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How fintech companies can facilitate continued growth

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Fintech M&A: the terrible teens?

By Jackson Lee, VP Corporate Development from Colt Data Centre Services

The fintech industry is rapidly growing and, in the first half of 2020, fintechs have secured more than $25 billion in investment globally, despite the huge uncertainty caused by COVID-19. As fintechs and their customer base expand, it is important to recognise that the success of these companies is predicated on the ability to use data effectively in providing a personalised experience to their customers.

To ensure these companies do not become victim of their own success, they must ensure they have the ability to scale up their operations and data storage as quickly and cost-efficiently as possible, especially in these challenging times.

So what must fintech companies do if they are to facilitate this growth without bursting at the seams?

Big fish in a small pond

Fintech companies are growing exponentially, and for many, even the current uncertainty around the pandemic has not decelerated the pace of their growth. However, having started small – with only having access to limited tools at the beginning of their journey, many fintech companies can’t keep up with their own rapid growth. When it comes to data infrastructures, they are facing a real risk of becoming a big fish in a small pond.

In order to achieve widespread innovation, and to keep their advantage over traditional financial institutions, fintech companies need the necessary playground space to experiment in.

When the pandemic and its consequent disruptions started to take hold, most businesses weren’t prepared for the types of challenges that they would have to face. Although the suggestion of investing in data infrastructure might seem counter intuitive at the moment, a lifeline for fintech companies going forward will be flexibility and the ability to scale.

Risky business? 

As the uncertainty around the pandemic continues, fintech companies, like other industries are finding it difficult to commit to long-term business plans. Despite their continued growth, fintech companies continue to be cautious to invest in expanding their operations during an unpredictable economic climate, especially when they are doing well enough as it is.

Even before the pandemic, fintech companies exhibited slower rates of the adoption of digitalisation and advanced IT infrastructures than other industries. It’s clear the future is digital and for fintechs to effectively compete in today’s volatile market, they need to be proactive and invest in the value of data and digital transformation.

One area that fintech companies must be proactive in is their IT infrastructure, especially their data storage and connectivity, in order to allow them to act faster than big, established competitors.

Limitless scalability

Due to the continuous growth of fintech companies, with no sign for it to slow down, these companies will have to continually scale their operations up to manage increased demand. Ordinarily, this would have very high costs as they would have to continually alter their IT infrastructure and solutions.

When it comes to flexibility, data is a crucial aspect for fintechs. In today’s world, companies store masses of data, and its amount is growing fast. This makes the storing of the data a juggling act, and the costs keep growing with it. In periods of economic uncertainty, such as the one we are experiencing now, this constant increase in data can quickly turn into a challenge. Therefore, fintechs must ensure that scalability is at the heart of everything they do. When it comes to scalability, however, the key factor is not just growth or the ability to scale up. A vital, but often overlooked opportunity in scalability lies in scaling down, when needed. For fintechs aiming at this level of scalability, hyperscale is the only way forward.

The answer is hyperscale

Hyperscale data centres provide businesses with a one-stop shop for all their data and capacity requirements. These centres, which are built in a campus-style design, allow companies to build out further data centres quickly within the same location, or if needed, downsize. In an environment of ever-fluctuating demand, hyperscale enables scalability of data and storage swiftly. This presents many benefits. The sheer size of these facilities allows for large-scale cloud adoption, which is more streamlined, flexible and cost-effective than ever before. This will help fintechs to get a better handle on their data and reduce costs as much as possible.

With this level of scalability, companies can operate like an elastic band, expanding or retracting when necessary and at a moment’s notice. For example, imagine this year’s Christmas. With the uncertainty of the pandemic and constantly changing restrictions, people’s online activity will be even higher than in previous years. Fintechs will have to scale up their operations to cope with the high demand of online services. Meanwhile, when demand goes down in January, it might be beneficial to scale down and reduce costs until demand increases again.

Hyperscale will also help fintech companies to future-proof their operations, which has become a key consideration as the economy looks to recover from the pandemic. By having the level of flexibility that hyperscale provides, businesses will always have the ability to lean or expand. Being able to adjust quickly within the hyperscale environment, with no added costs, makes fintechs more resilient and flexible to disruptions.

