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Commercial Question

Fintech and covid-19

updated on 19 October 2021


How has covid-19 affected the fintech industry?


The calm before the storm

The first half of 2019 saw unprecedented levels of cross-border investment in fintech by a wide variety of investor classes such as traditional financial institutions, private equity sponsors, sovereign wealth funds, entrepreneurs and BigTech. For example, White & Case advised SoftBank Vision Fund, a Japanese technology financial sponsor, on its participation in the US$440 million funding round for OakNorth Bank, a UK bank for small and medium- sized companies. Founders and regulators’ growing familiarity with financial sponsor ownership, the availability of funding from private equity sponsors’ ‘dry powder’ and the rise of entrepreneurial talent were all catalysts that fuelled a ferocious investor appetite to invest in fintech in 2019.

Big banks in particular were – and are more than ever – embracing digital transformation strategies. This was, and still largely is, motivated by their desire to:

  • enhance customer experience;
  • surpass their competitors;
  • tap into underbanked and unbaked communities in emerging markets;
  • cut their operational costs; and
  • strengthen their cybersecurity measures.

In 2019 banks were either buying strategic majority or minority stakes in fintechs or acquiring them outright. For example, White & Case advised Goldman Sachs on its acquisition of a significant minority investment in Elinvar, a Germany-based online B2B2C (business to business to consumer) software platform that connects investors and wealth managers. Deutsche Bank's Central Technology Division was mandated to invest US$14.2 billion in technology by 2022. Banks were at some point allocating capital to ‘fintech only’ funds, such as the €100 million ABN AMRO Digital Impact Fund and Balderton Capital's US$400 million Balderton Fund VII.

Other less risky investment strategies included big banks partnering with fintechs through joint ventures, setting up home-grown digital banking capabilities and purchasing specific solutions or services from fintech providers. For example, White & Case advised Emirates Telecommunications Corporation and Noor Bank on their innovative JV to create a dirham- denominated payments wallet business in the United Arab Emirates.

Covid-19 hits

When the pandemic hit in February 2020, it affected fintechs in different ways. Profitable fintechs with sound business plans thrived, while others suffered plummeting valuations. In fact, even before covid-19 hit, towards the end of 2019, we were starting to see the demise of some fintechs that offered promises but could not deliver and meet their investors’ expectations. Loot, FundingSecure, Lendy, Collateral and Ipagoo all collapsed into administration. And according to Finextra, global investment in fintech fell significantly in 2020 as covid-19 hit but picked up in the second half of the year.

That said, banks doubled down on their digitisation strategies, continued to launch dedicated fintech funds and continued to make equity investments, particularly in RegTech, data analytics and speciality financing. The less-risky partnership/JV model, as well as hybrid-deal structures, also thrived during covid-19.

For example, White & Case advised fast-growing fintech company, Pollinate, on its Series B funding round. This investment was led by National Australia Bank which has in parallel entered into a commercial partnership with Pollinate, through which it will implement Pollinate’s platform to help its small-and-medium-sized business customers to better manage and grow their businesses. White & Case also advised Goldman Sachs and Morgan Stanley, as managing bookrunners, in connection with the initial public offering (IPO) of Lemonade, which valued the leading tech-enabled insurance business at US$3.6 billion. Lemonade scooped the title of the best US IPO debut of 2020, with a more than 140% gain.

By contrast, due to pressure on the finances of some banks in 2020, some banks prioritised sustainability and tangible returns over future growth, which is described as the ‘rationalisation of fintech portfolios’. This led to banks having to wind-down their existing fintech operations that were too expensive and not so profitable. For example, we saw Rabobank and ING’s spinout of Sure Pay and Katana respectively. Banks were, at that point, more focused on technology that is directly value-accretive to their core business lines.

The key deal driver during 2020 for investors was the increased reliance on fintech by established financial institutions due to covid-19. There was a particular focus on investing in RegTech as a result of the increases in contactless payment limits and a dramatic increase in loan applications, which materially increased money laundering, fraud and financial crime risks faced by lenders. Big banks continued to deploy fintech solutions to cut costs and streamline operational processes, while enhancing customer interaction amid branch closures.

