MAKING IT “WORC” The Fintech Pandemic Playbook A Navigational Framework for Founders, CEOs and Investors

1 Preface

Being a founder is lonely. So imagine what it’s like being a fintech founder or CEO quarantined indefinitely and cut off from your team and customers.

The genesis of the Fintech Pandemic Playbook was hearing consistent pain points of isolation from founders and C-suite executives, identifying a communication gap between fintech firms, and wanting to bridge the divide.

Every business that has weathered the first phases of the pandemic has done so in large part because of its leadership team. Consistent among these leaders are quick, decisive, and continuous communications to their employees, customers, regulators, and investors. Most founders are looking for validation they are doing the right thing, which resonates most effectively when communicated from other founders experiencing the same pressures in the crisis.

That is the intention of this playbook. It is built on data contributed by fintech founders for fintech founders and meant to serve as a resource to the fintech community at large.

Our study is a synthesis of data and commentary from three sources:

• A primary research survey of more than 100 fintech founders and C-suite executives, plus venture capital firms (VCs), investment bankers and corporate investors with fintech portfolios • Interviews with more than 60 of those respondents for verbatim commentary and further illumination of the survey findings • Secondary research, including analysis of alternative market data, government databases, third-party surveys, media coverage of business operations during the pandemic, among other sources cited where the data is public

COVID-19 reports and surveys have flooded the market, and some are referenced in this report. However, few are targeted to the financial technology ecosystem, and most stop short of turning insights into actions for founders.

There is no playbook for operating in a global humanitarian crisis of indefinite duration – until now. Our goal was to build an intelligent fintech report, a hybrid of data analytics and market context, and provide a framework for navigating not only the current crisis, but the path forward.

2 Contents

Preface 2

Put to the test 4-6

The “WORC” framework 7

W Working business models 8-21 O Operations 22-25 R Regulation 26-31 C Customers 32-43

Conclusion 44-45 What’s next? The next normal for fintech

Acknowledgements 46-47

About the author 48-49

About Caliber Intelligence 50-51

Sources 52-56

3 Put to the test

4 Put to the test

“When in August 1932, a reporter for the Saturday Evening Post asked John Maynard Keynes if there had ever been anything like the Great Depression before, Keynes replied,

‘Yes. It was called the Dark Ages, and it lasted 400 years.’”

Liaquat Ahamed, “Lords of Finance: The Bankers Who Broke the World”1

The 2020 COVID-19 pandemic is the first fintech stress test. The modern financial technology ecosystem was born out of the financial crisis of 2008. Until the global pandemic, fintech has been operating in the longest bull market in history, with a lush private funding environment. The pandemic is an inflection point in fintech’s lifecycle, pushing trading volumes into uncharted territory and straining application capacity beyond the mainstream customer’s expectations.

For most leaders at the helm, COVID-19 is their first crisis as a fintech founder and CEO. And overwhelmingly, fintech has executed successfully under the harshest financial shock since 2008.

Indeed, the consensus narrative is that fintech is accelerating, as indicated by the growing mentions of “fintech acceleration” in the media among investors, incumbents, and even startups.

Without capital, fintech will struggle to scale up to hype MentionsWithout capital, of “fintech fintech acceleration” will struggle in theto scale media up surged to the hypeahead of fintech deals amid mass consumerMentions of “fintech adoption acceleration” in the media surged ahead of fintech deals amid mass consumer adoption.

January 2019 2019 - July - 2020 July 2020

8,000 350 7,234

7,000 300

6,000 Global 250 fi

5,000 ntech deals 200 175 4,000 Put to the test Media Mentions 150 3,000

100 2,000

1,000 50

Jan 2019 Mar 2019 May 2019 Jul 2019 Sep 2019 Nov 2019 Jan 2020 Mar 2020 May 2020 Jul 2020

Sources: Caliber Intelligence proprietary research Critical Mentions, CB Insights 2 Source: Critical Mentions, CB Insights

5 For founders, it is more valuable to understand what has accelerated and why. If we pair media mentions of fintech acceleration with actual fintech deals, for example, we see that the media are cementing 2020 as a “zeitgeist” for fintech, but investment is in fact down. This is counterintuitive – usually because media coverage follows capital and crises spawn investment opportunities. Without capital, fintech will struggle to scale up to the hype.

Broadly, the velocity of technology adoption and regulatory actions have accelerated. These accelerations are not instantaneous. It has taken over 13 years and upwards of $174 billion in venture investments globally to get to the current state of fintech. The forces driving the inflections are economic lockdowns, which may not be permanent, but have impacted customer behaviors. In response, regulators have been quick to remove barriers for fintech firms – enabling them, for example, to distribute stimulus funds.

Among founders and C-suite executives that took part in this study, over 56% believe the changes wrought by the pandemic are permanent, 38% think they are temporary, and 6% believe there is no change. Identifying which changes are short-term versus long-term is important.

Most founders areMost prepared founders are forpreparing permanent for permanent impacts of COVID-19 on theirimpacts businesses of COVID-19 on their businesses

No Impact 6% Temporary

Permanent

38%

56%

Source: Caliber Intelligence proprietary research Source: Caliber Intelligence proprietary research

It is our hypothesis that how leaders execute during this crisis will differentiate good businesses from great businesses. Not all businesses are great and some will have good outcomes, but others will fail faster or sell, which started to occur in the first half of 2020. With private capital on the sidelines waiting for valuations to drop, more M&A activity is likely. However, great businesses will use this opportunity to fortify their positions and will be more resilient on the other side.

6 The WORC framework

From our analysis of the findings, we designed a repeatable framework for others to assess their own strategies based on key themes identified through our research. We call this framework “WORC” TM:

W Working business models

O Operations

R Regulation

C Customers

Within each of these key themes, we analyze:

1 What is it – the central message of each theme 2 Why it matters for founders and C-Suite executives

3 Benchmarks and examples 4 Next steps

7 THEME I

WORC Working business models

8 WO R C Working business models

“In downturns, revenue and cash always goes down quicker than expenses.” Sequoia Capital, “Coronavirus: Black Swan of 2020” 3

1. What is it

Two of the biggest threats to fintech business models at the onset of COVID-19 were cash and customers. Regardless of industry focus or financing history, firms’ first moves in the crisis were defensive. Fintech firms started shoring up cash and reevaluating costs to extend their financial runway.

There wasn’t enough historical data on a coronavirus outbreak to forecast how many months of runway was enough and how much to cut. Using China as the earliest benchmark for the time from infection to recovery would be too optimistic for businesses in countries like the US or Brazil, with a longer time horizon to recovery. Unanimously, though, fintech players scrapped their 2020 and 2021 financial plans.

Founders are under pressure to get their business models profitable and get the unit economics to work.

2. Why it matters

Some business models broke immediately as a result of having a heavy concentration among customers in at-risk industries, such as travel or entertainment, or exposed customer segments, such as small business (SMBs) and non-essential workers. Others thrived during lockdowns, notably retail investment and banking technology.

Fintech businesses reported a 28% drop in revenue since the beginning of the pandemic. For perspective, travel businesses, which were hit the hardest, took a 70% drop.4 Declines have been steeper for business models targeting industries that were severely impacted by COVID-19, like restaurant payments system, Toast or business travel lodging provider, Sonder.

9 Revenues from the fintech, blockchain and cryptocurrency sectors are more resilientRevenues in a pandemicfrom the fintech, than travel blockchain and tourism and cryptocurrency sectors are more

Changeresilient in revenues onin global a pandemic startups by sector than since travel the beginning and of thetourism pandemic

Change in revenues on global startups by sector since the beginning of the pandemic

Blockchain and Crypto -14%

Cybersecurity -17%

Gaming -19% Social Media & Messaging -22%

Edtech -26% Biopharma -28%

Fintech -28% Digital Media -29% AI, Big Data -30% Enterprise Solutions -31%

Property & Construction -32%

Digital Health -34% Adtech -35% Sportstech -35% Online Retail & eCommerce -36% Smart City -37%

Agtech & New Food -39% Cleantech -39% Energy & Environment -39% Consumer Electronics -41%

Government Tech -42% Automotive -43%

Transportation & Infrastructure -43% Medtech -43% Advanced Manufacturing -48% Beauty & Fashion -59%

Travel & Tourism -70%

Source: Startup Startup Genome, 2020 Genome, COVID-19 Founder 2020 Survey COVID-19 Founder Survey

The pendulum has swung from growth at all costs to getting on a path to profitability

Investors also hunkered down in Q1’20 to fortify their portfolios. They helped their portfolio companies with scenario planning, right-sizing, and making follow-on investments. Investors also advised on applying for federal relief such as the Small Business Administration’s (SBA) Payroll Protection Program (PPP). Companies, meanwhile, have had to focus on containing burn rates, reducing spend on non-essential categories, and reducing headcount.

While logical, the shift in focus from growth to sustainable unit economics requires different operating principles, workforce alignment, and leadership styles. For early-stage and venture backed businesses, the operating goal posts are shifting. In the run-up to the lockdown, investors pushed companies to increase product velocity, customer acquisition, and equity value. That growth, though unstainable, created a handful of market leaders with sizeable valuations.