While cutting costs will continue to be a priority in today’s business environment, it is important that fintech companies look beyond this and focus on innovation and technology. The issues that the pandemic unearthed already existed and needed to be addressed by businesses. Therefore, they need to take the current situation as an opportunity to reconsider and improve their business models. Flexibility, scalability and cost efficiency must be top priorities in this new era. Hyperscale can provide this trinity of success.

Business

Euro zone business activity shrank in January as lockdowns hit services

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Euro zone business activity shrank in January as lockdowns hit services 1

By Jonathan Cable

LONDON (Reuters) – Economic activity in the euro zone shrank markedly in January as lockdown restrictions to contain the coronavirus pandemic hit the bloc’s dominant service industry hard, a survey showed.

With hospitality and entertainment venues forced to remain closed across much of the continent the survey highlighted a sharp contraction in the services industry but also showed manufacturing remained strong as factories largely remained open.

IHS Markit’s flash composite PMI, seen as a good guide to economic health, fell further below the 50 mark separating growth from contraction to 47.5 in January from December’s 49.1. A Reuters poll had predicted a fall to 47.6.

“A double-dip recession for the euro zone economy is looking increasingly inevitable as tighter COVID-19 restrictions took a further toll on businesses in January,” said Chris Williamson, chief business economist at IHS Markit.

“Some encouragement comes from the downturn being less severe than in the spring of last year, reflecting the ongoing relative resilience of manufacturing, rising demand for exported goods and the lockdown measures having been less stringent on average than last year.”

The bloc’s economy was expected to grow 0.6% this quarter, a Reuters poll showed earlier this week, and will return to its pre-COVID-19 level within two years on hopes the rollout of vaccines will allow a return to some form of normality. [ECILT/EU]

A PMI covering the bloc’s dominant service industry dropped to 45.0 from 46.4, exceeding expectations in a Reuters poll that had predicted a steeper fall to 44.5 and still a long way from historic lows at the start of the pandemic.

With activity still in decline and restrictions likely to be in place for some time yet, services firms were forced to chop their charges. The output price index fell to 46.9 from 48.4, its lowest reading since June.

That will be disappointing for policymakers at the European Central Bank – who on Thursday left policy unchanged – as uncomfortably low inflation has been a thorn in the ECB’s side for years.

Factory activity remained strong and the manufacturing PMI held well above breakeven at 54.7, albeit weaker than December’s 55.2. The Reuters poll had predicted a drop to 54.5.

An index measuring output which feeds into the composite PMI fell to 54.5 from 56.3.

But despite strong demand factories again cut headcount, as they have every month since May 2019. The employment index fell to 48.9 from 49.2.

As immunisation programmes are being ramped up after a slow start in Europe optimism about the coming year remained strong. The composite future output index dipped to 63.6 from December’s near three-year high of 64.5.

“The roll out of vaccines has meanwhile helped sustain a strong degree of confidence about prospects for the year ahead, though the recent rise in virus case numbers has caused some pull-back in optimism,” Williamson said.

(Reporting by Jonathan Cable; Editing by Toby Chopra)

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Volkswagen’s profit halves, but deliveries recovering

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Volkswagen's profit halves, but deliveries recovering 2

BERLIN (Reuters) – Volkswagen reported a nearly 50% drop in its 2020 adjusted operating profit on Friday but said car deliveries had recovered strongly in the fourth quarter, lifting its shares.

The world’s largest carmaker said full-year operating profit, excluding costs related to its diesel emissions scandal, came in at 10 billion euros ($12.2 billion), compared with 19.3 billion in 2019.

Net cash flow at its automotive division was around 6 billion euros and car deliveries picked up towards the end of the year, the German group said in a statement.

“The deliveries to customers of the Volkswagen Group continued to recover strongly in the fourth quarter and even exceeded the deliveries of the third quarter 2020,” it said.

Volkswagen’s shares, which had been down as much as 2%, turned positive and were up 1.5% at 164.32 euros by 1158 GMT.

Sales at the automaker rose 1.7% in December, at a time when new car registrations in Europe dropped nearly 4%, data from the European Automobile Manufacturers’ Association showed.

