27% small businesses report increase in digital payments – COVID-19 impact on Fintech

Published On May 28, 2020
In Industry, covid, technology, Blog Archives

The Fintech revolution that emerged as a result of the previous global financial crisis is currently facing unforeseen unique challenges in the wake of the COVID-19 pandemic. The pandemic has greatly affected customer payment habits and pushed traditional banking to focus on fintech products as a solution to stay afloat of the crisis. Here’s a brief overview of the impact of the COVID-19 pandemic on Fintech.

Challenges caused by the COVID-19 pandemic

The impact of the deadly contagion, COVID-19, on fintech firms is mostly driven by their product category rather than their age and scalability. As the economy went into a tailspin owing to the pandemic, global fintech deals saw a sharp decrease during the first quarter of 2020 – the transactions went down by 22% in February (Weforum). Since the fintech ecosystem and its services are dependent on economic activity, the drop is expected to deepen in the upcoming months.

According to Mckinsey’s Global Payments Map, payment revenues worldwide are expected to drop by nearly 8 – 10% as customer spending decreases. Therefore, Fintechs that rely on their customer base and payment services to make profit margins will be severely affected due to the outbreak of the COVID-19 contagion; particularly those that depend on cross-border transactions like travel spending, international payments, etc, are in a tough spot as lockdowns enforced to contain the spread of the deadly flu have put international trade and travel activities on a hold.

Travel restrictions impacting Fintech stocks | SG Analytics

Also, as venture capital funds and investors liquidate their funds, Fintechs are pushed to cut costs and tighten their assets to survive the drop. Though profitable enterprises are safer, start-ups are in a bad shape and are likely to dissolve if the lockdown protocols and travel restrictions continue to extend.

How fintechs are providing value during the pandemic

Despite being well-positioned in the digital transformation landscape, the economic duress caused by the COVID-19 pandemic has created unprecedented challenges for Fintechs, especially for the ones whose revenue depends on transaction volumes.

However, adversity inspires innovation and creativity. Many Fintechs have turned the crisis into an opportunity for innovation and created new products to address the rapidly changing economic environment. Following are some of them:

  • In the UK, NorthRow, Trade Ledger, Wiserfunding, and Nimbla built an underwriting platform that allows private debt lenders, alternative lenders, and banks to virtually deploy funds to businesses during the COVID-19 crisis
  • nCino, a US-based financial technology company, has developed a new solution to optimize the PPP loan process
  • Israeli fintech company Innovesta launched its CRI (COVID-19 Resilience Innodex) to provide risk scores based on businesses. Built on Innovesta’s Artificial Intelligence and Natural Language Processing technology, CRI is a comprehensive score based on the business’s ability to be immune to the consequences of the COVID-19 pandemic

Beyond COVID-19: Future of fintech

Customer behaviours have abruptly changed owing to the COVID-19 outbreak and its consequences. Customers are more likely to rely on digital and mobile solutions for better money management and quick fund transfers in the upcoming years. According to a survey conducted by Electronic Transaction Association, nearly 27% small businesses in the US have reported an increase in contactless payments – which means digital payments are already surging uphill.

Fintech innovation | SG Analytics

The COVID-19 pandemic has not only turned digital payments into a necessity. but has also clearly proved that digital financial service is the future of the BFSI industry. The pandemic may also accelerate the adoption of IoT-enabled payments as social distancing has and will be the new normal, till the time a drug is discovered to counter the contagion.

Also, the COVID-19 pandemic has created potential opportunities for fintech firms to collaborate with other industries on a global scale. For example, the Healthcare industry – integrating digital payments and financial products into health services has become one of the new trends in the US.

Although the economic hardships may follow for some time, post the COVID-19 era, a new road filled with growth opportunities is lying ahead for fintech companies. However, Fintech firms will have to re-examine their business models to stay resilient and operational in future catastrophic situations.

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Jency Durairaj
Jency Durairaj
About the Author

JENCY is a content writer with SG Analytics. She loves reading and spreading knowledge about various topics through her writing skills. Her hobbies include trekking and traveling.

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