2019 has been a topsy turvy year with the COVID pandemic. The first half of the year went towards dreading an impending doom, while the second half was the world adapting and adjusting to the new world order. COVID also impacted the finance sector hard. With a halt in trading, people were losing value in their investments.
Fintech companies were affected the same way, with many finding it hard to adapt to the year wide disruptions. We here at the Zed Network work with Fintech companies to provide them with a dynamic payment platform that ensures a smooth operation. Because of our close ties with Fintech companies, we have been first-hand witnesses to the impact of COVID on Fintech companies. So we thought we should let you know what has transpired, so let’s get into it!
In a recent CB Insights report, we saw that interest in FintechFintech is dwindling in Asia. It’s the lowest since 2016, and that’s a direct result of the Pandemic shutdown, which has made investors wary about the uncertainty on the industry’s future. According to Zed Founder and entrepreneur Alan Safahi, limited investment has already impacted many significant players in the Fintech sector, with several touted to be shutting down if investment remains scarce. Sequoia Capital has already sent out a press release stating that it would need at least 3-4 quarters to recover from the COVID crisis.
This means that many companies will shut down with the economy recovering and with the looming uncertainty. The companies that will survive this difficult time will get the momentum and create a massive gap for new players. That’s not to say that the pandemic doesn’t impact the big players. Companies that can be smart to navigate the challenges will become the leaders in FintechFintech in the years to come.
Banks & Fintech: Blurred Borderlines?
Fintech has been an emerging market even before the pandemic hit, and banks have been monitoring FintechFintech for years now. Banks have been posting low-performance numbers ever since the pandemic hit. According to a Bloomberg report, European banks have been posting a high average cost-to-income ratio for several years, and it was 67% in 2019. While return on equity was at 8.7%, the lowest in the last three years. This situation was aggravated in 2020 as the population posted low income and swelling unemployment.
Because of the financial uncertainty, banks had a low number of bank deposits, and purpose loans, such as mortgages, car loans, and the sizes of these payments, became smaller. According to Berenberg Bank, in 2020, the American & European banks will see a decline in revenue by 8.5%, while the profit will be 30% lesser than the amount predicted a year ago. According to a recent report, banks in Singapore will also see significant drops in revenue. By now, banks have realized that changing the operating model and digital transformation is the way forward.
These changes will also allow banks to issue smaller loans and assess customers less formally, with them looking to Fintech acquisitions as well. Even Fintech companies have become aware of the need to optimize their performance. The recent acquisition of AsiaKredit by GoBear, the acquisition of MPESA by Vodacom and Safaricom serve as reminders of blurred borderlines between financial institutes. Other high-profile signals that are reminders of the change in the Fintech world are:
- Metro Bank’s potential acquisition of RateSetter.
- IT vendor TSX in Spain by Santander.
- Western Union’s potential acquisition of MoneyGram.
All these acquisitions signal that banks and FintechFintech companies are becoming almost the same thing and everyone is working towards unification and diversification of services.
Fewer Alternative Lenders
In recent agile scoring approaches, when the underserved segments and focus on smaller loan amounts were assessed, it showed positive results. This should be a good reason for lending; however, the opposite has been confirmed. A notable decline in businesses’ incomes all across the board, from small to giant, has seen decreased consumption and raised defaults.
According to the Robocash group, around 54% of borrowers will not lend until restrictions have been fully lifted while repayment holidays have reduced revenues for lenders. Because of this, there’s lower demand and tightened requirements have caused a drop in insurance and even closed food companies. The insolvency of borrowers and economic uncertainty have caused an outflow of investors’ funds from P2P lending.
In Europe, the months of March and April of 2020 saw P2P lending drop to one-third of the cumulative volume from previous months, which caused several platforms to collapse. It seems the longer the restrictions are there, and the more alternative lenders will falter. However, all doesn’t look bleak as there are hints that the market seems to be bouncing back.
Blossoming Digital Finance
With quarantine and lockdown restrictions came a heavier reliance on remote services like shopping to delivery, entertainment, streaming services, and mobile payments. People are now more accustomed to it, and the demand will only grow from the initial demand. Cashless payment has become one of the biggest trends within the quarantined world.
Now, United Kingdom, Germany, Ireland, Poland, Norway, Egypt, and many other countries have already raised limits on the size of contactless payments, and in some cases, it has doubled. Another positive outcome in the COVID-ridden world is the adoption of Fintech and Regulatory tech worldwide.
China has already pushed for faster adoption of FintechFintech and regulatory technology (Regtech), while South Korea has already passed one of the most comprehensive cryptocurrency law. While there have been downsides in 2020. With the pandemic in full flow, positive strides have been made in the world of FintechFintech.
High Personalization Preferences
With the COVID restrictions in full flow, telemedicine rose to prominence, and it seems there’s a massive need for it, and it may develop into a full-scale phenomenon. Potentially you may see a high demand for biological data, such as body temperature, blood pressure, and other data. Gathering personal biological data will help improve assessment and forecast people’s behavior. With 5g becoming the new industry standard in communication, the entire consumer paradigm is about to shift, and FintechFintech will see and feel the changes.
According to Alan, Fintech services will vastly be affected by software, targeting, customer acquisition, credit scoring procedures, ETC. With more data available, the entire Fintech service is gradually moving towards a more personalized approach. The demand for highly personalized services has increased and will only grow even when the restrictions are raised.
A Whole New World
The world since the pandemic has changed vastly with people and businesses adapting and is still adjusting to the new rules and regulations forced due to travel restrictions. With FintechFintech, the impact of COVID has been both good and bad. Recent developments have seen newer adoption and innovation of the technologies while many countries are putting in new regulations to facilitate the growth of FintechFintech in their countries.
We here at the Zed Network work with innovative Fintech companies and FOREX companies and traders to provide them with a comprehensive payment platform to make operations more straightforward. So if you need comprehensive payment orchestration platforms or solutions, then feel free to get in touch with our developers.
And with that being said, we are done with our take on the impact of COVID on Fintech. Let us know in the comments below if you have noticed an impact that we left out or hit us up on our socials if you have any queries. We will come back with something new for you soon. Until then, see ya!