10 3. Key benchmarks, examples, and industry expectations

Investors we analyzed have been recommending their companies maintain runway ranging from 12 to 30 months to account for the tougher funding environment and uncertain impact on sales. David Sacks, Co-founder and General Partner at Craft Ventures and COO of Paypal, advised portfolio companies have eight quarters of runway, but ten would be better.5 One fund we spoke with surveyed 100 fintech firms in their network, and 85% reported cutting costs in the beginning. The biggest expenses were real estate and headcount.

In our study, which was conducted through June, fintech firms cut costs primarily in the following areas:

• 26% of executive teams reduced their salaries • 31% did headcount reductions or furloughs • 46% of firms that adjusted headcount also reported its executives reduced their salaries • 52% of companies got vendors to renegotiate or are in the process of renegotiating existing contract terms • 37% of companies were successful in renegotiating an office lease,11% were still renegotiating terms, and the remaining 52% were not successful • 49% did not intend to return to an office in 2021, however if those plans change, 75% have an office • 0 participants in the study cut all six expense categories and only 3 cut five out of six

ToTo reducereduce the cost structure ofof the the business business or or extend extend runway, fintech firms took therunway, following fintech actions firms took the following actions

2% 2% 2% 9% 11%

26% 31% 23% 50%

43% 37%

74% 67% 48% 52% 75% 48%

Reduced executive Laid off or Successfully Successfully Abandoned an Reduced marketing team compensation furloughed staff renegotiated third negotiated office office lease spend party contracts leases

No Yes In Progress

Source: Caliber Intelligence proprietary research Source: Caliber Intelligence proprietary research

11 On top of cost cuts, some companies found ways to accelerate revenue through faster customer payments.

Just as fintech firms have sought to renegotiate contracts, so have their customers. For customers whose businesses were impacted by COVID-19, including other startups or those exposed to the travel and entertainment sector, fintech startups have become flexible on payments. In one example, a founder’s customer asked for flexibility and in exchange signed a three-year contract.

Headcount reductions were among the hardest challenges for founder

Cutting headcount was one of the more difficult decisions for founders. The biggest question was how much cutting would right-size the business when the economic outlook was and remains unknown. The consistent advice from VCs and other advisors was to cut once and deep.

The most severe example of layoffs as a percentage of headcount was ScaleFactor, an accounting software firm that folded faster from the strain on the economy. ScaleFactor was struggling with customer churn prior to COVID-19, and reported its annual recurring revenue halved from $7 million as demand from small businesses crumbled in March. 6

By total headcount, India-based Paisabazaar, an alternative credit and lending marketplace, let go of 1,500 employees or approximately 50% of its staff.7 Meanwhile, its sister company, insurance unicorn Policybazaar, did not report any headcount reductions and is still planning for an initial public offering (IPO) in 2021.8

A few companies have made reductions more than once, including business travel lodging providers, Lyric and Zeus and digital-first challenger bank Monzo.

Even unicorn companies with $1 billion-plus valuations have had to make the same tough calls.

12 How COVID-19 is triggering mass layoffs across fintech

Layoffs are impacting fintech companies on a global scale and across all major sectors including lending, payments, insurance, wealth management, real estate, among others.

Source: Layoffs.io Note: This visual is for illustrative purposes and is not exhaustive

13 UK-based Monzo has been aggressively reducing its costs after reporting losses of roughly $148.88 million (£113.8 million) for its fiscal year ending in February 2020.9 Monzo laid off 165 employees when it shuttered its Las Vegas operations in April, laid off as many as 120 from its UK employees in June, and furloughed roughly 295 UK employees. Tom Blomfield, Co-founder and CEO, stepped down as CEO, among other C-suite shuffles, and the executive team took salary reductions. Despite amassing over 4.4 million customers, Monzo’s last $75.5 million Series G financing was a so-called “down round” based on a sharply reduced valuation. Monzo has since shifted its business model to include premium paid accounts in order to get the firm profitable sooner.10

Other Europe-based fintech firms reducing headcount include unicorn challenger banks N26 and Revolut, as well as publicly traded alternative lender Lending Circle and personal finance app provider Numbrs.

Founders are also reducing their salaries. Revolut founders Nikolay Storonsky and Vlad Yatsenko are forgoing their salaries for a year 11. N26 founders Valentin Stalf and Maximilian Tayenthal took a 25% pay cut, as did executives of Monzo and crowdfunding platforms Crowdcube, Seedrs and SyndicateRoom.12

Some CEOs posted internal communications to their teams transparently acknowledging their rationale and recognizing their shortcomings.

“If today is your last day, there is only one person to blame and it is me,” wrote Henry Ward, founder and CEO of Carta, the cap table management company that was last publicly valued at $1.7 billion, which let go of 16% of its staff.13

“I’m sorry that we are going through this as a company,” Ward said. “And I am sorry that all of you are going through this as Carta employees, Americans, and human beings.”

14 4. Next Steps

“We are in an environment the likes of which we have not experienced...” Bond Capital, “Our New World” 14

For startups that survived the first two phases of lockdown, as economies start to reopen, it’s time to go on offense.

One of the most positive outcomes of the pandemic response, as expressed by 41% of the executives we surveyed, was finding out that their business models were profitable. Conversely, one of the hardest challenges is being behind sales forecast, as expressed by 33% of respondents, followed by customers churning.

Looking at business metrics, half of respondents reported revenues have increased and 17% report revenues remained flat. 35% saw customer acquisition costs decrease, at least temporarily. Firms that saw CAC decrease also reported reducing marketing spend or planning on attending conferences in 2021.

The most positive Impact of The hardest challenge of COVID-19 on our business COVID-19 on our business The most positive impact of The hardest challenge of COVID-19 on our business COVID-19 on our business

Sales are ahead Missing record low Culture & morale of forecasts Increased customer partnership activity acquisition costs We delayed the Exposed product roadmap to Customer retention The business model market gaps extend runway beat forecasts is unsustainable The business Sales are behind VS model is profitable of forecasts Customers Regulatory We're ahead of Accelerated churned barriers increased our product adoption Hard to meet Right sizing the business roadmap Nothing positive clients with market risk Keeping up Increased customer with demand Travel and demand physical meetings

Source: Caliber Intelligence proprietary research Note: Sizing is based on responses and is for illustrative purposes Source: Caliber Intelligence proprietary research Note: Sizing is based on responses and is for illustrative purposes

15 Compared to the same quarter a year ago, COVID-19 Comparedhas impacted to the business same quarter performance a year ago, across COVID-19 the has impacted business performancefollowing key across metrics the following key metrics

2% 1% 8% 8% 10% 17% 17%

44% 38%

31% 50% 44% 38%

15% 50% 35% 19% 19% 40% 19%

23% 27% 26% 19%

Revenue Retention Average Customer Conversions Activation contract value acquisition costs rate

Increased Decreased Unchanged NA

Source: Caliber Intelligence proprietary research

Follow the flow of money

The pandemic set off unprecedented market volatility. For founders operating in wealth management or capital markets technology, this is the “once in a lifetime” cycle they’ve been waiting for to prove scalability to the market. Following the funds and trade data provides an opportunity for companies to align with the direction of the market.

One example is the sustainable funds category which in Q1’20 set a quarterly record of $10.5 billion, according to Morningstar. 15 Environment, social, and governance (ESG) investment strategies had already reached an inflection point in the eyes of institutions like Blackrock, and now among investors seeking shelter amid extreme market volatility. In part, because they had not been tested until the market plunge, and in Q1’20, sustainable funds lost less money than their non-ESG peers according to a recent MSCI report.16

ESG funds managed losses better because they mitigate exposure to intangible risks, such as geopolitical tensions, which erupted following global lockdowns. ESG funds also tend to have limited exposure to industrials, among the sectors hit hardest by travel restrictions.

16 Truvalue Labs helps institutional investors track and rank intangible ESG risk factors. In April, the company built a Coronavirus ESG Monitor that aggregates metadata on the pandemic and analyzes where it intersects with environmental, social, and corporate governance risks. In June, the company also launched a news monitor to track how racial equality-related events impacted sentiment on specific companies.

Source: Truvalue Labs

By “dog fooding” the product, a quality control tactic in product management that dates back to Apple and Microsoft in the 80’s, the company was able to rank new intangible risk factors as they emerge and prepare their COVID-19 and racial injustice responses. It is also a key tenet for founders to prove product-market fit. As Andy Rachleff, Co-founder and CEO of Wealthfront and Co-founder of Benchmark Capital, teaches budding entrepreneurs in his course on aligning startups with their market,

“if the dogs are eating the dog food — then you can screw up almost everything in the company and you will succeed.”

17 Follow the customer’s physical footprint with their digital traffic

The lockdowns broke physical customer acquisition channels for fintech businesses selling to or through financial institutions. Direct-to-consumer (D2C) and consumer-facing businesses also lost marketing attention from physical spaces, such as subway ads, billboards, and popup shops.

