging provider, Sonder.
9
Revenues from the fintech, blockchain and cryptocurrency sectors are more
resilient in a pandemic
Revenues than travel
from the fintech, and tourism
blockchain and cryptocurrency sectors are more
resilient
Change inglobal
in revenues on a pandemic than
startups by sector sincetravel and
the beginning tourism
of the pandemic
Change in revenues on global startups by sector since the beginning of the pandemic
Blockchain and Crypto -14%
Cybersecurity -17%
Gaming -19%
Social Media & Messaging -22%
Edtech -26%
Biopharma -28%
Fintech -28%
Digital Media -29%
AI, Big Data -30%
Enterprise Solutions -31%
Property & Construction -32%
Digital Health -34%
Adtech -35%
Sportstech -35%
Online Retail & eCommerce -36%
Smart City -37%
Agtech & New Food -39%
Cleantech -39%
Energy & Environment -39%
Consumer Electronics -41%
Government Tech -42%
Automotive -43%
Transportation & Infrastructure -43%
Medtech -43%
Advanced Manufacturing -48%
Beauty & Fashion -59%
Travel & Tourism -70%
Source: Startup
Source: Startup Genome,
Genome, 2020 2020
COVID-19 Founder COVID-19 Founder Survey
Survey
The pendulum has swung from growth at all costs to getting on a path to profitability
Investors also hunkered down in Q1’20 to fortify their portfolios. They helped their portfolio
companies with scenario planning, right-sizing, and making follow-on investments. Investors also
advised on applying for federal relief such as the Small Business Administration’s (SBA) Payroll
Protection Program (PPP). Companies, meanwhile, have had to focus on containing burn rates,
reducing spend on non-essential categories, and reducing headcount.
While logical, the shift in focus from growth to sustainable unit economics requires different
operating principles, workforce alignment, and leadership styles. For early-stage and venture
backed businesses, the operating goal posts are shifting. In the run-up to the lockdown, investors
pushed companies to increase product velocity, customer acquisition, and equity value. That
growth, though unstainable, created a handful of market leaders with sizeable valuations.
103. Key benchmarks, examples, and industry expectations
Investors we analyzed have been recommending their companies maintain runway ranging
from 12 to 30 months to account for the tougher funding environment and uncertain impact on
sales. David Sacks, Co-founder and General Partner at Craft Ventures and COO of Paypal, advised
portfolio companies have eight quarters of runway, but ten would be better. 5 One fund we spoke
with surveyed 100 fintech firms in their network, and 85% reported cutting costs in the beginning.
The biggest expenses were real estate and headcount.
In our study, which was conducted through June, fintech firms cut costs primarily in the following
areas:
• 26% of executive teams reduced their salaries
• 31% did headcount reductions or furloughs
• 46% of firms that adjusted headcount also reported its executives reduced their salaries
• 52% of companies got vendors to renegotiate or are in the process of renegotiating existing
contract terms
• 37% of companies were successful in renegotiating an office lease, 11% were still renegotiating
terms, and the remaining 52% were not successful
• 49% did not intend to return to an office in 2021, however if those plans change, 75% have an
office
• 0 participants in the study cut all six expense categories and only 3 cut five out of six
To
To reduce
reduce the cost structure
structureof
ofthe
thebusiness
businessor
orextend
extend runway, fintech firms took
the following
runway, actions
fintech firms took the following actions
2% 9% 2% 2%
11%
26% 31% 23% 50%
43% 37%
74% 67% 48% 52% 75% 48%
Reduced executive Laid off or Successfully Successfully Abandoned an Reduced marketing
team compensation furloughed staff renegotiated third negotiated office office lease spend
party contracts leases
No Yes In Progress
Source: Caliber Intelligence proprietary research
Source: Caliber Intelligence proprietary research
11On top of cost cuts, some companies found ways to accelerate revenue through faster customer
payments.
Just as fintech firms have sought to renegotiate contracts, so have their customers. For customers
whose businesses were impacted by COVID-19, including other startups or those exposed to
the travel and entertainment sector, fintech startups have become flexible on payments. In one
example, a founder’s customer asked for flexibility and in exchange signed a three-year contract.
Headcount reductions were among the hardest challenges for founder
Cutting headcount was one of the more difficult decisions for founders. The biggest question was
how much cutting would right-size the business when the economic outlook was and remains
unknown. The consistent advice from VCs and other advisors was to cut once and deep.
The most severe example of layoffs as a percentage of headcount was ScaleFactor, an accounting
software firm that folded faster from the strain on the economy. ScaleFactor was struggling with
customer churn prior to COVID-19, and reported its annual recurring revenue halved from $7
million as demand from small businesses crumbled in March. 6
By total headcount, India-based Paisabazaar, an alternative credit and lending marketplace, let
go of 1,500 employees or approximately 50% of its staff. 7 Meanwhile, its sister company, insurance
unicorn Policybazaar, did not report any headcount reductions and is still planning for an initial
public offering (IPO) in 2021. 8
A few companies have made reductions more than once, including business travel lodging
providers, Lyric and Zeus and digital-first challenger bank Monzo.
