Fintech, an abbreviation for financial technology, essentially comprises companies that use technology to make financial services more efficient. Tasks such as the exchange of goods and services through the medium of money can be made seamless using fintech. The process of paying someone or getting paid in any form of money can be completed more efficiently. These fintech systems are usually built on top of existing banking systems.
However, the advent of the Novel Coronavirus has renewed the importance of the Fintech industry. The sector that emerged from the ashes of the 2008 financial crisis, has once again exhibited its relevance for the BFSI industry in the light of the COVID-19 pandemic. According to a research, fintech apps are witnessing an upsurge in usage by 72% (eu-startups). The lockdown measures imposed to control the spread of the virus and the fear of contamination risks have created new business and partnership opportunities for the sector.
Importance of fintech during the COVID-19 crisis:
The fast-growing sector, Fintech has played a crucial role in enabling businesses and consumers in navigating the crisis proactively.
- Digital Transactions – Even though under lockdown, people could still order food and other services online. Without fintech services, this would not have been possible. Fintech has provided customers with the flexibility of ordering a service or a product without leaving the safety of their homes, as well as helping local businesses sustain themselves. Thanks to fintech services, everyone from small retailers and independent businesses to global enterprises can now keep their businesses open even during such challenging times. According to Statista, total transactions through digital payments is expected to reach USD 4,769,370 m in the year 2020.
- Revision of policies – Major banks have lowered interest rate and even government bodies have introduced emergency policies to help consumers get through these challenging times through the combined use of Fintech and short-term policies.
- Community-focused initiatives – Many Fintech companies have supported non-profit organizations and hospitals by offering free services, donations and waiving off transaction fees. For example, Libeo – a Paris-based fintech start-up provides free access to small and mid-sized businesses to help them with managing, financing and paying their invoices.
How will the Ongoing Crisis Impact Fintech Providers?
The financial condition of a fintech firm is heavily influenced by the product category that they are in. The pandemic has had a significant impact on consumer behaviour, and the fintech industry will also face consequences of the same. Analysts predict that fintech firms which are focused on B2B banking are less vulnerable than those into international payments. Secured and unsecured consumer lending, small business lending are at the highest risk.
Some of the ways in which the fintech industry will be impacted due to the Coronavirus outbreak are mentioned below:
- Payments – As a result of the slow recovery of business spending globally, retail POS payments will continue to be negatively impacted. But as more consumers opt for digital alternatives to cash, P2P digital payments will continue to grow. Travel and large consumer purchases have been hit the hardest and will take the longest to recover.
- Lending – Currently, the short-term prospects of digital lending seem bleak as many businesses and consumers are missing their payments or defaulting. However, its advanced credit risk algorithms are helping digital lending limit its losses and serve consumers and businesses that traditional banks are hesitant to serve. However, in the long-term, digital lending will grow again and become one of the most influential industries.
- Deposits and Savings – Many fintech service providers may not participate in the growth of deposits and savings due to a lack of overall trust. But this problem can be offset by offering higher interest rates on savings than before the pandemic. However, just like digital lending, this category is also expected to grow because overall consumer behaviour shows growth in money being saved and new account openings.
- Investment Services – Recent surveys show that fintech companies in the retail brokerage space observed the highest usage numbers in the initial stages of the COVID-19 virus outbreak. This was because the market volatility at the time was at an all-time high. As consumers react to extreme market changes, investment services are likely to continue growing in the near future.
- Technology Providers – When the Coronavirus crisis first hit the banking industry, their first reaction was to deploy digital solutions to meet consumer demand. Therefore, it does not come as any surprise that technology service providers were the ones to experience the most significant growth in the early stages of the virus outbreak. We can expect to see higher investments in technology and digital solutions, as traditional financial institutions are forced to reduce costs.