Marketing is one of the expenses firms typically pull back on in a crisis to reduce costs, and 50% of our survey respondents did just that. However, pre-COVID, daily hours spent on digital media per adult user was already on the rise on the back of mobile adoption, topping 6.3 hours in 2018.17 With more time at home during lockdowns, digital engagement has spiked, suggesting that investing in a digital marketing strategy should pay dividends beyond this period. Mobile is crucial to acquiring customers, Mobileand grabbing is crucial more to acquiringconsumer attentioncustomers, and grabbing more consumer attention Daily hours spent on digital media per adult user rises on the back Dailyof mobile hours adoption spent on digital media per adult user rises on the back of mobile adoption

6.3 6 5.7 5.4 5.1 4.9 4.4

3.7 3.2 2.9 0.8 2.7 0.4 1.6 3.1 3.3 3.6 0.3 2.3 2.6 2.8 0.3

2.1 2 2.4 2.2 2.2 2.2 2.3 2.6 2.5 2.3 2.2 0.2 0.3 0.4 0.3 0.3 0.3 0.3 0.4 0.4 0.6 0.7

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Other connected devices Desktop/Laptop Mobile

Source: Bond 2019 Internet Trends Report Source: Bond 2019 Internet Trends Report

One company taking this strategy seriously is Rally Rd., a retail investment platform for trading in shares of illiquid collectibles, such as antique cars and memorabilia. The company has a storefront in New York, an organic customer acquisition channel that was closed off by the lockdowns. The company is going to partner with social network app Snap to boost investor engagement with younger investors on Snap’s platform. At Snap’s Partner Summit in June, the company reported having 229 million daily active users (DAUs) in Q1’20 and reported its digital reach in the US topped 100 million consumers.18

18 229 million daily active Snap users in Q1’20

100 million+ consumer reach in the US

Source: Gdrive Folder Logos & Images PNG Snap + Rally – PNG PNG. Rally Rd. lamborhgini-countach-NYC Soho manahttan Raising money

Early-stage (seed and Series A) companies have not felt investors pull back in Q2’20, though investors are doing more diligence related to companies’ COVID-19 strategies. We spoke with 10 founders that were able to close a round, though some were closed in January.

Early-stage deals may look like they are behind year-over-year averages. However, there is typically a 20% to 30% gap between closed rounds and disclosed rounds. Companies have been underreporting funding announcements to avoid getting lost in the media over COVID-19, likely making the gap in closed and reported rounds as wide as 40%. 19

Early-stage investors have been active. Many have closed fully remote investments with companies they have not met in person. Combined, the gap between closed and disclosed early-stage deals has likely grown since the lockdowns began. Founders looking for a lead investor will have better chances polling other founders to identify who is active rather than scanning the media.

For founders looking to raise in the fall and winter, venture funds typically slow down in August, and VCs likely have less capital reserved for new deals if they were active in follow-on rounds in the first half of 2020. If a company doesn’t have runway beyond 2020 and was counting on a winter raise, it may want to open the round sooner, or look into financing alternatives such as debt.

The majority of founders are not relying on equity, debt, or government aid for capital to extend runway. 53% are not raising venture capital, 73% are not raising a bridge round or debt, and 54% did not receive government aid. Even rarer, only 6% of our study reported raising equity, debt, and received government aid.

19 The majority of founders are not relying on equity, debt, or government aid for capital to extend runway

8% 6% 53%8% 4% 2% 14% 17%

36%

25%

73%

53% 54%

Raised venture capital Raised dept or bridge Received gov. aid

No Yes In Progress N/A

Source: Caliber IntelligenceSource: Caliber proprietaryIntelligence proprietary research research

A few founders we spoke with are running a dual process of raising a round while simultaneously talking to investment bankers or strategic buyers. We met with a handful of investment bankers to understand the current appetite for mergers and acquisitions (M&A) and red flags for founders. What we heard is that startups caught in the wrong part of the funding cycle are now faced with both a tougher funder and M&A environment. Though the funding might be available, the proba- bility of hitting growth targets while sales are still sluggish from COVID is unknown.

Michael Maxworthy, Co-founder and Executive Managing Director of tech investment bank Marlin & Associates, provided his takeaway:

“Clients frequently work with us to run a dual process that contemplates either the entire sale of a company, a majority recapitalization or a minority recapitalization. In these cases, we reach out to both strategic and financial buyers to understand the various options that management would have as it considers strategic alternatives.

In some cases, the financial sponsors have a portfolio company that is looking for roll-up opportu- nities in our client’s space, or if big enough, a brand new platform.”

20 Despite the anomalous market conditions, laid out in section IV: “Customers,” only 10% plan on exiting. Even so, it may be a last resort after cutting expenses, sharpening their focus on revenues, and raising capital to protect the business.

Founders are fighting for their business

Source: Caliber Intelligence proprietary research

21 THEME II

WORC Operations

22 THEME II WO R C Operations

1. What is it

Health and safety of employees remain the first concerns for founders during COVID-19. The immediate actions companies took in shutting down offices were about protecting employees. Because of the uncertain trajectory of the virus, mitigating health risks remains core to every subsequent phase. The first priority is client safety, then protecting the business.

Countries further along in their containment efforts, such as China, may represent a viable recovery model for countries with similar infection rates. However, for more severe cases, such as the US and Brazil, the path to reopening is going to be longer.

2. Why it matters

Customers increasingly want brands that represent their values, and startups are no exception. In a recent poll from public relations firm Edelman, 90% of respondents want brands to protect employees at all cost.20 Brands that haven’t prioritized safety have seen their public perception take a hit and negative sentiment surge on social media.

As economies start to lift lockdowns, founders and their leadership teams are making decisions about how to implement strict return-to-office policies, remain remote, manage employee burnout, and stimulate cross-team collaboration in a fully remote working environment.

3. Benchmarks and examples

Tech companies including Facebook, Okta and Box took the lead in pushing out return-to-office plans to 2021 and adopting hybrid models in which they will bring teams back on a rotational basis. Twitter and Square (which share Jack Dorsey as a CEO) are moving to a permanent remote-work culture. For a model, look to GitLab, which was a pioneer of the all-remote model and has 1,300 team members across 65 countries.21

In fintech, India-based unicorn Policybazaar has given up four of its 12 office buildings in Gurugram, and MobiKwik has shut one satellite office, according to a report on LiveMint.22 In the US, Credit Karma closed its San Francisco office earlier than expected, and will eventually move all Bay Area employees to its new Oakland office, though some will be able to work from home permanently.23

Among the fintech founders we spoke with, companies ranged from already being fully distributed to adopting a work-from-home policy for the first time. All agreed that moving to a fully remote WORC environment was seamless from an operations perspective, because their businesses are built on modern technology stacks hosted in the cloud, making it easy to deploy and support staff remotely.

Operations In the first few weeks of the lockdowns, employee engagement and motivation were high and employees were feeling motivated. Looking at key performance indicators (KPIs), founders we met with saw increased performance in engineering, product, and customer support, while sales results varied by sector and application (as detailed further under Theme IV, “Customers”).

Why is productivity up? Overworking. Digging one layer deeper into KPIs reveals that teams, particularly engineering, are at risk of burning out. Employees are reallocating the time they’re 23 saving on commuting, and with shelter-in-place ordinances, there aren’t many options to spend it elsewhere other than on work.

One way to test this effect at an organization is to look at the product roadmap and delivery cycle. For many founders, it has accelerated. If nothing else has changed from an efficiency standpoint, being six months ahead of delivery is a clue some teams may be overproducing. Another way to test for burnout are engagement surveys. In one founder’s company survey testimonials, employees reported feeling like they are “living at work.”

Employee’s mental health was a consistent focus of founders we interviewed. VCs, meanwhile, are concerned about their portfolio CEOs’ mental health.

The employee experience is top of mind for leadership teams. In a fully remote environment, maintaining and renewing personal bonds is challenging, as is onboarding new team members who managers have never met in person. In an XSF study for real estate firm Cushman Wakefield on the future of the workplace, personal connection to culture was one of the lowest scoring indicators. The same study identified one of the top challenges in working from home as broadband internet access. For parents, child care duties are a top challenge, while Generation Z respondents (roughly those born after 1996) cited inadequate workspace.24

Solutions that founders are exploring include sending office equipment to employees for their home offices, especially for firms consolidating office space. Some firms are offering technology stipends to cover office chairs, additional monitors, and other tech expenses. Firms with globally distributed teams are offering utility reimbursements, as many households have been dealing with spotty broadband coverage.

To foster collaboration and culture, HR teams have been setting up internal networking groups, using apps such as Slack and Donut, with dedicated channels for personal interests. Popular groups include parenting in a pandemic, cooking, and fitness. Firms are integrating apps such as Strava, the run and cycling tracker, or fitness equipment like Peloton to coordinate virtual fitness competitions. To foster peer-to-peer collaboration, some companies are hosting speaker events styled after TED Talks.