Even unicorn companies with $1 billion-plus valuations have had to make the same tough calls.
12How COVID-19 is triggering mass layoff s across fintech
Layoffs are impacting fintech companies on a global scale and across all major sectors
including lending, payments, insurance, wealth management, real estate, among others.
Source: Layoffs.io
Note: This visual is for illustrative purposes and is not exhaustive
13UK-based Monzo has been aggressively reducing its costs after reporting losses of roughly $148.88
million (£113.8 million) for its fiscal year ending in February 2020. 9 Monzo laid off 165 employees
when it shuttered its Las Vegas operations in April, laid off as many as 120 from its UK employees
in June, and furloughed roughly 295 UK employees. Tom Blomfield, Co-founder and CEO, stepped
down as CEO, among other C-suite shuffles, and the executive team took salary reductions. Despite
amassing over 4.4 million customers, Monzo’s last $75.5 million Series G financing was a so-called
“down round” based on a sharply reduced valuation. Monzo has since shifted its business model to
include premium paid accounts in order to get the firm profitable sooner. 10
Other Europe-based fintech firms reducing headcount include unicorn challenger banks N26 and
Revolut, as well as publicly traded alternative lender Lending Circle and personal finance app
provider Numbrs.
Founders are also reducing their salaries. Revolut founders Nikolay Storonsky and Vlad Yatsenko
are forgoing their salaries for a year 11. N26 founders Valentin Stalf and Maximilian Tayenthal took
a 25% pay cut, as did executives of Monzo and crowdfunding platforms Crowdcube, Seedrs and
SyndicateRoom. 12
Some CEOs posted internal communications to their teams transparently acknowledging their
rationale and recognizing their shortcomings.
“If today is your last day, there is only one person to blame and it is me,” wrote Henry Ward, founder
and CEO of Carta, the cap table management company that was last publicly valued at $1.7 billion,
which let go of 16% of its staff. 13
“I’m sorry that we are going through this as a company,” Ward said. “And I am sorry that all of you
are going through this as Carta employees, Americans, and human beings.”
144. Next Steps
“We are in an environment the likes of which we have not experienced...”
Bond Capital, “Our New World” 14
For startups that survived the first two phases of lockdown, as economies start to reopen, it’s time
to go on offense.
One of the most positive outcomes of the pandemic response, as expressed by 41% of the
executives we surveyed, was finding out that their business models were profitable. Conversely,
one of the hardest challenges is being behind sales forecast, as expressed by 33% of respondents,
followed by customers churning.
Looking at business metrics, half of respondents reported revenues have increased and 17%
report revenues remained flat. 35% saw customer acquisition costs decrease, at least temporarily.
Firms that saw CAC decrease also reported reducing marketing spend or planning on attending
conferences in 2021.
The most positive Impact of The hardest challenge of
COVID-19 on our business
The most positive impact of
COVID-19 on our business
The hardest challenge of
COVID-19 on our business COVID-19 on our business
Sales are ahead Missing record low
Culture & morale
of forecasts Increased customer
acquisition costs
partnership activity We delayed the
Exposed product roadmap to
market gaps Customer retention The business model
extend runway
beat forecasts is unsustainable
The business Sales are behind
of forecasts
VS
model is profitable
Customers Regulatory
We're ahead of Accelerated
churned barriers increased
adoption
our product Hard to meet Right sizing the business
roadmap Nothing positive clients with market risk
Keeping up
Increased customer with demand Travel and
demand
physical meetings
Source: Caliber Intelligence proprietary research
Note: Sizing is based on responses and is for illustrative purposes
Source: Caliber Intelligence proprietary research
Note: Sizing is based on responses and is for illustrative purposes
15Compared to the same quarter a year ago, COVID-19
Compared to thebusiness
has impacted same quarter a year ago,across
performance COVID-19
thehas impacted business
performance across the following key metrics
following key metrics
2% 1%
8% 8% 10%
17%
17%
44%
38%
31% 50% 44% 38%
15%
50%
35% 19% 19%
40% 19%
23% 27%
26%
19%
Revenue Retention Average Customer Conversions Activation
contract value acquisition costs rate
Increased Decreased Unchanged NA
Source: Caliber Intelligence proprietary research
Follow the flow of money
The pandemic set off unprecedented market volatility. For founders operating in wealth
management or capital markets technology, this is the “once in a lifetime” cycle they’ve been
waiting for to prove scalability to the market. Following the funds and trade data provides an
opportunity for companies to align with the direction of the market.
One example is the sustainable funds category which in Q1’20 set a quarterly record of $10.5 billion,
according to Morningstar. 15 Environment, social, and governance (ESG) investment strategies
had already reached an inflection point in the eyes of institutions like Blackrock, and now among
investors seeking shelter amid extreme market volatility. In part, because they had not been tested
until the market plunge, and in Q1’20, sustainable funds lost less money than their non-ESG peers
according to a recent MSCI report. 16
ESG funds managed losses better because they mitigate exposure to intangible risks, such as
geopolitical tensions, which erupted following global lockdowns. ESG funds also tend to have
limited exposure to industrials, among the sectors hit hardest by travel restrictions.
