Early stage payment tech needs to work harder to attract VCs

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2020 saw the fintech and payments industry face many challenges thanks to the global pandemic, however it also created a drive for innovation as those within the industry worked to counter its effects. Through ingenuity and a desire to support the users of financial services, technology improved and now as we look forward to 2021 I wanted to share some expectations I have for the new year.

It is now well established that COVID-19 has accelerated many pre-pandemic trends. For example, while the number of cashless payments was already rising globally (a 14% increase in non-cash payments between 2018-2019, totalling 708.5 billion transactions), lockdown restrictions to combat the coronavirus have supercharged the trend. Who could have imagined that organizations would advise against using cash for health reasons?

The impact on the digitization of financial services has been dramatic. In the U.K., six million adults (or 12% of the population) downloaded an online banking app for the first time during the initial lockdown, 90% of face-to-face transactions made in April were contactless, and in July 2020 there were 1.5 billion debit card transactions (20.8% more than in June 2020).

In the APAC region, which was already the global leader in non-cash transactions (243.6 billion cashless transactions in 2019) due to high adoption of mobile payments and digital wallets, a Mastercard survey found that 91% of consumers in the region had transitioned to contactless payments as a result of COVID-19.

However long the pandemic lasts, these trends in consumer behaviors will persist throughout 2021. Cashless payments will continue to outpace cash, digital-only banking will see more widespread adoption, and digital wallet usage will expand. Financial services providers that can quickly and effectively react to these changes will thrive.

While investors pumped £1.8bn into UK fintechs in the first half of 2020, an increase of 22% over the second half of 2019, more than half of that amount was invested in just five companies - Revolut,, Starling Bank, Onfido and Thought Machine – with early-stage fintechs raising just 8% of total investments.

Has the ongoing economic uncertainty surrounding COVID-19 pushed investors towards "safer" bets on more mature, later-stage fintechs? It’s hard to say for certain, but we predict that startups may find capital harder to access in 2021 as investors focus on “category winners” and become more conservative and risk-averse.

Fintechs seeking investment in the next 12 months will thus need to have a differentiated proposition, a clear path to profitability, strong leadership, and partnerships with credible, experienced suppliers.

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Investments Fintech Digital payments Mobile payments