To prevent burnout, the leadership teams have tried tactics such as giving teams 24-hour hack days to work on a side-hustle, allocating extra PTO, and adopting a shorter work week or “Summer Fridays.” Leaders also need to be mindful of anxiety employees are feeling broadly about the possibility of losing their jobs, and of the financial stress experienced by those who have taken pay cuts. In a Pew Research study on the impact of COVID-19 on workers, 23% of employees reported feeling worried about losing their job and 38% felt financially stressed.25

Taking a longer view, leadership teams may want to rethink the benefits menu. Companies like TruVeris, Even, Earnin, and others are working on ways for employers to extend benefits such as healthcare, access to affordable prescription drugs, or emergency cash advances to pay bills.

One example in practice is Branch, which partnered with pizza chain Domino’s to provide its employees early access to wages.26 “Branch was a timely fit for Domino’s,” founder and CEO Atif Siddiqi told us.

“They could offer employees faster payments of tips, wages, and mileage onto the Branch digital wallet and debit card, without requiring pre-funding, cash reserves, or changes to payroll.

As 94% of hourly workers found accessing their pay before payday helpful (a 14% increase from last year), it was also a compelling benefit.”

24 4. Next Steps

As companies plan their long-term logistical strategies, physical workspaces will be transformed to ensure compliance with heightened health and safety protocols.

Until there is a vaccine, preventing the spread of the virus will be a permanent policy in the human resources handbook. For businesses that have not already put their policy in writing, it is non- negotiable to employees and customers.

Giving up the office

The business case for giving up the office is cutting fixed costs. It has the most impact for companies that need to extend runway in a tight funding environment in countries with a longer path to recovery. One founder we spoke with is giving it up offices in New York and San Francisco, resulting in operational expense (OpEx) reductions of $70,000 a month.

One lesson learned the hard way is that if you give up the office, you need to have a permanent working-from-home (WFH) policy in place. One HR professional who put together a “Work From Home Forever” guide warned to be prepared for employees to move out of high cost urban areas (such as New York or San Francisco) and to augment healthcare coverage for remote workers.

If you still need another perspective to help with this difficult and consequential decision, conduct an anonymous survey and ask your employees if they want to go back to an office environment.

• One founder of an alternative data and AI company found that 80% of employees did not want to go back to the office, particularly those of middle-age with families. • Another founder in the capital markets space said that 30% of employees missed the connections of an office and wanted to go back. This sentiment was highest among Millennials and Generation-Z employees under 40 years old.

What could be a black swan in the no-office strategy? A vaccine.

What if, hypothetically, people feel it’s safe to go back and you’ve abandoned an office? The commercial real estate market is bound to open up and there should be plenty of supply.

Since the onset of the pandemic, San Francisco’s sublease inventory has risen rapidly by 1.4 million square feet, and now makes up 41% of the city’s total available office space, matching 2001. In New York, CBRE econometric advisors forecast rents to fall by 10% to 16% by Q1’21. Founders should keep an eye on the CBRE Office Rent Tracker, which shows rate changes globally.29

25 THEME III

WORC Regulation

26 WO R C Regulation

1. What is it

Regulations are typically barriers to enter a market or service. However, once companies have gone through the arduous process of gaining the requisite licensing, regulatory approval can be a differentiator in investment diligence and vendor comparisons, and a moat against future competition.

Since the 2008 financial crisis, the pace of regulation has increased, creating a larger surface area for gaps within financial services. This has unlocked the market for regulatory technology or “regtech” companies that have built technology solutions to help firms keep up with compliance mandates and costs.

In addition to reigning in and reforming banks, regulators have been lowering the barriers for tech firms to enter the market. Europe and Singapore have been pioneers in enacting “Open Banking” regulations aimed at increasing access to data and adoption of standardized application programing interfaces (APIs). Open banking has been a catalyst for new fintech formation and gave rise to the first breakout cohort of digital-first challengers cited earlier in this report, Monzo, N26, and Revolut.

2. Why it matters

Taken together, increased regulatory requirements on financial institutions and the proliferation of tech-friendly rulings are working in fintech’s favor during the pandemic.

Unlike previous crises, regulators acted swiftly at the onset of the panic to prop up local economies by passing stimulus packages to help SMBs and unemployed workers. In total, regulators and policy makers have enacted more than 200 COVID-19-related policy measures globally. The International monetary fund (IMF) estimates over $10 trillion of fiscal support has been designated to support health care, people, and firms limit the impacts by COVID-19.31

27 Over $10 trillion of fiscal support has been designated to support Over $10 trillion of fiscal support has been designated to support health care, people and firms limit the impacts by COVID-19 health care, people, and firms limit the impacts by COVID-19 G-20G-20 fiscal fiscal support support type by intervention type by intervention

Health Support for households Maintaining Support for businesses (by Type) Support for businesses (by measure) Spending Employment Linkages

1 2 3 4 5 6 SME Large Undefined 7 8 9 10 11 12 13 14 15

AUS CAN EU FRA DEU ITA JPN KOR ESP GBR USA ARG BRA CHN IND IDN MEX RUS SAU ZAF TUR

1 Expansion of basic social security 6 Subsidies for wages or other 11 Loan guarantees between including relaxation/expansion of measures to maintain employment governments and banks to cover unemployment benefits linkages cash flow needs of SMEs

2 Expansion or frontloading of child 7 Corporate, property, payroll and 12 Loan guarantees for businesses or and/or elderly pension benefits VAT tax payment deferrals, cuts, any size write-offs, reimbursement

3 Direct cash payments, subsidies, or 8 Grants and direct financial support 13 Equity injection into SME in-kind transfers

4 Extensions of sick leave/benefits 9 Delayed, assisted or refunded 14 Equity injection to systemic firms social security contributions

5 Deferred income, VAT, property tax 10 Assistance to increase lending 15 Increase in credit lines payments, exemptions and rebates capacity of financial institutions/ public banks/development banks, including concessional or subsidized loans and interest rate subsidies

Source: Country authorities; and IMF staff estimates Source: Country authorities; and IMF staff estimates

While fintech startups we spoke with were unfazed operationally by the initial lockdown, legacy banks with a heavy physical footprint struggled. Typically laggards in tech adoption, banks were forced to adopt tech faster in order to keep operations running in a fully remote environment.

In some instances, as with early-stage startups, bank procurement teams have become stricter on assessing vendor risk management and requiring third-party risk and control assessments.

One benefit for startups, is the easing of restrictions on digitization. Reducing paperwork friction was not a pressing priority for banks until their physical branches were shut down and they were forced to digitize and streamline applications, onboarding questionnaires and legal agreements.

From our study, where regulatory barriers or procurement increased, fintech firms reported their sales cycles were worse than the same quarter a year ago.

28 Where regulatory barriers or procurement increased, forum’s sales cycles were worse than the same quarter a year ago

Source: Caliber Intelligence proprietary research

3. Benchmarks and examples

One of the biggest innovations that developed post-2008 was the online lending industry. Because the groundwork had been laid prior to COVID, online lenders and technology for community banks have been bright spots during the lockdowns by serving as a conduit for government relief and stimulus distributions.

Square’s founding vision in 2009 was to be the simplest way for SMBs to make money. Today, the vision includes lending through Square Capital and banking through Cash app. In Square’s Q2’20 letter to shareholders, the company reported facilitating $873 million of PPP funds for 80,000 SMBs. On the consumer side, Cash app crossed 30 million monthly users in June 2020, or approximately one in eight US adults.32

In 2008, Cross River Bank had the foresight to buy a charter and fill the lending gap for budding entrepreneurs and in time, the nascent fintech industry. In 2020, Cross River approved $5.6 billion of PPP loans distributed through 30 non-chartered fintech customers including SMB lenders BlueVine and Kabbage, as well as SMB payroll provider Gusto.33

Other fintech lenders built APIs to connect to the SBA’s E-Tran system and automate applications for customers.

“Small businesses need a trusted partner for the long haul. When the country looks back on the COVID crisis years from now, shoring up the small business ecosystem will be a pivotal moment. Nav, along with the entire fintech ecosystem, is here to help meet the challenge,” noted Greg Ott, CEO of SMB financing marketplace Nav.

29 Among vertical segments, insurance and mortgage businesses have been dealing with state-by- state lockdown protocols because they are regulated at the state level. Pre-COVID, some states required parts of the mortgage application to be completed at a physical office. Legislators in some of those states were quick to adopt e-signature policies in response to a surge in refinancing applications. This was a big win for digital notary services such as Notarize, digital mortgage providers like Better, and online mortgage marketplaces like Morty.

Lower barriers to enter the market can also be a catalyst for competition. With the passage of remote online notarization (RON) legislation, Notarize reported a 400% increase in uptake and onboarded over 1,000 notaries, and closed a $35 million Series C investment.34 On the heels of its raise, publicly traded competitor DocuSign, announced acquiring Liveoak Technologies for $38 million to move up its planned digital notary product launch.35

4. Next steps

With parts of the global economy in lockdown for the foreseeable quarters, fintech businesses can use this period of regulatory easing to get ahead of the next set of hurdles on the product roadmap, such as geo-specific rules or service-level certifications. Global payments platform Currencycloud, for example, announced it has secured an e-money license from the Dutch Central Bank (De Nederlandsche Bank), allowing it to continue operating across the EU.36 “The Netherlands has a strong fintech sector, access to top talent and a safe regulatory environment,” noted CEO Mike Laven following the approval. “The license also ensures we can continue to serve our European clients effectively after the Brexit transition period ends.”