16Truvalue Labs helps institutional investors track and rank intangible ESG risk factors. In April, the
company built a Coronavirus ESG Monitor that aggregates metadata on the pandemic and analyzes
where it intersects with environmental, social, and corporate governance risks. In June, the company
also launched a news monitor to track how racial equality-related events impacted sentiment on
specific companies.
Source: Truvalue Labs
By “dog fooding” the product, a quality control tactic in product management that dates back to
Apple and Microsoft in the 80’s, the company was able to rank new intangible risk factors as they
emerge and prepare their COVID-19 and racial injustice responses. It is also a key tenet for founders
to prove product-market fit. As Andy Rachleff, Co-founder and CEO of Wealthfront and Co-founder
of Benchmark Capital, teaches budding entrepreneurs in his course on aligning startups with their
market,
“if the dogs are eating the dog food — then you can screw up almost everything in the company
and you will succeed.”
17Follow the customer’s physical footprint with their digital traffic
The lockdowns broke physical customer acquisition channels for fintech businesses selling to or
through financial institutions. Direct-to-consumer (D2C) and consumer-facing businesses also lost
marketing attention from physical spaces, such as subway ads, billboards, and popup shops.
Marketing is one of the expenses firms typically pull back on in a crisis to reduce costs, and 50% of
our survey respondents did just that. However, pre-COVID, daily hours spent on digital media per
adult user was already on the rise on the back of mobile adoption, topping 6.3 hours in 2018.17 With
more time at home during lockdowns, digital engagement has spiked, suggesting that investing in
a digital marketing strategy should pay dividends beyond this period.
Mobile is crucial to acquiring customers,
and grabbing
Mobile more
is crucial consumer attention
to acquiring customers, and grabbing more consumer attention
Daily hours spent on digital media per adult user rises on the back
of mobile adoption
Daily hours spent on digital media per adult user rises on the back of mobile adoption
6.3
6
5.7
5.4
5.1
4.9
4.4
3.7
3.2
2.9
2.7 0.4
0.8 1.6
3.1 3.3 3.6
0.3 2.3 2.6 2.8
0.3
2.1 2
2.3 2.4 2.6 2.5 2.3 2.2 2.2 2.2
2.2
0.2 0.3 0.4 0.3 0.3 0.3 0.3 0.4 0.4 0.6 0.7
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Other connected devices Desktop/Laptop Mobile
Source: Bond 2019 Internet Trends Report
Source: Bond 2019 Internet Trends Report
One company taking this strategy seriously is Rally Rd., a retail investment platform for trading in
shares of illiquid collectibles, such as antique cars and memorabilia. The company has a storefront
in New York, an organic customer acquisition channel that was closed off by the lockdowns. The
company is going to partner with social network app Snap to boost investor engagement with
younger investors on Snap’s platform. At Snap’s Partner Summit in June, the company reported
having 229 million daily active users (DAUs) in Q1’20 and reported its digital reach in the US topped
100 million consumers. 18
18229 million daily active Snap users in Q1’20
100 million+ consumer reach in the US
Source: Gdrive Folder Logos & Images PNG Snap + Rally – PNG
PNG. Rally Rd. lamborhgini-countach-NYC Soho manahttan
Raising money
Early-stage (seed and Series A) companies have not felt investors pull back in Q2’20, though
investors are doing more diligence related to companies’ COVID-19 strategies. We spoke with 10
founders that were able to close a round, though some were closed in January.
Early-stage deals may look like they are behind year-over-year averages. However, there is
typically a 20% to 30% gap between closed rounds and disclosed rounds. Companies have been
underreporting funding announcements to avoid getting lost in the media over COVID-19, likely
making the gap in closed and reported rounds as wide as 40%. 19
Early-stage investors have been active. Many have closed fully remote investments with companies
they have not met in person. Combined, the gap between closed and disclosed early-stage deals
has likely grown since the lockdowns began. Founders looking for a lead investor will have better
chances polling other founders to identify who is active rather than scanning the media.
For founders looking to raise in the fall and winter, venture funds typically slow down in August,
and VCs likely have less capital reserved for new deals if they were active in follow-on rounds in
the first half of 2020. If a company doesn’t have runway beyond 2020 and was counting on a winter
raise, it may want to open the round sooner, or look into financing alternatives such as debt.
The majority of founders are not relying on equity, debt, or government aid for capital to extend
runway. 53% are not raising venture capital, 73% are not raising a bridge round or debt, and 54%
did not receive government aid. Even rarer, only 6% of our study reported raising equity, debt, and
received government aid.
19The majority of founders are not relying on equity, debt, or government aid for
capital to extend runway
8% 6% 8%
53%
4% 2%
14%
17%
36%
25%
73%
53% 54%
Raised venture capital Raised dept or bridge Received gov. aid
No Yes In Progress N/A
Source: Caliber Intelligence proprietary research
Source: Caliber Intelligence proprietary research
A few founders we spoke with are running a dual process of raising a round while simultaneously
talking to investment bankers or strategic buyers. We met with a handful of investment bankers
to understand the current appetite for mergers and acquisitions (M&A) and red flags for founders.
