The economic fallout from COVID-19 has already prompted the closure of one notable FinTech provider, leading some to wonder about the health of the rest of the outsourcing industry.
There will be casualties from the current economic crisis, no matter how V-shaped the victory may be, and the best-case scenarios for a rebound seem unlikely for now. If anything, the uncertainty will linger, given the unique nature of a slowdown driven by a global health pandemic.
This will no doubt cause companies to err on the side of caution, cutting costs to the bone and avoiding major changes to how they do business until they see a clear path forward for their fortunes. Major initiatives may be put on hold for now, assuming the safest route is the one they’ve been on until now. Recently, an outsourced provider announced it was shutting operations, leaving its clients to scramble for a new solution for their finance function.
“That situation shouldn’t be seen as an indictment on the Finance as a Service (FaaS) industry,” explains Bill Klein, President of Consero Global. “Rather, it should remind clients to conduct the due diligence that so many do already.” Klein stresses the need to take a closer look at how that outsourced provider is funded. Given the relative youth of the space, is it largely from outside investor funding? What do those investors expect from their support?
In some cases, an investor may be looking for home run growth and is willing to risk the long-term health of the business to get there, while others may have lower growth expectations, but care more if an operation can thrive over the long term. “Or, in the best-case scenario, is that service provider relying on funding from new and current investors or are they self-sustaining based on their operational cash flows?” asks Klein. “Because that speaks to the long-term viability of that firm.”
But Klein argues there’s a more pertinent question to ask. “Is there a reason to doubt the market for FaaS providers going forward?” In the short-term, part of the answer comes from the nature of this crisis, which is defined by its uncertainty. How long will shutdowns continue? Even if parts of the world, or parts of the country reopen, what are the chances they’ll close back down, or consumers will stay away. In the long-term, have the underlying drivers toward FaaS really changed to where customers will drift back to an in-house finance function?
FaaS is a solution built for maximum flexibility for whatever comes next. An outsourced finance department can quickly and easily scale up, or down, depending on the needs of the client. “We like to think about where a company is going and build for the long-term, but we also pride ourselves on being nimble during times like this.”
Additionally, more businesses are moving to work remotely on a permanent basis which makes outsourcing a much more natural choice. “We’ve always operated as if we’re merely an extension of the company’s team, so it’s business as usual for us. And that’s a key part of why we feel confident that we’re going to be here for some time to come.”
There is every chance that other providers may shutter or be acquired by their more successful peers in the years to come, but the nature of Finance as a Service suits where the rest of the economy is going, regardless of the nature of the recovery. “COVID-19 has tended to accelerate trends already underway, and we feel that we’re prepared for a future where FaaS is more common than having the finance and accounting function in-house.”