Others are leveraging regulation to diversify revenue concentration. International money transfer provider Transferwise was approved for by the Financial Conduct Authority (FCA) to offer investment products to its customers in the UK.37 The move complements other strategies to move beyond pure payments to a niche financial provider for digital nomads globally.

30 In Germany, Bafin, the securities regulators, have been approving Security Token Offerings (STOs) which benefits blockchain companies like Upvest, who are developing a securities tokenization platform.

Looking ahead, 41% of firms are in the process of or actively planning to apply for geo-specific rules or service-level certifications.

41% of respondents are in the process of or planning to apply for regulatory 41% of respondentsapproval are in orthe a processlicense depending,of planning onto apply the state for regulatory or country of operations approval or a license depending, on the state or country of operations

No

18% In-progress / done 23% Yes

59%

Source: Caliber Intelligence proprietary research

Regulators have been more willing to foster technology adoption during this period. Before that window closes, now could be a good time to turn regulations from barriers on the roadmap to a competitive advantage.

31 THEME IV

WORC Customers

32 THEME IV WO R C Customers

1. What is it

The DNA of fintech startups is centered around customers. At the onset of the pandemic, retention was the primary focus and a driver of key decisions, such as pivoting the product or partnering for distribution. Series D and Series E+ companies have more buffer to expand and be strategic with customer acquisition, but those decisions have aligned with the existing customer base. In our study, 40% of executives reported retention increased, while 15% reported it had dropped.

40% of companies reported retention increased, compared to the same quarter a year ago

Source: Caliber Intelligence proprietary research

One of the most important levers for customer retention is the product. In response to COVID-19, fintech firms have been quick to accelerate the product roadmap and add new products and services where relevant to their customer base. 45% of survey respondents have accelerated planned products on the roadmap and 34% are in progress with or have successfully launched a product. 44% of survey respondents have added a new product to the roadmap and 29% are in progress with or have successfully launched something new.

COVID-19 has had unexpected positive impacts with the majority of fintech firms WORC reporting adding new products and services Customers

Source: Caliber Intelligence proprietary research

33 To prevent churn, fintech firms have been flexible with customers that are trying to cut costs or struggling financially by offering payment holidays, contract flexibility, or reducing or waiving fees. In some cases, firms have had to pivot due to customer concentration in industries impacted by COVID-19 (as detailed further under Theme I, “Working business models”).

2. Why it matters

More competition for customers

As noted in the introduction, the modern fintech stack was born in the rubble of the housing market collapse in 2008. Founders built technology solutions for pain points for customers, notably access to liquidity and loans, when traditional banks were under stress. The model was lower operational costs significantly and pass those savings through to customers in the form of low- to no-fee software or “freemium” services. The goal was to build a big customer base and find ways to monetize adjacent services such as data.

Fintech startups had an edge in building trust with consumers while banks struggled with record low net promoter scores (NPS) in the wake of the 2008 crisis. Today, however, if we measure trust by bank deposits, consumer trust in banks has never been higher. In the US, consumers have flooded banks with cash, with deposits topping $15.78 trillion in Q1’20, an increase of $1.24 trillion from Q4’19.38

Total US savings deposits surged to $11.39 trillion in June 2020.39 Thus, while fintech may be accelerating during the pandemic, the competitive landscape of traditional banks could prove more challenging.

US deposits rose by $1.3 trillion in Q1’20, up roughly 13.3% from Q1’19

Source: FDIC

34 Total US savings deposits surge to $11.39 trillion in June 2020 Total US savings deposits surge to $11.39 trillion in June 2020 Shading indicates U.S recessions; the most recent one is ongoing. Shading indicates U.S recessions, the most recent one is ongoing

12,000

11,000

10,000

9,000

8,000

7,000 Billions of dollars 6,000

5,000

4,000

3,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Source: Board of Governors of the Federal Reserve System US Source: Board of Governors of the Federal Reserve System US

Branch closures have also made financial institutions aware of their digital gaps, which accelerates the pressure for disruptors building distribution to scale before the incumbents. On the enterprise side, we can see it occurring with companies such as bank operating system, nCino which went public to raise cash and grow.

Before COVID, challenger banks were ahead of incumbents in the rate of account growth, in part because they use remote authentication technologies and same-day anti-money laundering (AML) and know-your-customer (KYC) compliance checks. Post-COVID, banks will pose stiffer competition, as they have been quick to adopt digital-first account opening by leveraging partnerships with fintech companies like MANTL. On the back of record deposit growth, MANTL reported its customers saw a 705% rise in deposit volumes in April.40

Bank IT spending is estimated to increase roughly 4.5% through 2021, with a $100 billion total addressable market (TAM) weighted toward growth over maintenance, according to a report from Credit Suisse. JP Morgan, Wells Fargo, Citi and Bank of America account for the bulk of the bank technology TAM, spending an estimated $40 billion combined on technology in 2018. While the bulge bracket banks control a lot of spend, 74% of banks estimated IT spend would increase in the Credit Suisse survey.41

2020 IT budgets remain largely in line with pre-COVID projections for the year. Some may even increase for firms with extra revenue from PPP loans that can be reinvested in research and development.

Bank tech investments will likely focus on the filling immediate digital gaps that COVID-19 made too big to ignore. Fintech firms have an opportunity to help banks move from in-person to omnichannel services such as identity authentication or opening and funding checking and savings accounts, among other activities hindered by remote operations.

35 Impact on customer retention

“Nothing broke” during the pandemic – that was one of the fintech sector’s humbler achievements, by consensus among the founders, C-suite executives, and venture capitalists with whom we spoke.

In capital markets, for example, as the coronavirus began to spread in the US in March, investors began to panic. The volume and volatility were so extreme that exchanges temporarily halted trading by triggering a market circuit breaker four times in March. The biggest trigger happened on March 16 as the Dow Jones Industrial average dropped by roughly 3,000 points or 13%.42 It was the Dow’s worst day since dropping 508 points or 20% on October 19, 1987. “Black Monday” was also the catalyst for the SEC to implement controls to calm the market during a panic.

The Dow dropped 13% amind coronavirus fears, its worst single-day decline since “ Black Monday” in 1987

Dow Jones Industrial Average hourly volume, March 12 2020 - March 16, 2020

Thursday Friday Monday -10% +9% -13% 24000

23000

22000

21000

20000

Mar 12 noon 2pm Mar 13 noon 2pm Mar 16 noon 2pm 4pm

Source: Factset

Source: Factset Similar to Black Monday, As the markets were on the brink of collapse, the Fed and government were swift with intervention plans. It has also kept investor confidence strong and is ushering a new era of investors. In notional value, markets saw a record of $14.6 trillion of value traded in March 2020, double March’s 2019 volume, according to data from Cboe. 43

36 In March, markets saw a record of $14.6 trillion of value traded, up to 2x from 2019. VolumesIn March, marketsare up sawevery a record month of $14.6 in 2020 trillion compared of value traded, to 2019 up 2X from 2019. Volumes are up every month in 2020 compared to 2019

JanuaryJanuary 2019 2019 -- June June 2020 total 2020 notional total value traded notional daily in $ trillions value traded daily in $ trillions

Source: CaliberSource: Cboe Intelligence proprietary research, CBOE

One institutional capital markets tech firm told us that market volatility pushed its software application beyond its known capacity levels – but it continued to work as intended nonetheless.

Retail brokerages were not prepared for the volume. Digitally native investment apps such as Robinhood, as well as incumbents Fidelity and Charles Schwab, suffered outages. Since March, Robinhood’s website may have been out as many as 47 times, compared to Schwab’s, which was out 10 times, according to a New York Times analysis. Robinhood trading is primarily mobile and its average customer trading volume in the first half of 2020 was up three times compared to all of 2019. 44 In terms of scale, as of May, Robinhood said it had 13 million accounts, while Schwab reported 12.7 million brokerage accounts in its latest filings.