Despite covid-19, financial sponsors continued to bulk up their fintech investment firepower and capability. For example, in 2020 we saw Novator Partners participate in Monzo Bank’s

£250 million Series G funding round and Vulcan Capital participate in Neon Pagamentos’ US$300 million Series C funding round. On the other hand, there was an unprecedented amount of valuation volatility, especially for neobanks and specialty finance lenders, as customer conservatism favoured established financial institutions during covid-19.

Rather than abandon their portfolios, some financial sponsors stood by them amid covid-19 uncertainty. For example, Tink’s €85 million round was supported by Dawn Capital. GetSafe’s US$30 million Series B was supported by Earlybird, btov Partners and Capnamic Ventures Management. And Amount’s US$81 million Series C was supported by August Capital, Invus Opportunities and Hanaco Ventures.

Such led to fintechs stockpiling capital. Chime stockpiled US$485 million in Series F and Klarna raised around US$650 million. By contrast, some existing sponsors were less motivated to follow-their-money without additional discounts and downside protection from their fintechs, such as increased information rights and enhanced management representation rights.


According to Financial News, as consolidation in the technology sector fuelled deal activity, companies worldwide clinched almost US$700 billion worth of M&A deals during the first two months of 2021. Despite Brexit, the UK retained its role as the top-ranking investment destination in Europe, with US$4.1 billion invested across a total of 408 deals in 2020, according to data from Finextra.

Overall, e-commerce and online financial services experienced exceptional growth during covid-19 and throughout the first half of 2021. As a result, fintechs and online payment services scaled up materially to match consumer demand.

Established banks pivoted to digital offerings even further in response to branch suspensions. Financial sponsors continued to fund innovators and tap into unbaked communities. For example, White & Case advised an affiliate of the Qatar Investment Authority on entering into an agreement to make a US$200 million investment in Airtel Mobile, one of Africa’s leading mobile money businesses.

As the uncertainty surrounding covid-19 began to wear off, we saw mega funding rounds such as Wefox’s US$650 million Series C funding round, Klarna’s US$639 million Series H round and Mollie’s €665 million Series C round. White & Case advised Goldman Sachs Growth Equity on its participation in the US$335 million Series D funding round for Back Market, alongside General Atlantic, Eurazeo Growth, Daphni, Financière Agache and Aglaé Ventures.

We also saw mergers between market leaders, such as the merger between Raisin and Deposit Solutions. We saw acquisitions such as Tink’s acquisition of FinTecSystems, and subsequent acquisition by Visa. We also saw governments backing digitisation, with the UK’s new £375 million Future Fund, Germany’s €10 billion Future Fund and Ireland’s Strategic Investment Fund. Most notably, we saw fintechs attaining the ultimate goal – IPO. For example, Alkami listed on Nasdaq and Dispersion listed on Aquis Stock Exchange (AQSE).

Trends to watch

We are likely to see more consolidation of fintechs post covid-19, particularly better-established fintechs acquiring smaller ones. For example, we saw BearingPoint RegTech acquire Vizor Software. Banks and Sponsors are also likely to begin to look to invest in fintechs that offer Environmental, Social and Governance (ESG)-compliant and ESG monitoring/reporting products, such as software to track carbon footprint.

Banks will still have the appetite for fintech deals in 2021, but the lessons learned from the covid-19 pandemic will make them more cautious in their deal-making. As banks and financial sponsors continue to ‘rationalise’ their fintech investment strategies, they will be interested in fintechs that can demonstrate tangible customer value, ability to adapt to challenging market conditions and – most importantly – profitability.RegTech seems to be scalable and compatible with legacy IT systems of banks and will continue to be a sought-after asset class by banks and investors. We are going to continue to see the demise of over ambitious fintechs, such as Greensill.

Fintechs that have shown resilience will pursue geographic expansion and new product offerings. In response, competition between national governments and regulators – by way of financial and regulatory incentives – will continue in order to attract top companies and talent. For example, the UK Financial Conduct Authority (FCA) is reported to use its legislative powers to steer the extension of open banking like data sharing to a wider range of financial products, such as savings, investments, pensions and insurance. UK chancellor Rishi Sunak is also reported to be preparing to unveil a fast-track fintech visa to attract top tech talent to the UK.

Anmar Al Ghadhanfari is a trainee solicitor at White & Case LLP.

“Any views expressed in this publication are strictly those of the authors and should not be attributed in any way to White & Case LLP.”