What we heard is that startups caught in the wrong part of the funding cycle are now faced with
both a tougher funder and M&A environment. Though the funding might be available, the proba-
bility of hitting growth targets while sales are still sluggish from COVID is unknown.
Michael Maxworthy, Co-founder and Executive Managing Director of tech investment bank Marlin
& Associates, provided his takeaway:
“Clients frequently work with us to run a dual process that contemplates either the entire sale of
a company, a majority recapitalization or a minority recapitalization. In these cases, we reach out
to both strategic and financial buyers to understand the various options that management would
have as it considers strategic alternatives.
In some cases, the financial sponsors have a portfolio company that is looking for roll-up opportu-
nities in our client’s space, or if big enough, a brand new platform.”
20Despite the anomalous market conditions, laid out in section IV: “Customers,” only 10% plan on
exiting. Even so, it may be a last resort after cutting expenses, sharpening their focus on revenues,
and raising capital to protect the business.
Founders are fighting for their business
Source: Caliber Intelligence proprietary research
21THEME II
WORC
Operations
22WO R C
Operations
1. What is it
Health and safety of employees remain the first concerns for founders during COVID-19. The
immediate actions companies took in shutting down offices were about protecting employees.
Because of the uncertain trajectory of the virus, mitigating health risks remains core to every
subsequent phase. The first priority is client safety, then protecting the business.
Countries further along in their containment efforts, such as China, may represent a viable recovery
model for countries with similar infection rates. However, for more severe cases, such as the US
and Brazil, the path to reopening is going to be longer.
2. Why it matters
Customers increasingly want brands that represent their values, and startups are no exception.
In a recent poll from public relations firm Edelman, 90% of respondents want brands to protect
employees at all cost. 20 Brands that haven’t prioritized safety have seen their public perception
take a hit and negative sentiment surge on social media.
As economies start to lift lockdowns, founders and their leadership teams are making decisions
about how to implement strict return-to-office policies, remain remote, manage employee
burnout, and stimulate cross-team collaboration in a fully remote working environment.
3. Benchmarks and examples
Tech companies including Facebook, Okta and Box took the lead in pushing out return-to-office
plans to 2021 and adopting hybrid models in which they will bring teams back on a rotational basis.
Twitter and Square (which share Jack Dorsey as a CEO) are moving to a permanent remote-work
culture. For a model, look to GitLab, which was a pioneer of the all-remote model and has 1,300
team members across 65 countries. 21
In fintech, India-based unicorn Policybazaar has given up four of its 12 office buildings in Gurugram,
and MobiKwik has shut one satellite office, according to a report on LiveMint. 22 In the US, Credit
Karma closed its San Francisco office earlier than expected, and will eventually move all Bay Area
employees to its new Oakland office, though some will be able to work from home permanently. 23
Among the fintech founders we spoke with, companies ranged from already being fully distributed
to adopting a work-from-home policy for the first time. All agreed that moving to a fully remote
environment was seamless from an operations perspective, because their businesses are built on
modern technology stacks hosted in the cloud, making it easy to deploy and support staff remotely.
In the first few weeks of the lockdowns, employee engagement and motivation were high and
employees were feeling motivated. Looking at key performance indicators (KPIs), founders we
met with saw increased performance in engineering, product, and customer support, while sales
results varied by sector and application (as detailed further under Theme IV, “Customers”).
Why is productivity up? Overworking. Digging one layer deeper into KPIs reveals that teams,
particularly engineering, are at risk of burning out. Employees are reallocating the time they’re
23saving on commuting, and with shelter-in-place ordinances, there aren’t many options to spend it
elsewhere other than on work.
One way to test this effect at an organization is to look at the product roadmap and delivery cycle.
For many founders, it has accelerated. If nothing else has changed from an efficiency standpoint,
being six months ahead of delivery is a clue some teams may be overproducing. Another way to test
for burnout are engagement surveys. In one founder’s company survey testimonials, employees
reported feeling like they are “living at work.”
Employee’s mental health was a consistent focus of founders we interviewed. VCs, meanwhile, are
concerned about their portfolio CEOs’ mental health.
The employee experience is top of mind for leadership teams. In a fully remote environment,
maintaining and renewing personal bonds is challenging, as is onboarding new team members who
managers have never met in person. In an XSF study for real estate firm Cushman Wakefield on the
future of the workplace, personal connection to culture was one of the lowest scoring indicators.
The same study identified one of the top challenges in working from home as broadband internet
access. For parents, child care duties are a top challenge, while Generation Z respondents (roughly
those born after 1996) cited inadequate workspace. 24
Solutions that founders are exploring include sending office equipment to employees for their
home offices, especially for firms consolidating office space. Some firms are offering technology
stipends to cover office chairs, additional monitors, and other tech expenses. Firms with globally
distributed teams are offering utility reimbursements, as many households have been dealing with
spotty broadband coverage.
To foster collaboration and culture, HR teams have been setting up internal networking groups,
using apps such as Slack and Donut, with dedicated channels for personal interests. Popular
groups include parenting in a pandemic, cooking, and fitness. Firms are integrating apps such as
Strava, the run and cycling tracker, or fitness equipment like Peloton to coordinate virtual fitness
competitions. To foster peer-to-peer collaboration, some companies are hosting speaker events
styled after TED Talks.