Outlook on growth

While time at home may have boosted fintech app downloads and engagement, as noted under Theme I: the “Working Business Model,” that’s not the primary driver of the surge in retail investing. Rather, outstanding debt as a percentage of personal income has dropped, meaning consumers have more discretionary income. Though outstanding debts are at record-levels in the US with student debt hovering at $1.67 trillion and the unemployment rate is 10.2% as of July, down from 14.7% in April and near Great Depression highs, there are some positive macro indicators that are less ominous for households and consumers. 45 46

37 In the US, as of July 2020, household debt service payments were 9.67% of disposable personal Income, a new record low. Historically, it reached a record high of 13.21% in October of 2007.47

HouseholdHousehold Debt ServiceDebt Service Payments Payments as a as percent a Percent of Disposableof Personal Income (TDSP)Disposable as of Q1’ 20 Personal Income (TDSP) as of Q1'20 Q1'16 - Q1'20

Q1’1980 - Q1’2020 U.S. Recession periods

14

13

12 PERCENT

11

10

9

1980 1985 1990 1995 2000 2005 2010 2015 2020

Source: BoardSource: Board of of Governors of the Federal of Reserve the System Federal (US) last updated Reserve on 6/18/20. Shading System indicates U.S. recessions;(US) last the most updated recent one is ongoing on 6/18/20. Shading indicates U.S. recessions; the most recent one is ongoing

Outstanding household financial obligations at mid-2020 were 15.02% of disposable personal income, well below the peak of 18.1% in October 2007.48

HouseholdHousehold Financial Financial Obligations Obligations as a as percent a percent of Disposableof Peronsal Disposable Personal Income (FODSP) as of Q1'20 Income (FODSP) as of Q1’20 Q1'16 - Q1'20

Q1’1980 - Q1’2020 U.S. Recession periods

19

18

17 PERCENT

16

15

1980 1985 1990 1995 2000 2005 2010 2015 2020

Source: Board of Governors of the Federal Reserve System (US) last updated on 6/18/20. Shading indicates U.S. recessions; the most recent one is ongoing Source: Board of Governors of the Federal Reserve System (US) last updated on 6/18/20. Shading indicates U.S. recessions; the most recent one is ongoing

38 “This is not just less ominous than in ‘08, but better than in more than 40 years and further that similar measures for corporations are almost equally encouraging,” as Milton Ezrati, Chief Economist of Vested and contributing editor at The National Interest and an associate of the Center for the Study of Human Capital at the State University of New York at Buffalo, told us.

“They will appear as the re-opening proceeds and especially into the new year as various deferments, as with student debt, lift.

Then we will also see the worst effects of business bankruptcies, which should be severe.”

Founders would be prudent to monitor the health of the economy by measuring changes in employment, consumer spending, and new orders for capital goods as an indicator of confidence in the future, noted Ezrati.

Combined, these indicators signal consumers are not buckling under nearly as much debt as during the financial crisis of 2008.

There may yet be some negative fallout from the payment holidays and spike in unemployment, but during the time in lockdown, these factors help explain the surge in retail investments and in savings. Outages notwithstanding, digital investment platforms have benefited from the uptick in time at home and increased savings for consumers less impacted by unemployment.

Fractional and micro-investment apps such as Acorns, Stash, and Public have had record account openings. Fintech firms with a multi-line strategy, like robo-advisor Wealthfront, also reported an uptick in assets under management from investors looking to get out of the markets and into more liquid, less risky products like high-yield savings or 529 college savings accounts.

For customers in lower income brackets, fintech firms have used payment holidays or waived fees to boost engagement and acquire customers (unless their services were already priced aggressively or free). Some challenger banks, such as US-based Chime and Current, offered select customers early access to government relief checks.

For fintech businesses selling to banks (B2B or B2B2C), the traditional business model has relied heavily on in-person meetings at conferences to demo products, and onsite meetings at the bank’s or startup’s office to validate legitimacy and pitch key decision makers. Social distancing and stay-at-home orders have created a surge in video conferencing and a boon for companies such as Zoom as well as Symphony and MOXTRA, whose tools comply with specific financial services security regulations.

39 3. Benchmarks and industry expectations

Banks are ready for digital transformation

In the first weeks of the lockdowns, fintech firms saw sales leads go cold as a result of being forced to work remotely for the first time. With operations functional, many were surprised banks started reengaging for digital transformation initiatives.

There is a general consensus among founders we met that banks are ready to digitize and automate manual services, including onboarding, customer services, and certain compliance functions. This makes sense, as banks budget roughly 4.4% for IT spend and did not have to make steep financial cuts like startups.

For fintech firms that sell to financial institutions, the question of time to ROI is holding up buying decisions, rather than cash. In this scenario, fintech firms have been flexible with contract terms. One founder we spoke with went from a 12-month minimum contract to a 6-month contract to get a deal signed with a marquee financial institution.

Early-stage startups pitching outside of an accelerator program have been more successful when they’ve been able to:

• Present a working minimum viable product (MVP) with user feedback • Identify and speak to an immediate pain point a financial institution is experiencing • Demonstrate a short-term return on investment (ROI) time horizon

ROI = Speed

Financial institutions want to see results on average in six to eight weeks for less urgent projects tied to digital transformation initiatives. This insight impacts “replace the bank” initiatives, which are higher cost and take a longer time to deliver ROI. Infrastructure companies with a multi-year implementation time horizons (for example, rebuilding the core ledger) have accelerated adjacent products on the product map. Banks and ecosystem players have also been very active in partnering with fintech companies to accelerate digital transformation initiatives.

It is important to target bank partners that have enough assets under management and will pay for a proof of concept (POC). Small community banks (under $10 billion in assets) can’t afford a full- time Chief Technology Officer (CTO). They typically rely on their core banking provider, FIS, FISERV, Jack Henry, or Temenos for technology initiatives and support.

Aside from being acquired, fintech companies have two options to get distribution with community banks: sell to regional banks with between $10 billion to $100 billion and super-regional banks with between $100 billion to $500 billion in assets that have a CTO, or partner with a core banking provider that needs innovation. That is what Lendio did with Jack Henry to launch an SBA automation portal in a matter of weeks, an integration that would typically have taken months before COVID.49

40 One point of caution: be careful to avoid onerous revenue sharing terms. One core provider was looking to collect 40% of revenue from a fintech startup. They need your innovation more than you need their distribution channel.

4. Next steps

“Your biggest customers own your product roadmap.” Marc Benioff, Founder and CEO of Salesforce

The lockdowns forced consumers to change their behaviors. By adopting technology, customer activation has shifted from physical to digital to open accounts remotely, in the case of B2B companies selling to financial institutions, or to manage wealth, in the case of B2C companies selling to consumers.

Customer retention and acquisition with the product roadmap

Pivots should be targeted and relevant to your existing customer. In a crisis, retention is among the top key performance indicators of a sustainable business. Pivoting the product too far from the core market risks churning existing customers.

We’ve identified a few examples of successful pivots. Examples of pivots that went poorly can be observed in some recent acquisitions with unfavorable terms – for example, the robo-advisor Motif. Charles Schwab agreed to acquire Motif, a digital brokerage that differentiated from other robo- advisor by offering thematic investment portfolios. The terms indicate the business model was

41 not profitable, despite raising $126 million of capital, as Schwab agreed to buy Motif’s technology, intellectual property, algorithms, patents, and source code. The remaining broker-dealer, RIA, and client accounts and assets were transferred to Folio (subsequently acquired by Goldman Sachs).50

Customer acquisition and engagement through digital event channels

As financial institutions start reopening their offices, there may be some semblance of in-person meetings. However, business travel and conferences are unlikely to return until 2021. Even then, 64% of our survey respondents do not plan on attending in-person conferences in 2021.

36% of fintech firms will attend in-person 36% of fintech firms will attend in-person conferences in 2021 conferences in 2021 Roughly aligned with capacity restrictions during lockdowns Roughly aligned with capacity restrictions during lockdowns

No

Yes

36%

64%

Source: Caliber Intelligence propretary research Source: Caliber Intelligence proprietary research

Until there is a vaccine, many people do not want to attend bigger gatherings. Pitching customers and investors, at least in part remotely, is going to continue for the next few quarters. Firms can get investors comfortable by enhancing their digital communications strategy and being radically transparent with performance.

As part of cost cutting initiatives, many fintech prospects tightened their marketing spend initially, notably including conference sponsorships. Investment banks reduced the number of conference sponsorship by 37% in the first half of 2020 from the prior year.51

Large-scale, in-person conferences are not likely to return until 2021. Event organizers have pushed out event dates, moved to a hybrid virtual model, or canceled entirely. Event hosts that pushed out dates include CB Insights, which moved the Future of Fintech conference from June to November 2020 and will be host virtually. Others that scrapped events until 2021 include Insurtech Connect (ITC), Empire Startups Fintech Week, and LendIt Fintech. Others remain on schedule, such as Money 2020, which is reportedly still scheduled for October, but is reducing in size and implementing new health and safety requirements.

42 Executives and sales teams are being creative with supplementing in-person pitching and networking. Founders we met with cited participating in virtual venture capital-sponsored off-sites, investor portfolio surveys, virtual conferences, and investment banking closed-door conversations. Crux Informatics, a data management provider, has held customer summits and opened them to the public, including its virtual data and sustainability summit in June.

New platforms for hosting events, webinars, and virtual networking have surged as a way for firms to get in front of target customers and investors. As noted earlier, customer management platforms such as Moxtra and communications software like Symphony have been seen adoption accelerate. Treasury, a fintech network, hosted a fintech-focused “Quarantine Summit” using Hopin, a live- streaming event service with networking features and the ability to host multiple talk tracks. Run the World is another platform picking up broader traction with its end-to-end platform that allows hosts to send event invitations and monetize participation.

One perception the pandemic helped remove is that virtual events do not work. Virtual events have been more efficient on expenses and travel and will likely remain a permanent fixture of a hybrid sales and marketing strategy.

