2019 marked a record year for the private financing of fintechs and it is widely expected that this will remain the case for 2020, making the incentive to go public less compelling in today’s market – and that is without the added pressures of due diligence.
“The due diligence placed on those seeking public ownership or a sale is generally understood to be far more rigorous than the scrutiny most start-ups undergo,” says John Cushing, chief executive and founder of mnAI.
“These fintechs must therefore demonstrate a more robust and resilient business plan and point to real-world market results.”
While fintechs are currently basking in the interest from private financers and are therefore shying away from going public for the time being, there are other influences that could have an impact on that IPO timeline.
The Financial Services industry is ripe for disruption. Regulation, culture and legacy systems have held traditional players back, while allowing fintechs to evolve at a rapid rate.
“Large banks now have to separate their investment activities from their retail operations, meaning that they can’t cross-subsidise or cross-support activities to remain competitive,” explains Mr Bradbury.
“This provides the space for fintechs to compete more fairly, but this also puts pressure on traditional players to evolve faster to remain competitive.”
He says that when it comes to the low interest rate environment, both old and new organisations are being forced to look for new revenue streams that can generate higher returns.
“There are a whole host of other macro-economic factors that could come into play – climate change, populist politics, COVID19, just to name just a few,” he adds.
“It could be very reasonably argued that although all of these conditions have the potential to remove available funds for an IPO, fintechs have the most potential to quickly offer new services that are better aligned to a changing world than their traditional counterparts.”