To prevent burnout, the leadership teams have tried tactics such as giving teams 24-hour hack
days to work on a side-hustle, allocating extra PTO, and adopting a shorter work week or “Summer
Fridays.” Leaders also need to be mindful of anxiety employees are feeling broadly about the
possibility of losing their jobs, and of the financial stress experienced by those who have taken pay
cuts. In a Pew Research study on the impact of COVID-19 on workers, 23% of employees reported
feeling worried about losing their job and 38% felt financially stressed. 25
Taking a longer view, leadership teams may want to rethink the benefits menu. Companies like
TruVeris, Even, Earnin, and others are working on ways for employers to extend benefits such as
healthcare, access to affordable prescription drugs, or emergency cash advances to pay bills.
One example in practice is Branch, which partnered with pizza chain Domino’s to provide its
employees early access to wages. 26 “Branch was a timely fit for Domino’s,” founder and CEO Atif
Siddiqi told us.
“They could offer employees faster payments of tips, wages, and mileage onto the Branch digital
wallet and debit card, without requiring pre-funding, cash reserves, or changes to payroll.
As 94% of hourly workers found accessing their pay before payday helpful (a 14% increase from last
year), it was also a compelling benefit.”
244. Next Steps
As companies plan their long-term logistical strategies, physical workspaces will be transformed to
ensure compliance with heightened health and safety protocols.
Until there is a vaccine, preventing the spread of the virus will be a permanent policy in the human
resources handbook. For businesses that have not already put their policy in writing, it is non-
negotiable to employees and customers.
Giving up the office
The business case for giving up the office is cutting fixed costs. It has the most impact for companies
that need to extend runway in a tight funding environment in countries with a longer path to
recovery. One founder we spoke with is giving it up offices in New York and San Francisco, resulting
in operational expense (OpEx) reductions of $70,000 a month.
One lesson learned the hard way is that if you give up the office, you need to have a permanent
working-from-home (WFH) policy in place. One HR professional who put together a “ Work From
Home Forever” guide warned to be prepared for employees to move out of high cost urban areas
(such as New York or San Francisco) and to augment healthcare coverage for remote workers.
If you still need another perspective to help with this difficult and consequential decision, conduct
an anonymous survey and ask your employees if they want to go back to an office environment.
• One founder of an alternative data and AI company found that 80% of employees did not want
to go back to the office, particularly those of middle-age with families.
• Another founder in the capital markets space said that 30% of employees missed the
connections of an office and wanted to go back. This sentiment was highest among Millennials
and Generation-Z employees under 40 years old.
What could be a black swan in the no-office strategy? A vaccine.
What if, hypothetically, people feel it’s safe to go back and you’ve abandoned an office? The
commercial real estate market is bound to open up and there should be plenty of supply.
Since the onset of the pandemic, San Francisco’s sublease inventory has risen rapidly by 1.4 million
square feet, and now makes up 41% of the city’s total available office space, matching 2001. In New
York, CBRE econometric advisors forecast rents to fall by 10% to 16% by Q1’21. Founders should
keep an eye on the CBRE Office Rent Tracker, which shows rate changes globally. 29
25THEME III
WORC
Regulation
26WO R C
Regulation
1. What is it
Regulations are typically barriers to enter a market or service. However, once companies have
gone through the arduous process of gaining the requisite licensing, regulatory approval can
be a differentiator in investment diligence and vendor comparisons, and a moat against future
competition.
Since the 2008 financial crisis, the pace of regulation has increased, creating a larger surface
area for gaps within financial services. This has unlocked the market for regulatory technology or
“regtech” companies that have built technology solutions to help firms keep up with compliance
mandates and costs.
In addition to reigning in and reforming banks, regulators have been lowering the barriers for
tech firms to enter the market. Europe and Singapore have been pioneers in enacting “Open
Banking” regulations aimed at increasing access to data and adoption of standardized application
programing interfaces (APIs). Open banking has been a catalyst for new fintech formation and gave
rise to the first breakout cohort of digital-first challengers cited earlier in this report, Monzo, N26,
and Revolut.
2. Why it matters
Taken together, increased regulatory requirements on financial institutions and the proliferation
of tech-friendly rulings are working in fintech’s favor during the pandemic.
