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Last Updated: June 2, 2020
FinTech companies have always relied on intelligently exploring the market trends, establishing strong connections with their customers and by the virtue of such efforts, they have opened up a huge window of opportunities for themselves in the past.
However, the COVID-19 catastrophe has transformed the picture entirely by disrupting the way the majority of companies used to communicate with each other and their customers. No doubt, the global business market landscape is going to change permanently, but there are some lessons in this change for everybody including the fintech companies.
So, let us take a look at how the coronavirus pandemic has impacted the fintech industry and what are the underlying challenges and opportunities for them amidst this era of chaos.
Due to the COVID-19 pandemic, around 3 billion people from more than 70 countries across the globe have been advised to stay in their homes. The results of such a widespread lockdown can be seen in day-to-day financial activities.
A survey conducted by Lightico suggests that almost 82% of the citizens don’t want to visit their banks. The survey also suggested that consumers now want to try digital apps for their financial activities more than ever.
Also, fintech products like digital wallets and contactless payments are getting more trendy than ever. In fact, in Germany alone, more than 50% of the payments now made are contactless compared to 35% before the pandemic.
Many more such changes can be witnessed across the entire fintech industry.
Amid the COVID-19 crisis, more than half of the world’s population is self-isolating. This has created some serious problems for businesses that were dependent on customers coming to their storefronts. However, the ones rapidly shifting to the digital business model are certainly able to level up the damage.
FinTech companies are enabling businesses to stay relevant during this time of crisis by assisting them in the process of digital transformation. Customers can make any number of purchases, order any kind of products and services, and whatnot.
According to a recent survey by deVere Group, there has been a 72% rise in the usage of fintech apps since the beginning of the lockdown in Europe. Such a trend is self-explanatory across the globe right now and it won’t be an overstatement if we say that fintech is one of several reasons why we are able to sustain social-distancing.
The last few years have witnessed a fierce rise in the demand of Robo-advisory companies. Their growth can certainly be attributed to the fact that they enable quality user-experience and cognitive wealth-management advice at justified prices.
Despite the widespread market instability owing to COVID-19, Robo-advisory firms are witnessing a surge in business. People want to seize the present opportunity and are direly looking forward to intelligent investment solutions and in-depth market analytics.
As a result, several companies like Betterment, Wealthfront, and several others are receiving a large number of new account opening requests. To seize this unorthodox opportunity, the firms are also willing to introduce added functionalities like life and career planning for clients who wish to prepare for events like job loss during or after the COVID-19 crisis.
As people around the world continue to adjust to the new normal, the way they pay for their products and services is also changing rapidly. Thanks to the cutting-edge technologies enabled by fintech, more than 75% of the customers in a majority of countries are now sticking to contactless payments (according to a Mastercard survey).
Given the ease of use and growing adoption worldwide, the picture for cashless payment methods looks really bright amidst this era of chaos. Increased mobile use and widespread dependence on e-commerce aid the growth of innovative cashless payments even further. Remarkably, a few contactless digital payment trends are gaining more and more popularity amidst COVID-19. Some of them include:
Businesses that earlier relied only on cash and bank transfers are now switching to the omnichannel payment framework for smooth and seamless customer experience. More and more modes of digital payments are being adopted to serve as many customers as possible.
Real-time payments have continued to revolutionize the retail and B2B transfers by enabling electronic cash exchange within minutes. During the current time, when swift business decisions are to be made, real-time payments have proved their worth undoubtedly.
In order to stay relevant, big banks are aiming to shift to the next big thing in digital payments – payment hubs. Payment hubs are known to process almost all forms of payments irrespective of their channel.
Owing to the current crisis and the ongoing fintech revolution, many countries like Denmark, