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Financial start-ups are poised for enormous growth, Lombard Odier's Henk Grootveld predicts. He tells finews.asia where he sees promise.

What developments in the fintech sector have been accelerated by the coronavirus pandemic?

Three things are really speeding up due to the outbreak of COVID-19. First, we see the move to a cashless society going much faster due to the lockdowns, e-commerce is booming. The offline shops or supermarkets that are still open for sales prefer non-cash payments for hygiene reasons.

As an illustration of this: cash withdrawals from ATMs in the U.K. dropped by more than 60 percent in March.

«Lockdown sparked millions of online account openings»

Second, with the closure of bank branches other financial services like mortgage advice, lending and wealth management are also rapidly going online. In Germany, for instance, because of the lockdown, there were 2.5 million online bank account openings in just one day in March.

What else?

The third and last effect of the corona pandemic is the increased usage of fintech services by governments. For the first time ever, the U.S. government in April used the services of Intuit, PayPal, and Square to distribute the crisis tax refund to households and companies.

Is this a chance for Libra to get approval after all?

Cashless payments come in many forms. Plastic card payments – credit or debit cards – mobile payments and online payments are examples besides cryptocurrencies. We are a strong believer in the rise of digital payments and the companies we hold in portfolio benefit from digital payments through their operating leverage.

«Central banks will create their own networks to align cryptocurrencies»

However, we do not hold any positions in cryptocurrencies, nor do we believe payment coins, like Libra, will survive longterm. This is not because we have doubt around the underlying distributed ledger technology, but because we believe that regulated entities in the form of central banks will create a «permissioned» blockchain network that will facilitate cryptocurrencies that are aligned with the existing basket of global currencies. 

This is demonstrated by current financing rounds: the wheat is being separated from the chaff in the fintech sector right now.  Is this the right time to launch a fund?

We have been investing in fintech for five years already, so we are not new to this theme. Over the past couple of years we built up a network of industry experts, venture capital and private equity contacts, private companies, and academics that we can consult to validate the trends we want to benefit of.

«The fintech trend has longevity»

Our focus is long term and we think about how the financial world will look in the next decade. Judging from other industries – like what we see on the consumer side –  there is much more transition coming to the financial sector and we strongly believe the identified trends have longevity. Given the interesting valuation in combination with the high secular growth in earnings, we think this is a perfect time to continue the fintech strategy at Lombard Odier.

What is the fund's focus, geographically and by fintech segment?

The fintech strategy invests globally. We have exposure to the Chinese market, Japan, the Middle East, Africa, Europe, the U.S., and South America. Our largest exposure is the US, which is the result of our quality focus.

«More IPOs of fintechs in coming years»

We do not invest in companies simply because they are located in some geography, but we only invest in companies with high quality – solid cash flow generation, low dependency on external financing and strong secular growth with a wide competitive moat. This brings us, naturally, closer to the U.S. However, we expect the strategy to become more global thanks to IPOs in the coming years.