Unlike previous crises, regulators acted swiftly at the onset of the panic to prop up local economies
by passing stimulus packages to help SMBs and unemployed workers. In total, regulators and policy
makers have enacted more than 200 COVID-19-related policy measures globally. The International
monetary fund (IMF) estimates over $10 trillion of fiscal support has been designated to support
health care, people, and firms limit the impacts by COVID-19.31
27Over $10 trillion of fiscal support has been designated to support
Over $10 trillion of fiscal support has been designated to support
health care, people and firms limit the impacts by COVID-19
health care, people, and firms limit the impacts by COVID-19
G-20G-20fiscal
fiscal support type by intervention
support type by intervention
Health Support for households Maintaining Support for businesses (by Type) Support for businesses (by measure)
Spending Employment
Linkages
1 2 3 4 5 6 SME Large Undefined 7 8 9 10 11 12 13 14 15
AUS
CAN
EU
FRA
DEU
ITA
JPN
KOR
ESP
GBR
USA
ARG
BRA
CHN
IND
IDN
MEX
RUS
SAU
ZAF
TUR
1 Expansion of basic social security 6 Subsidies for wages or other 11 Loan guarantees between
including relaxation/expansion of measures to maintain employment governments and banks to cover
unemployment benefits linkages cash flow needs of SMEs
2 Expansion or frontloading of child 7 Corporate, property, payroll and 12 Loan guarantees for businesses or
and/or elderly pension benefits VAT tax payment deferrals, cuts, any size
write-offs, reimbursement
3 Direct cash payments, subsidies, or 8 Grants and direct financial support 13 Equity injection into SME
in-kind transfers
4 Extensions of sick leave/benefits 9 Delayed, assisted or refunded 14 Equity injection to systemic firms
social security contributions
5 Deferred income, VAT, property tax 10 Assistance to increase lending 15 Increase in credit lines
payments, exemptions and rebates capacity of financial institutions/
public banks/development banks,
including concessional or
subsidized loans and interest rate
subsidies
Source: Country authorities; and IMF staff estimates
Source: Country authorities; and IMF staff estimates
While fintech startups we spoke with were unfazed operationally by the initial lockdown, legacy
banks with a heavy physical footprint struggled. Typically laggards in tech adoption, banks were
forced to adopt tech faster in order to keep operations running in a fully remote environment.
In some instances, as with early-stage startups, bank procurement teams have become stricter on
assessing vendor risk management and requiring third-party risk and control assessments.
One benefit for startups, is the easing of restrictions on digitization. Reducing paperwork friction
was not a pressing priority for banks until their physical branches were shut down and they were
forced to digitize and streamline applications, onboarding questionnaires and legal agreements.
From our study, where regulatory barriers or procurement increased, fintech firms reported their
sales cycles were worse than the same quarter a year ago.
28Where regulatory barriers or procurement increased, forum’s sales cycles were
worse than the same quarter a year ago
Source: Caliber Intelligence proprietary research
3. Benchmarks and examples
One of the biggest innovations that developed post-2008 was the online lending industry. Because
the groundwork had been laid prior to COVID, online lenders and technology for community banks
have been bright spots during the lockdowns by serving as a conduit for government relief and
stimulus distributions.
Square’s founding vision in 2009 was to be the simplest way for SMBs to make money. Today,
the vision includes lending through Square Capital and banking through Cash app. In Square’s
Q2’20 letter to shareholders, the company reported facilitating $873 million of PPP funds for
80,000 SMBs. On the consumer side, Cash app crossed 30 million monthly users in June 2020, or
approximately one in eight US adults. 32
In 2008, Cross River Bank had the foresight to buy a charter and fill the lending gap for budding
entrepreneurs and in time, the nascent fintech industry. In 2020, Cross River approved $5.6 billion
of PPP loans distributed through 30 non-chartered fintech customers including SMB lenders
BlueVine and Kabbage, as well as SMB payroll provider Gusto. 33
Other fintech lenders built APIs to connect to the SBA’s E-Tran system and automate applications
for customers.
“Small businesses need a trusted partner for the long haul. When the country looks back on the
COVID crisis years from now, shoring up the small business ecosystem will be a pivotal moment.
Nav, along with the entire fintech ecosystem, is here to help meet the challenge,” noted Greg Ott,
CEO of SMB financing marketplace Nav.
29Among vertical segments, insurance and mortgage businesses have been dealing with state-by-
state lockdown protocols because they are regulated at the state level. Pre-COVID, some states
required parts of the mortgage application to be completed at a physical office. Legislators in
some of those states were quick to adopt e-signature policies in response to a surge in refinancing
applications. This was a big win for digital notary services such as Notarize, digital mortgage
providers like Better, and online mortgage marketplaces like Morty.
Lower barriers to enter the market can also be a catalyst for competition. With the passage of
remote online notarization (RON) legislation, Notarize reported a 400% increase in uptake and
onboarded over 1,000 notaries, and closed a $35 million Series C investment. 34 On the heels of its
raise, publicly traded competitor DocuSign, announced acquiring Liveoak Technologies for $38
million to move up its planned digital notary product launch. 35
4. Next steps
With parts of the global economy in lockdown for the foreseeable quarters, fintech businesses can
use this period of regulatory easing to get ahead of the next set of hurdles on the product roadmap,
such as geo-specific rules or service-level certifications. Global payments platform Currencycloud,
for example, announced it has secured an e-money license from the Dutch Central Bank (De
Nederlandsche Bank), allowing it to continue operating across the EU. 36 “The Netherlands has a
strong fintech sector, access to top talent and a safe regulatory environment,” noted CEO Mike
Laven following the approval. “The license also ensures we can continue to serve our European
clients effectively after the Brexit transition period ends.”
