With financial markets crashing, small and medium-sized businesses filing for bankruptcy, and the whole world under quarantine or some form of restriction of movement due to the Coronavirus pandemic, the future of the FinTech industry has been thrown into uncertainty.
Virtually every business operation across industries have been crippled —in one way or the other— by the growing effect of the pandemic, which has induced panic among consumers. Experts believe that trade losses from the pandemic could amount to $320 billion quarterly.
It is believed that this global crisis is not the first and will not be the last. FinTech companies and financial institutions have been urged to learn from what is happening today and prepare for a likely recurrence in the future. As is normal of any notable market crisis, new opportunities always arise one way or the other.
In this article, we will be analyzing the negative effects the Covid-19 pandemic has had on the FinTech industry as well as the potential opportunities it presents.
Negative Impact of the Global Pandemic
The pandemic-induced fear, panic, and lockdown have drastically brought down consumer spending. With the slow down or total halt in business activities like travels and consumer retail sales, transaction volume across every level of the economy is expected to experience a steep decline. This will result in low fees collection by Fintech companies which will inadvertently put their profitability and valuations ‘in the red.’ Fintech giants like Visa and MasterCard have informed shareholders about an impending sharp slowdown in cross-border transactions and travel-related spending which will slash their expected sales by as much as 4%.
Also, venture capital funding in new and existing firms is expected to be put on hold as investors are fleeing to safer investments, causing Mergers and Acquisitions to be unavailable. For FinTech companies listed on stock exchanges, a drop in share prices represents an increase in the cost of capital. Coupled with investors worried about higher funding costs, the volatility in the market can be a trigger for lesser valuations.
Several of the apex banks across the world have slashed interest rates as a measure to assist financial markets and stave off a new global recession. As a result of the continuing decrease in demand, banks will witness sharp drops in interest margins and beaten down income from clients.
Overall, we are living through uncertain times and the pandemic has caused a very serious rut in the FinTech industry.
The Chief Executive Officer of SDK.finance, Alex Malyshev said in an interview that amid the ongoing crisis, several opportunities will arise and only those who understand people’s needs and can take initiatives will be favored in this crisis.
Possible New Opportunities to be Exploited
On the flip side, the Coronavirus outbreak has shown FinTech businesses more innovative ways with which they can deliver their products and services to customers. Listed below are some of the new opportunities:
1- Contactless Payments
As a way to curtail the spread of the virus, central banks have adopted the approach of disinfecting and quarantining physical banknotes coming in from local banks. A safer, quicker, and more convenient alternative to contaminated notes is the use of contact-free payments, which has been heavily encouraged by the World Health Organization.
It is expected that contact-free payments will likely become more utilized by FinTech companies in these uncertain times and even after.
2- Branchless Banking
The fear of infection and social distancing are keeping customers away from physical branches of banks. Poor utilization rates coupled with high lease costs have made the FinTech sector hungry for a switch to branchless banking for a while now. However, because of a booming economy, banks have been putting this switch on hold.
The pandemic has created a good time to make that move to a safer branchless banking experience. Apart from the fact that this approach will be very convenient, especially for people residing in remote areas, it is remarkably cost-efficient.
3- Banking Upgrade
‘Legacy banks’ have been losing customers to banks with advanced digital integration for a long while now. Many of these legacy banks have been urged to upgrade their functionality and services by partnering with FinTech companies and integrating their digital benefits.
An increase in demand for FinTech services can act as a boost for the industry. Some countries like South Korea and China have also begun encouraging FinTech partnerships as a way of softening the impact of the pandemic.
Dramatic/sudden change in economic conditions for businesses is not an uncommon phenomenon. Firms that can recognize and adapt to economic paradigm shifts have better chances of outperforming their competitors and thrive in the industry. In summary, it is an “evolve or die” situation for many Fintech companies.