Will COVID-19 Slow Down Innovation in Fintech?
Fintech is one of the fastest growing industries in the world right now. With more Fintech businesses arriving on the scene, we’re constantly seeing new innovations in the field. Fintech has already become prevalent in today’s society, despite many of us not even realising it. From using apps such as Paypal or Stripe to send and request money online, or using stock trading apps such as Robinhood, these products leverage advanced technology to help us manage our finances.
With the convenience and accessibility Fintech offers for anyone, from anywhere, it’s no shock as to why people are turning away from traditional financial services towards Fintech, but can the Fintech industry continue to grow and innovate?
How have fintech businesses coped during the pandemic?
For the most part, Fintech has coped reasonably well so far with the difficulties of the pandemic. With a strong level of equity finance, coupled with forming new strategic partnerships and a willingness to embrace remote working, it has enabled most Fintechs to carry on providing services, without a major level of disruption.
According to Beauhurst, only 1 percent of FinTechs have been critically affected by COVID-19 and 2 percent severely affected. This goes to show how well Fintech businesses have coped over the pandemic.
Before the outbreak of COVID-19, it was evident that FinTech would have a large part to play in the financial services industry over the coming years. But the pandemic has certainly helped accelerate that process.
How will COVID-19 impact fintech businesses ability to innovate?
Although Fintech businesses have certainly faired well during this pandemic, it remains unclear as to just how well they will cope over the long-term, particularly in regards to innovation.
With the general economic uncertainty, there is less of an inclination among individuals to spend money unless absolutely necessary, resulting in a reduction in consumer spending overall. This will have a big knock-on effect on Fintech businesses, particularly payment processing services which rely on large volumes of consumer spending. In order to continually innovate, as well as acquire new customers, the industry has a continuous need for capital. The longer the COVID-19 crisis continues, the more of a threat it poses to the sector.
The Finch report also recently noted that more corporate VC investments are being pulled back, fewer fintech businesses are being established and that most businesses recorded reduced revenues. This doesn’t bode well for businesses long-term, and these impacting factors are likely to slow down developing new ideas and making innovations. As a result of these innovations slowing down, it could throw the industry into a recession.
Time will tell…
Although some of the largest and most established fintech businesses are still recording strong growth, many fintech firms, especially in the payments processing space, may struggle to continue to innovate and grow because of the impact of COVID-19 on market conditions. In order to succeed long-term, these businesses will require more financial backing.
Time will tell of just how much of an impact COVID-19 has had across the fintech landscape, but it’s critical that fintech businesses have strong cash reserves and continue to receive investment, in order to weather the storm.