Others are leveraging regulation to diversify revenue concentration. International money
transfer provider Transferwise was approved for by the Financial Conduct Authority (FCA) to offer
investment products to its customers in the UK. 37 The move complements other strategies to move
beyond pure payments to a niche financial provider for digital nomads globally.
30In Germany, Bafin, the securities regulators, have been approving Security Token Offerings (STOs)
which benefits blockchain companies like Upvest, who are developing a securities tokenization
platform.
Looking ahead, 41% of firms are in the process of or actively planning to apply for geo-specific rules
or service-level certifications.
41% of respondents are in the process of or planning to apply for regulatory
approval
41% of respondents are in or
thea process
license depending,
of planning on the state
to apply or country of operations
for regulatory
approval or a license depending, on the state or country of operations
No
In-progress / done
18%
23%
Yes
59%
Source: Caliber Intelligence proprietary research
Regulators have been more willing to foster technology adoption during this period. Before that
window closes, now could be a good time to turn regulations from barriers on the roadmap to a
competitive advantage.
31THEME IV
WORC
Customers
32WO R C
Customers
1. What is it
The DNA of fintech startups is centered around customers. At the onset of the pandemic, retention
was the primary focus and a driver of key decisions, such as pivoting the product or partnering for
distribution. Series D and Series E+ companies have more buffer to expand and be strategic with
customer acquisition, but those decisions have aligned with the existing customer base. In our
study, 40% of executives reported retention increased, while 15% reported it had dropped.
40% of companies reported retention increased,
compared to the same quarter a year ago
Source: Caliber Intelligence proprietary research
One of the most important levers for customer retention is the product. In response to COVID-19,
fintech firms have been quick to accelerate the product roadmap and add new products and
services where relevant to their customer base. 45% of survey respondents have accelerated
planned products on the roadmap and 34% are in progress with or have successfully launched a
product. 44% of survey respondents have added a new product to the roadmap and 29% are in
progress with or have successfully launched something new.
COVID-19 has had unexpected positive impacts with the majority of fintech firms
reporting adding new products and services
Source: Caliber Intelligence proprietary research
33To prevent churn, fintech firms have been flexible with customers that are trying to cut costs or
struggling financially by offering payment holidays, contract flexibility, or reducing or waiving fees.
In some cases, firms have had to pivot due to customer concentration in industries impacted by
COVID-19 (as detailed further under Theme I, “ Working business models”).
2. Why it matters
More competition for customers
As noted in the introduction, the modern fintech stack was born in the rubble of the housing
market collapse in 2008. Founders built technology solutions for pain points for customers,
notably access to liquidity and loans, when traditional banks were under stress. The model was
lower operational costs significantly and pass those savings through to customers in the form of
low- to no-fee software or “freemium” services. The goal was to build a big customer base and find
ways to monetize adjacent services such as data.
Fintech startups had an edge in building trust with consumers while banks struggled with record
low net promoter scores (NPS) in the wake of the 2008 crisis. Today, however, if we measure trust by
bank deposits, consumer trust in banks has never been higher. In the US, consumers have flooded
banks with cash, with deposits topping $15.78 trillion in Q1’20, an increase of $1.24 trillion from
Q4’19. 38
Total US savings deposits surged to $11.39 trillion in June 2020. 39 Thus, while fintech may be
accelerating during the pandemic, the competitive landscape of traditional banks could prove
more challenging.
US deposits rose by $1.3 trillion in Q1’20, up roughly 13.3% from Q1’19
Source: FDIC
34Total US savings deposits surge to $11.39 trillion in June 2020
Total US savings deposits surge to $11.39 trillion in June 2020
Shading indicates U.S recessions; the most recent one is ongoing.
Shading indicates U.S recessions, the most recent one is ongoing
12,000
11,000
10,000
Billions of dollars
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: Board of Governors of the Federal Reserve System US
Source: Board of Governors of the Federal Reserve System US
Branch closures have also made financial institutions aware of their digital gaps, which accelerates
the pressure for disruptors building distribution to scale before the incumbents. On the enterprise
side, we can see it occurring with companies such as bank operating system, nCino which went
public to raise cash and grow.
Before COVID, challenger banks were ahead of incumbents in the rate of account growth, in part
because they use remote authentication technologies and same-day anti-money laundering (AML)
and know-your-customer (KYC) compliance checks. Post-COVID, banks will pose stiffer competition,
as they have been quick to adopt digital-first account opening by leveraging partnerships with
fintech companies like MANTL. On the back of record deposit growth, MANTL reported its customers
saw a 705% rise in deposit volumes in April. 40
Bank IT spending is estimated to increase roughly 4.5% through 2021, with a $100 billion total
addressable market (TAM) weighted toward growth over maintenance, according to a report from
Credit Suisse. JP Morgan, Wells Fargo, Citi and Bank of America account for the bulk of the bank
technology TAM, spending an estimated $40 billion combined on technology in 2018. While the
bulge bracket banks control a lot of spend, 74% of banks estimated IT spend would increase in the
Credit Suisse survey. 41
2020 IT budgets remain largely in line with pre-COVID projections for the year. Some may even
increase for firms with extra revenue from PPP loans that can be reinvested in research and
development.
