Women in Fintech Revolution
Being a combination of two traditionally male-dominated landscape – finance and technology, Fintech is well known to have a gender diversity problems. According to Oliver Wyman’s analysis (2020), women only account for 24% of boards of FinTech payment companies, and 14% in Fintech banks.
Diversity matters. “It is critical for women to participate in the development of the fintech industry. Women are able to take risks – accepting measured and reasonable ones for good reasons – and to manage these risks. The world is rapidly changing, so we need unconventional solutions, open-mindedness, and mental mobility.”, citing Tatyana Zharkova, Managing Director, The Fintech Association of Russia. However, it is not only for the sake of diversity that women should represent more in the Financial services and technology sector. The Women in Financial services 2020 report estimates at least $700 billion revenue opportunity each year are being missed out on, and that is due to financial products not considering improving its stakes in female customers.
In the investment world, where the gender gap is already significant, FinTech represents yet another “boys-club” issue. A study by Deloitte (2020) estimates that in 2019, fintechs with women (co-)founders comprise of only 12.2% of the total startups, a 1.3% increase, compared to a decade ago.
Statistically, women-founded startups received around 3% funding, and women-founded fintechs received roughly 1% of total fintech investment. However, zooming in the picture over time shows a more positive note. As shown in figure below, funding for women-founded fintech startups grew at a compound annual growth rate (CAGR) of 58.9%, siginificantly higher compared to men-founded ones at 29.1%. Also it’s noteworthy that from 2015 to 2019, $85M funding to women fintechs has grown over 6-fold to $540.
Meaningful progress it was, yet the underpresentation of women in fintech suggests that there’s still a long way to go. Breaking down the average investment amount by founder team’s gender, it can be clearly seen that the male-factor added a significantly positive touch to the average investment received by fintechs.
One of the reasons could be the long-lived bias legacy effect. Female founders may not be receiving enough trust from investors mainly because: i) People tend to have trust in models that have been proven (successful male founders in the past years, especially in financial and technology sectors) and ii) Male investors may not share the same level of interest/ thinking with the problems that female entrepreneurs try to solve. The later factor brings our attention to women’s representation in VCs as well. On the other side of the deal table, VCs is believed to traditionally originated by men, and hiring is often done by a “pool of (white male) investment banker”, which leads to the systematic inequality of gender workforce (Karen McCornick, CIO at Beringea in London). Pregnancy and maternity also comes as an issue as most VC firms’ size is small, and the high work pace makes it hard for some one to leave for a long period. This issue, however, underlies gender gap in most industries.
To narrow the gender gap in fintech investment, a collaboration between female and male founders, fintech enterprises and VC firms is required. In their report “Achieving gender equity in the fintech community”, Deloitte team maps out the action path for the three key stakeholder group to improve gender diversity in fintech community.
Investors: To widen the investment lens (acknowledge the bias) and Put the multiplier effect to work (e.g. women VCs are twice more likely to invest in women-founded startups)
Women founders: To be confident and “create the next big thing”. Considering the yet-to-resolved challenges of women accessing traditionally fundraising, female entrepreneurs are also reccommended to seek for alternative channels (e.g. crowdfunding, women-targeted funds…) as well.
Financial institutions: To foster gender diversity (e.g. Goldman Sachs and JP Morgan are two of the big players who have pioneered the path). Having the institution power, they can also help to initiate partnership and enriching the networks between investors and women founders/ women capitalists.
As COVID-19 has changed the society in many unpredicted ways, the crisis represents huge challenges, yet opportunities at the same time. This chaotic period is when women’s unique advantages come into place. Women is expected to better handle uncertainty and establish harmonic collaboration when needed. They are also more capital efficient, more well-prepared for unprecedented shocks and resilient – valuable survival skills especially during this pandemic period.
For more current news and trending topics of VC investing, , join our upcoming Etalk session 2 to meet up with Jenny L, Investment Manager at Cathay Ventures. She will share her interesting insights on recent emerging trends of Fintech, as well as how the capitalist are navigating the investment process during this historical time of Covid-19, through a lense of an experienced female investor.