A clear majority (90 per cent) of FinTech leaders are expecting COVID-19 to trigger a spike in mergers and acquisitions (M&A) as cash-crunched startups seek financial stability.

A survey of more than 60 FinTech experts globally - including AXA, City Bank, Currencycloud, Klarna, Ripple and 11:FS - by Money 20/20 and FleishmanHillard found the pandemic could present a clear acquisition opportunity for strategic acquirers.

It also concluded that while some FinTech players may struggle initially, the pandemic will drive long-term sustainable growth of the sector as it accelerates the shift towards the digitalisation of banking and financial services.

Key challenges driving this change include a lack of seed funding, with (68 per cent) believing that early stage FinTech startups will find it more difficult to secure funding, while 87 per cent do not think late-stage FinTechs will be affected.

A further 44 per cent believe business-to-business companies will prove more attractive for investors than business-to-consumer companies, which tend to pose greater challenges for profitability.

In addition, 80 per cent of respondents said that FinTechs that have built successful platforms through partnership models are more likely to achieve profitability, while 40 per cited expansion into new areas and diversifying their offering as the most crucial factor for long-term success.

The pandemic has also demonstrated the need to meet changing customer expectations, with 77 per cent expecting to see an increased focus on customer experience as financial services organisations strive to build their reputation.

This focus on new products and services is key to driving economic recovery in sector, the survey found, with 62 per cent saying COVID-19 has highlighted the need for further innovation in lending for both small businesses and consumers.

More than half (53 per cent) said this is closely followed by payments and money transfer, as more people move to digital payments.

Claudia Bate, head of technology and FinTech lead at FleishmanHillard Fishburn, said: “Like
virtually every other sector, COVID-19 has sent shockwaves throughout the FinTech industry, but our research reveals that FinTech experts believe the continued shift to digitalisation of financial services could accelerate sustainable growth of the sector in the coming decade."

“Our experts identified winners and losers from the current situation; they see smaller startups being hit hardest and less likely to receive funding," she continued, adding: "Meanwhile, unicorns and larger scale FinTechs are likely to be seen as a safer bet in the eyes of investors."

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