Bank tech investments will likely focus on the filling immediate digital gaps that COVID-19 made too
big to ignore. Fintech firms have an opportunity to help banks move from in-person to omnichannel
services such as identity authentication or opening and funding checking and savings accounts,
among other activities hindered by remote operations.
35Impact on customer retention
“Nothing broke” during the pandemic – that was one of the fintech sector’s humbler achievements,
by consensus among the founders, C-suite executives, and venture capitalists with whom we spoke.
In capital markets, for example, as the coronavirus began to spread in the US in March, investors
began to panic. The volume and volatility were so extreme that exchanges temporarily halted
trading by triggering a market circuit breaker four times in March. The biggest trigger happened on
March 16 as the Dow Jones Industrial average dropped by roughly 3,000 points or 13%. 42 It was the
Dow’s worst day since dropping 508 points or 20% on October 19, 1987. “Black Monday” was also
the catalyst for the SEC to implement controls to calm the market during a panic.
The Dow dropped 13% amind coronavirus fears, its worst single-day decline
since “ Black Monday” in 1987
Dow Jones Industrial Average hourly volume, March 12 2020 - March 16, 2020
Thursday Friday Monday
-10% +9% -13%
24000
23000
22000
21000
20000
Mar 12 noon 2pm Mar 13 noon 2pm Mar 16 noon 2pm 4pm
Source: Factset
Source: Factset
Similar to Black Monday, As the markets were on the brink of collapse, the Fed and government
were swift with intervention plans. It has also kept investor confidence strong and is ushering a
new era of investors. In notional value, markets saw a record of $14.6 trillion of value traded in
March 2020, double March’s 2019 volume, according to data from Cboe. 43
36In March, markets saw a record of $14.6 trillion of value traded, up to 2x from
2019. Volumes are up saw
In March, markets every month
a record in 2020
of $14.6 compared
trillion to 2019
of value traded, up 2X
from 2019. Volumes are up every month in 2020 compared to 2019
JanuaryJanuary
2019 2019 --June
June 2020
2020 total notionaltotal notional
value traded daily in $ trillionsvalue traded daily in $ trillions
Source: Caliber
Source: Cboe
Intelligence proprietary research, CBOE
One institutional capital markets tech firm told us that market volatility pushed its software
application beyond its known capacity levels – but it continued to work as intended nonetheless.
Retail brokerages were not prepared for the volume. Digitally native investment apps such as
Robinhood, as well as incumbents Fidelity and Charles Schwab, suffered outages. Since March,
Robinhood’s website may have been out as many as 47 times, compared to Schwab’s, which was
out 10 times, according to a New York Times analysis. Robinhood trading is primarily mobile and
its average customer trading volume in the first half of 2020 was up three times compared to all
of 2019. 44 In terms of scale, as of May, Robinhood said it had 13 million accounts, while Schwab
reported 12.7 million brokerage accounts in its latest filings.
Outlook on growth
While time at home may have boosted fintech app downloads and engagement, as noted under
Theme I: the “ Working Business Model,” that’s not the primary driver of the surge in retail investing.
Rather, outstanding debt as a percentage of personal income has dropped, meaning consumers
have more discretionary income. Though outstanding debts are at record-levels in the US with
student debt hovering at $1.67 trillion and the unemployment rate is 10.2% as of July, down from
14.7% in April and near Great Depression highs, there are some positive macro indicators that are
less ominous for households and consumers. 45 46
37In the US, as of July 2020, household debt service payments were 9.67% of disposable personal
Income, a new record low. Historically, it reached a record high of 13.21% in October of 2007. 47
Household
Household Debt Service
Debt Service Payments
Payments as aas a Percent
percent of
of Disposable Personal Income
Disposable Personal
(TDSP) as of Q1’ 20 Income (TDSP) as of Q1'20
Q1'16 - Q1'20
Q1’1980 - Q1’2020 U.S. Recession periods
14
13
12
PERCENT
11
10
9
1980 1985 1990 1995 2000 2005 2010 2015 2020
Source: Board of Governors of the Federal Reserve System (US) last updated on 6/18/20. Shading indicates
Source: Board of Governors of the Federal Reserve System (US) last updated on 6/18/20. Shading indicates U.S. recessions; the most recent one is ongoing
U.S. recessions; the most recent one is ongoing
Outstanding household financial obligations at mid-2020 were 15.02% of disposable personal
income, well below the peak of 18.1% in October 2007. 48
Household
Household Financial
Financial Obligations
Obligations as aas a percent
percent of
of Disposable Peronsal
Disposable Personal Income (FODSP) as of Q1'20
Income (FODSP) as of Q1’20
Q1'16 - Q1'20
Q1’1980 - Q1’2020 U.S. Recession periods
19
18
PERCENT
17
16
15
1980 1985 1990 1995 2000 2005 2010 2015 2020
Source: Board of Governors of the Federal Reserve System (US) last updated on 6/18/20. Shading indicates U.S. recessions; the most recent one is ongoing
Source: Board of Governors of the Federal Reserve System (US) last updated on 6/18/20. Shading indicates
U.S. recessions; the most recent one is ongoing
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