Like its rivals, Volkswagen is facing several challenges due to the coronavirus pandemic as well as a global shortage of chips needed for production.

It also sees tough competition in developing electrified and self-driving cars. The merger of Fiat Chrysler and Peugeot-owner PSA to create the world’s fourth-biggest automaker Stellantis adds to the pressure.

Volkswagen said on Thursday it missed EU targets on carbon dioxide (CO2) emissions from its passenger car fleet last year and faces a fine of more than 100 million euros.

The group is expected to release detailed 2020 figures on March 16.

($1 = 0.8215 euros)

(Reporting by Kirsti Knolle; Editing by Maria Sheahan and Mark Potter)

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Global chip shortage hits China’s bitcoin mining sector

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Global chip shortage hits China's bitcoin mining sector 3

By Samuel Shen and Alun John

SHANGHAI/HONG KONG (Reuters) – A global chip shortage is choking the production of machines used to “mine” bitcoin, a sector dominated by China, sending prices of the computer equipment soaring as a surge in the cryptocurrency drives demand.

The scramble is pricing out smaller miners and accelerating an industry consolidation that could see deep-pocketed players, many outside China, profit from the bitcoin bull run.

Bitcoin mining is closely watched by traders and users of the world’s largest cryptocurrency, as the amount of bitcoin they make and sell into the market affects its supply and price.

Trading around $32,000 on Friday, bitcoin is down 20% from the record highs it struck two weeks ago but still up some 700% from its March low of $3,850.

“There are not enough chips to support the production of mining rigs,” said Alex Ao, vice president of Innosilicon, a chip designer and major provider of mining equipment.

Bitcoin miners use increasingly powerful, specially-designed computer equipment, or rigs, to verify bitcoin transactions in a process which produces newly minted bitcoins.

Taiwan Semiconductor Manufacturing Co and Samsung Electronics Co, the main producers of specially designed chips used in mining rigs, would also prioritise supplies to sectors such as consumer electronics, whose chip demand is seen as more stable, Ao said.

The global chip shortage is disrupting production across a global array of products, including automobiles, laptops and mobile phones. [L1N2JP2MY]

Mining’s profitability depends on bitcoin’s price, the cost of the electricity used to power the rig, the rig’s efficiency, and how much computing power is needed to mine a bitcoin.

Demand for rigs has boomed as bitcoin prices soared, said Gordon Chen, co-founder of cryptocurrency asset manager and miner GMR.

“When gold prices jump, you need more shovels. When milk prices rise, you want more cows.”

CONSOLIDATION

Lei Tong, managing director of financial services at Babel Finance, which lends to miners, said that “almost all major miners are scouring the market for rigs, and they are willing to pay high prices for second-hand machines.”

“Purchase volumes from North America have been huge, squeezing supply in China,” he said, adding that many miners are placing orders for products that can only be delivered in August and September.

Most of the products of Bitmain, one of the biggest rig makers in China, are sold out, according the company’s website.

A sales manager at Jiangsu Haifanxin Technology, a rig merchant, said prices on the second-hand market have jumped 50% to 60% over the past year, while prices of new equipment more than doubled. High-end, second-hand mining machines were quoted around $5,000.

“It’s natural if you look at how much bitcoin has risen,” said the manager, who identified himself on by his surname Li.

The cryptocurrency surge is affecting who is able to mine.

The increasing cost of investment is eliminating smaller players, said Raymond Yuan, founder of Atlas Mining, which owns one of China’s biggest mining business.

“Institutional investors benefit from both large scale and proficiency in management whereas retail investors who couldn’t keep up will be weeded out,” said Yuan, whose company has invested over $500 million in cryptocurrency mining and plans to keep investing heavily.

Many of the larger players growing their mining operations are based outside of China, often in North America and the Middle East, said Wayne Zhao, chief operating officer of crypto research company TokenInsight.

“China used to have low electricity costs as one core advantage, but as the bitcoin price rises now, that has gone,” he said.

Zhao said that while previously bitcoin mining in China used to account for as much as 80% of the world’s total, it now accounted for around 50%.

(Reporting by Samuel Shen and Alun John; Editing by Vidya Ranganathan and William Mallard)

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