43 Conclusion

44 Conclusion What’s next? The next normal for fintech

“The banking system has been a source of strength during this crisis.”

Randal Quarles, Vice Chair of the Federal Reserve, on the results of the Fed’s June 2020 stress test.

We would add that the financial technology providers underpinning the industry were also tested and proved resilient. For the industry to get through the crisis and on the path forward, we believe investing in fintech, reducing go-to-market barriers, and fintech adoption are paramount.

Though industry experts align on the speed and cost efficiencies fintech can deliver, and agree that COVID-19 has accelerated mainstream adoption, most miscalculate the time and capital it takes to unlock the second-order opportunities. What has accelerated is the pressure to get the business model to work and to be on a path to profitability. While they are not mutually exclusive, these “jobs to be done” will remain vacant if founders run out of cash or sell, and we want to see them thrive.

The destination is the same. However, the strategies to get there need to evolve. The old fintech playbooks weren’t built for the next normal. Contained in this report are a few of the new plays that founders are running to get through this pandemic and remain on the path forward.

While fintech firms are rising to the occasion to help consumers and businesses impacted by COVID-19, the macro-economic shocks of unemployment and slowed GDP are on a scale beyond capacity for startups. The fallout has also revealed how much remains unscathed, like legacy payment rails or clearance and settlement systems written in COBOL.

As with every crisis, inefficient processes will be a catalyst for innovations. Our belief is that those seeds are already being planted, fully remotely, and this report is meant to be a public service to help businesses get to the other side to nurture those ideas to grow.

We do not know if the next crisis will be brought on by a second wave of coronavirus cases or reinfection, a mass cybersecurity attack, or an environmental crisis. However, it’s our observation that the future leaves clues. This playbook is one point of view on key themes for operating in a crisis, how to spot what’s next, and ways businesses can be resilient from the perspective of fintech founders and industry experts. Conclusion Whether this crisis ever truly ends or when another happens, we’ll be ready.

45 Acknowledgments

46 Acknowledgements

Thank you to the founders, executive teams, investors, and supporting contributors for supporting our inaugural fintech intelligence report.

The following is not representative of the anonymous contributors or survey population that participated in this study.

Acknowledgments

47 Lindsay Davis is the Director of Intelligence at Caliber Corporate Advisers. As head of the division, Davis’ focus is helping fintech companies, financial services firms, venture capital funds, and investors turn data and insight into action.

Over the course of her career, Davis has built and scaled market research on emerging technology trends in the financial services and fintech ecosystem, most recently serving as a Senior Intelligence Analyst at CB Insights.

Davis advises founders and C-suite executives on the competitive landscape, go-to-market strategies, company growth, and product roadmap prioritization, while also working with venture capital firms and strategic investors on due diligence for investments, mergers and acquisitions.

Her research has been cited in The Financial Times, The New York Times, CNN, and The Wall Street Journal, and she has presented her analysis in person on Bloomberg TV and at conferences, including Money 20/20, INVEST conference, and Fiserv’s FORUM, among others. Davis holds a Masters inAbout International Business from the the author Warrington School of Business, and a Bachelor of Economics with a minor in Mandarin from the University of Florida.

In her spare time, Davis angel invests and runs marathons.

48 About the author

Lindsay Davis

Lindsay Davis is the Director of Intelligence at Caliber Corporate Advisers. As head of the division, Davis’ focus is helping fintech companies, financial services firms, venture capital funds, and investors turn data and insight into action.

Over the course of her career, Davis has built and scaled market research on emerging technology trends in the financial services and fintech ecosystem, most recently serving as a Senior Intelligence Analyst at CB Insights.

Davis advises founders and C-suite executives on the competitive landscape, go-to-market strategies, company growth, and product roadmap prioritization, while also working with venture capital firms and strategic investors on due diligence for investments, mergers and acquisitions.

Her research has been cited in The Financial Times, The New York Times, CNN, and The Wall Street Journal, and she has presented her analysis on Bloomberg TV and at conferences, including CB Insights Future of Fintech, Money 20/20, INVEST conference, and Fiserv’s FORUM, among others.

Davis holds a Masters in International Business from the Warrington School of Business, and a Bachelor of Economics with a minor in Mandarin from the University of Florida.

In her spare time, Davis angel invests and runs marathons.

About the author

49 About Caliber Intelligence

50 About Caliber Intelligence

Caliber Intelligence is the consultancy division of Caliber Corporate Advisers, a financial services and fintech communications firm. Customers engage in the following areas of focus:

• Market capabilities analysis • Customer profile discovery • Product roadmap advisory • Growth and customer acquisition strategies • Key performance indicator development

51 Sources

52 Sources

1Liaquat Ahamed, “Lords of Finance: The Bankers Who Broke the World,” (New York, New York, Penguin House, 2009), p. 438 - 439

2CB Insights, “How Covid-19 Is Impacting Fintech Financing,” July 15, 2020, https://www.cbinsights.com/ research/coronavirus-fintech-financing-impact/

3Sequoia Capital, “Coronavirus: The Black Swan of 2020,” Medium, March 5, 2020, https://medium.com/se- quoia-capital/coronavirus-the-black-swan-of-2020-7c72bdeb9753

4Fintech businesses reported a 28% drop in revenue since the beginning of the pandemic: Startup Genome, “The Impact of COVID-19 on Global Startup Ecosystems: Global Startup Survey,” June 25, 2020, https://start- upgenome.com/reports/impact-covid19-global-startup-ecosystems-startup-survey

5Have 8 quarters of runway, 10 quarters would be better: NFX, “How PayPal & Trulia Navigated Downturns: David Sacks, Craft Ventures + Co-founder of PayPal,” April 7, 2020, https://podcast.nfx.com/episodes/navi- gating-downturns-with-david-sacks

6ScaleFactor reported its revenues halved from $7 million in ARR due to COVID-19: Forbes, “ScaleFactor Raised $100 Million In A Year Then Blamed Covid-19 For Its Demise. Employees Say It Had Much Bigger Prob- lems.” July 20, 2020, https://www.forbes.com/sites/davidjeans/2020/07/20/scalefactor-raised-100-million- in-a-year-then-blamed-covid-19-for-its-demise-employees-say-it-had-much-bigger-problems/

7Paisabazaar cut 1,500 employees or 50% of staff: LiveMint, “Paisabazaar lays off over 1,500 employees to cut costs,” June 15, 2020, https://www.livemint.com/news/india/paisabazaar-lays-off-over-1-500-employees- to-cut-costs-11592226383988.html

8Policybazaar IPO planned for 2021: ThePrint, “Policybazaar set to become first Indian digital start-up to go public as it plans 2021 IPO,” July 20, 2020, https://theprint.in/economy/policybazaar-set-to-become-first- indian-digital-start-up-to-go-public-as-it-plans-2021-ipo/464434/

9Monzo losses for the year after tax top £113.8 million: Monzo, “Annual Report 2020,” February 29, 2020, https://monzo.com/annual-report/2020/

10Monzo raises a down round after layoffs, furloughs, and executive team changes: TechCrunch, “Monzo confirms £60M down round, with a new pre-money valuation of £1.24B,” June 16, 2020, https://techcrunch. com/2020/06/16/monzo-confirms-60m-down-round/

11Founders of Monzo and Revolut forgo their salaries to cut expenses: Altfi, “Revolut Co-founders sacrifice their salaries amid ongoing coronavirus outbreak,” April 17, 2020, https://www.altfi.com/article/6453_revo- lut-co-founders-sacrifice-their-salaries-amid-ongoing-coronavirus-outbreak

Sources 12N26 founders Stalf and Maximilian Tayenthal have taken a 25% pay cut: CNBC, “Peter Thiel-backed digital bank N26 raises another $100 million, bracing for coronavirus uncertainty,” May 5, 2020, https://www.cnbc. com/2020/05/05/digital-bank-n26-raises-more-cash-bracing-for-coronavirus-uncertainty.html

13Carta lays off 161 employees, 16% of the company: Carta, “Carta’s COVID-19 Layoffs,” Medium, April 15, 2020, https://medium.com/@henrysward/cartas-covid-19-layoff-cbb80e3e8a5d

14Bond Capital, “Our New World,” April 17, 2020, https://www.bondcap.com/report/onw/#view/1

15Flows to sustainable funds set a quarterly record of $10.5 billion in Q1’20: Morningstar, “Despite the Down- turn, US Sustainable Funds Notch a Record,” April 9, 2020, https://www.morningstar.com/articles/977328/ despite-the-downturn-us-sustainable-funds-notch-a-record-quarter-for-flows

53 16Sustainable funds lost less money than their non-ESG peers in Q1’20: MSCI, “Quantifying ESG fund perfor- mance,” Apr 6, 2020, https://www.msci.com/www/blog-posts/quantifying-esg-fund/01760099215

17Digital mobile is increasing making mobile integral to acquire customers: Bond Capital, Internet Trends Report,” June 2019, https://www.bondcap.com/report/itr19/#view/1

