The very pandemic that has prompted venture capital firms to pull back from fintech funding may be the ultimate proving ground for fintechs.

As venture capital firms around the world pull back from the fintech space, funding is on pace to notch another year-over-year decline, according to fresh data from CB Insights today.

“As COVID-19 has destabilized private capital markets, Q1’20 was one of the worst quarters in two years for VC-backed fintech,” according to the report.

Despite the falloff in funding, fintechs are in a position to shift what consumers and investors view as the gold standard.

“Major depository institutions are still the gold standard as corporate funds flee to safety, however what will be interesting to see is how the ongoing battle between fintechs and traditional FIs for business changes,” said Oliver Yu, an analyst with CB Insights.

The pandemic has revealed challenges within the legacy financial ecosystem and presented customer-acquisition opportunities for fintechs. For example, Chime — which raised a $200 million Series E extension round in March — offered its users cash advances as millions waited for stimulus checks to roll in via traditional banks, Yu pointed out. The San Francisco-based fintech gained 200,000 customer sign ups during that time, while Square and PayPal also mobilized quickly to enable stimulus disbursements through their consumer-facing apps.

“Fintechs have emphasized customer-centricity and unit-economics, but FIs benefit in the flight to quality,”Yu said. “As digital adoption has become a necessity during the COVID-19 pandemic, fintechs may gain ground as they continue to focus on segmenting the underserved and offering low-cost, value-oriented products.”

Also read: AvidXchange eyes acquisitions after latest funding round

Fintech deals in the U.S. fell 23% quarter over quarter to 148 deals in Q1 while funding dropped to $3.3 billion, an amount not seen since the third quarter of 2018. “If U.S. fintech activity continues at this rate, deals and dollars will fall short of 2019,” which saw $17.9 billion VC funds funneled to fintechs across 787 deals, according to the report.

Globally, early-stage fintech startups were among the hardest hit. Year over year, dollars pumped into seed, angel and Series A startups fell 29% to $1.1 million as investors shifted focus to fortifying existing portfolios, the report said. By comparison, SMB cash flow management startups attracted investment; for example, AvidXchange, Aavenir and Float raked in $132 million from investors in the first quarter.

Fintech investing activity remains robust by historical standards although deal flow may not reach the peak levels seen in 2018, even if investments rebound, Yu said, noting that the severity of the economic impact caused by the pandemic will likely dictate willingness to invest.