Fintech’s COVID-19 Winners & Losers
An Israeli startup takes advantage of a B2B service gap and grows by 700%
By Terrance J. Mintner • September 30, 2020
The COVID-19 pandemic has created winners and losers in various tech sectors. This is certainly true in Fintech.
Here are a few of the losers: LendingClub, a San Francisco-based P2P (peer-to-peer) lending company, recently laid off 30% of its staff. With all the unemployment in the U.S., thanks to the coronavirus, consumers are hard pressed to pay back loans.
Then, there’s On Deck Capital, an online global small-business lending company based in New York. When the pandemic caused a spike in loan delinquencies, On Deck itself got into debt trouble. Eventually, it was sold in a fire sale.
We’ll talk about one of the winners in a moment. But for now, let’s turn to a positive trend: Since the coronavirus outbreak, there has been a surge in demand for Fintech services.
CTech by Calcalist recently reported a 300% increase in online searches of Fintech-related topics.
“Fintech is experiencing its golden era, and not just in Israel,” Eitan Bek, co-founder and managing partner of VC TLV Partners, told CTech. “This is a global market with local characteristics due to regulation.”
Ofer Zevin, Head of Fintech Research and Development at Sapir College, told Spectory that “We are living in a fascinating period in which there have been tremendous changes in the world of banking in the last decade, and in particular since COVID-19.
“The world of banking and finance is undergoing a revolution, from traditional classical banking to efficient, digital and innovative banking.
“This revolution is made possible thanks to the widespread use of big data in drawing conclusions and assimilating them into a renewed form of banking,” Zevin adds.
The field of strategy development, he explains, which is widely used in financial companies and Fintech, contributes to streamlining and adapting the local banking system to the international banking market.
Mass lending companies (P2P) and the use of blockchain technology have facilitated this shift.
Zevin runs a Fintech laboratory at Sapir College. His students are currently focused on problems that have become particularly acute during the pandemic.
For example, people now at home either under lockdown or on a remote-work footing require digital solutions to their financial needs. Israelis, currently under a second lockdown, have relied on apps like Bit or PayBox.
And while many banks, investment, and lending companies have moved their services online and made them mobile-friendly, gaps in their services remain.
To counter these problems, Zevin’s students are working on an application that provides a way for them to help each other make small-amount investments. It uses AI to rank a borrower’s risk level according to his or her financial activity. It then recommends an investment plan.
With its problem-solving focus, the laboratory is well-suited for a sector that contains a lot of promise but also pitfalls.
One deep pit at the moment is limited access to capital, which has been exacerbated by the pandemic. Incomes for small and big businesses, as well as consumers, have fallen. Defaults are up and investments are down.
This sharp downturn has forced smaller Fintech players to close shop, allowing the big fish in the market to get even bigger.
This is all of course sitting on top of a mountain of insecurity, as nobody knows when we can put corona time behind us.
But let’s not get hung up on the negatives. There have been winners.
Melio, a Tel Aviv-based startup that focuses on B2B payments, hit the jackpot during the pandemic as it saw its growth jump to a whopping 700%!
The startup found a solution for a gap in how U.S. small businesses manage their payments. It turns out that moving money around in the B2B world is more complicated than we would think.
“At a time when small businesses need the most flexibility, they have the least,” Matan Bar, co-founder and CEO Melio, recently told The Times of Israel.
“Our mission is to keep small businesses in business. We do this by allowing small businesses to manage payments remotely, paying when and how they want, giving them more control and helping businesses manage cash flow. Business payments shouldn’t be more complicated than paying a friend with your phone.”
At a time when small businesses need the most flexibility, they have the least
With Melio’s app, businesses can more easily manage payments to their suppliers. All they have to do is scan an invoice (or manually enter in its details) and set a payment date. The app takes care of the rest, ensuring the payment is made according to the preferred method.
While “access” and P2P are still profitable areas of Fintech growth, the current craze is for digital tools like Melio’s app. They are seen as time-saving tools to ensure cash flow, streamline payments and automate financial tasks.
Here is a shocking stat: “Around 42% of B2B payments in the U.S. are still carried out using paper checks,” according to the Association for Financial Professionals, as reported in Business Wire.
This is a massive ripe fruit just dangling from the tree – screaming out “Please pick me!” Melio was the first to jump on it, and as a result, has recently raised $144 million in Series C funding.
Some analysts have credited the startup with saving America’s small businesses. Maybe there’s a new branch of Fintech: Let’s call it “Hero Fintech.”