18Snap Partner Summit: Snap Inc., June 11, 2020, https://investor.snap.com/events-and-presentations/ events

19Early-stage funding gap estimated to be 21 – 41% during COVID-19: TechCrunch, “Global Venture Capital Report Q2’20” July 3, 2020, https://news.crunchbase.com/news/q2-2020-global-venture-report-funding- through-the-pandemic/)

2090% of people want brands to protect the well-being and financial security of their employees and suppli- ers: Edelman “The Edelman Trust Barometer Special Report: Brand Trust in 2020,” June 25, 2020, https:// www.edelman.com/research/brand-trust-2020

21GitLab has 1,300 fully remote team members across 65 countries: Gitlab, https://about.gitlab.com/compa- ny/culture/all-remote/guide/

22India-based Policybazaar and MobiKwik are closing offices to preserve cash: LiveMint, “Startups give up of- fice space to curb real estate costs, embrace work from home,” July 16, 2020, https://www.livemint.com/news/ india/startups-give-up-office-space-to-curb-real-estate-costs-embrace-work-from-home-11594903757023. html

23Credit Karma closes its San Francisco office: CNBC, “Tech companies are ending leases and consolidat- ing offices as remote work is here to stay,” July 13, 2020, https://www.cnbc.com/2020/07/13/tech-compa- nies-curb-real-estate-expenses-end-leases-merge-offices.html

24XSF at home study of 50,000 respondents in the current work from home environment: Cushman & Wakefield, “The Future of Workplace How will COVID-19 and data shape the new workplace ecosystem,” June 23, 2020, https://www.cushmanwakefield.com/en/insights/covid-19/the-future-of-workplace

25Americans frequently worry about paying their bills or saving for retirement: Pew Research Center, “About Half of Lower-Income Americans Report Household Job or Wage Loss Due to COVID-19,” April 21, 2020, https://www.pewsocialtrends.org/2020/04/21/about-half-of-lower-income-americans-report-household- job-or-wage-loss-due-to-covid-19/

26Branch and Dominos partnership to provide its employees early access to wages: Domino’s Pizza, Inc. “Domino’s Pizza® Announces Business Update,” May 26, 2020, https://www.prnewswire.com/news-releases/ dominos-pizza-announces-business-update-301065538.html

27San Francisco commercial real estate market: San Francisco Business Times, “Rents likely to take a hit as big and small SF subleases hit the market,” June 23, 2020, https://www.bizjournals.com/sanfrancisco/ news/2020/06/23/rents-sublease-market-sf-cornavirus-office-space.html

28New York Downtown Manhattan Office Marketview, Q2 2020: CBRE, July 9, 2020, http://cbre.vo.llnwd. net/grgservices/secure/NY_Downtown_MarketView_Q2%202020.pdf?e=1596425477&h=3ff2f9e94dce98b- 422ce136a79f9eafc

29CBRE Office Rent Tracker: CBRE, https://www.cbre.com/research-and-reports/global-office-rent-tracker

30Fiscal Monitor Database of Country Fiscal Measures in Response to the COVID-19 Pandemic: IMF Fiscal Affairs Department, June 2020, https://www.imf.org/en/Topics/imf-and-covid19/Fiscal-Policies-Data- base-in-Response-to-COVID-19

31Regulators have enacted more than 200 COVID-19-related policy measures: International Monetary Fund, “Implementation of the G-20 action plan,” July 2020, https://www.imf.org/external/np/g20/pd- f/2020/071620a.pdf

54 32Square Cash App topped 30 million monthly transacting active customers during Q2’20: Square, “Q2 2020 Shareholder Letter,” August 4, 2020, https://s21.q4cdn.com/114365585/files/doc_financials/2020/Q2/2020- Q2-Shareholder-Letter-Square.pdf

33Cross River Bank approved $5.6 billion in PPP loans: Fortune, “Meet the one-branch bank that did more PPP lending than Citi,” July 15, 2020, https://fortune.com/2020/07/15/ppp-loans-bank-fintech-cross-river- citi/

34Notarize : Business Wire, “Notarize Experiences 400% Growth in 90 Days,” July 7, 2020, https://www.busi- nesswire.com/news/home/20200707005181/en/%C2%A0Notarize-Experiences-400-Growth-90-Days

35DocuSign acquires Liveoak’s secure agreement-collaboration platform: Cision, “DocuSign continues agreement cloud expansion with Liveoak Technologies acquisition,” July 7, 2020, https://www.prnewswire. com/news-releass/docusign-continues-agreement-cloud-expansion-with-liveoak-technologies-acquisi- tion-301089393.html

36Dutch Central Bank issues one of seven non-bank e-money licenses to Currencycloud: Currencycloud, “Currencycloud secures e-money license from Dutch Central Bank to help drive European expansion,” July 15, 2020, https://www.currencycloud.com/company/news/item/currencycloud-secures-e-money-license- from-dutch-central-bank-to-help-drive-european-expansion/

37FCA approves Transferwise to offer savings and investment options in the UK: Crowdfund Insider, “Stealth Bank: Transferwise Preps Investment Features with UK Roll Out Later this Year,” June 30,2020, https://www. crowdfundinsider.com/2020/06/163474-stealth-bank-transferwise-preps-investment-features-with-uk-roll- out-later-this-year/

38Deposits topping $15.78 trillion in Q1’20: Federal Deposit Insurance Corporation (FDIC), “Quarterly Banking Profile: First Quarter 2020,” March 2020, https://www.fdic.gov/bank/analytical/quarterly/2020-vol14-2/fdic- v14n2-1q2020.pdf

39Total US savings deposits at all depository institutions surged to $11.39 trillion: Board of Governors of the Federal Reserve System Economic Data (FRED), July 2020 https://fred.stlouisfed.org/series/SAVINGS

40MANTL saw a 705% rise in deposit volumes in April: Tear Sheet, “With deposit volume growing 705% in April, MANTL raises $19 million,” July 16, 2020, https://tearsheet.co/modern-banking-experience/with-de- posit-volume-growing-705-in-april-mantl-raises-19-million/

41Payments and bank tech market sizing: Credit Suisse “Payments, Processors, & FinTech If Software Is Eating the World… Payments Is Taking a Bite,” January 24, 2020, https://research-doc.credit-suisse.com/ docView?language=ENG&format=PDF&sourceid=csplusresearchcp&document_id=1082106811&serial- id=9ItaQaLeKMYkTfzB0rHonfefWNL6W5uABHoXHk5EVRA%3D

42All three major indexes are in a bear market: Dow Plummets Nearly 3,000 Points as Virus Fears Spread, March 16, 2020,https://www.wsj.com/articles/stocks-dow-slide-after-fed-slashes-rates-11584310328?mod=arti- cle_inline&tesla=y

43Q2’20 total notional value traded daily: Cboe, historical market volume data, June 30, 2020, https://mar- kets.cboe.com/us/equities/market_statistics/historical_market_volume/

44Robinhood users traded 9X as many shares as E-Trade customers, and 40X as many as Charles Schwab customers in Q1’20: New York Times, “Robinhood Has Lured Young Traders, Sometimes With Devastating Results,” July 7, 2020, https://www.nytimes.com/2020/07/08/technology/robinhood-risky-trading.html

45Student loan obligations top $1.67 trillion in the US: FRED, January 2020, https://fred.stlouisfed.org/series/ SLOAS

46US unemployment rate topped 14.7% in April 2020: US Bureau of Labor Statistics (BLS), “Civilian unemploy- ment rate,” July 2020 https://www.bls.gov/charts/employment-situation/civilian-unemployment-rate.htm

55 47Household Debt Service Payments as a Percent of Disposable Personal Income (TDSP): FRED, reported through Q1’20, accessed June 2020, https://fred.stlouisfed.org/series/TDSP

48Household Financial Obligations as a percent of Disposable Personal Income (FODSP): FRED, reported through Q1’20, accessed June 2020, https://fred.stlouisfed.org/series/FODSP

49Lendio partners with Jack Henry: Lendio, “Lendio and Jack Henry & Associates Streamline the PPP Loan Application Process for Financial Institutions,” April 23, 2020, https://www.lendio.com/press-releases/jack- henry-ppp-loan/

50Charles Schwab acquired Motif’s technology but not its customers: RIA Intel, “Charles Schwab Acquires Some Remains of Motif,” May 8, 2020, https://www.riaintel.com/article/b1ljsxhghqdzz3/charles-schwab-ac- quires-some-remains-of-motif

51Investment banks reduced conferences sponsorship by 37%: Integrity Research “Bank-Sponsored Con- ferences Dropped Nearly 40% in First Half of 2020,” July 6, 2020, https://www.integrity-research.com/bank- sponsored-conferences-dropped-nearly-40-in-first-half-of-2020/

52The Fed releases 2020 stress test results and additional sensitivity analyses in light of the coronavirus event: The Federal Reserve Board, “Dodd-Frank Act Stress Test 2020: Supervisory Stress Test Results,” June 25, 2020, https://www.federalreserve.gov/newsevents/pressreleases/bcreg20200625c.htm

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