Impact of the Covid-19 Pandemic on the Fintech Industry

Technology has completely revolutionized everything. Traditional industries have had to hop onto the trend or be left behind. The Fintech industry is one such industry that has quickly adapted in its operations in recent years. ‘Fintech’, simply put, is financial technology and refers to any business that uses technology to automate and improve their financial products and services. Fintech companies have the unique capability of extending financial inclusion to people’s lives as well as encourage growth.

Impact of the Covid-19 Pandemic on the Fintech Industry

2020 has been an interesting yet difficult year for many businesses, especially start-ups. The Coronavirus, popularly known as COVID-19 has rattled all industries causing a huge slump to many economies all around the world. While a lot of attention has been given to the impact of COVID-19 on Tourism and air travel, there is also a significant impact in the Fintech marketplace. This is evident from the drastic reduction of revenue in businesses, a halt in establishing new Fintech firms in the market as well as a slowdown in funding.

Contrary to popular belief, Fintech businesses have greatly been affected by COVID-19 despite being digitally positioned. This stems from the fact that many of these companies rely on investor funding, which has greatly dwindled since the pandemic started. Ideally, very few start-up fintech companies have substantial cash in hand or even have lines of credit. A global survey conducted just this March went to report that almost 40% of start-ups across the globe didn’t have enough capital to survive the second quarter of the year. Additionally, Fintech companies will face more complex risks created by the increased use of technology in the delivery of products and services hence the need for liability insurance.

On the other hand, despite these circumstances, some specific activities – particularly focused on innovation – are taking good advantage of the current situation to develop their offer even more, since it is perfectly coherent with the increase of online activities. We can take Revolut, a famous payment platform, as an example. The increase of smart working and online payments have converged on the usage of online payment platforms, giving them full new power on the market. Same we can say for new kinds of insurance, such as those which are offering new kinds of services. A good example is Coya, a German digital insurance provider which is growing by diversifying their offer, evolving it much more than a typical “old styled” insurance company. For example, insurances can cover different subjects, from home damage, to bike theft and even a very interesting insurance for dogs (and animals in general) and can all be completed and applied for online, without the annoying paperwork. All in all, creativity and good ideas are a good way to manage this period of worldwide crisis.

While the virus may have forced many Fintech to adjust their operations, it hasn’t halted the progress. There might be numerous short-term challenges to face but it’s refreshing to note that there are myriad opportunities for the future. Fintechs that had partnered with banks earlier on, have a huge chance of surviving this crisis. A surge of distressed business is expected especially those that hadn’t partnered with banks. However, strong Fintechs and financial institutions will have the opportunity to acquire these distressed companies. When it comes to financial products and service, below is a highlight of some changes that might be anticipated;

  • FINANCIAL LENDING

Lending is one of the areas that have significantly been affected by the pandemic. Consumers and businesses have been missing payments or defaulting altogether. While insurance companies can help Fintechs limit losses and allow normal operations, there is still a concern by many.

  • PAYMENTS

With the closure of many physical business spaces, retail POS payments are at an all-time slow due to the virus. P2P digital payments will shoot as many consumers will opt for digital payment options as opposed to cash and cards.

  • DEPOSITS AND SAVINGS

The pandemic has seen growth in account openings in the banks and a lot of savings, as people are preparing themselves financially in case the pandemic goes till the end year. The Fintech firms may not benefit from this due to the overall lack of trust in these firms. However, the Fintechs can offer higher rates to offset this concern.

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Author: Tanvir Zafar

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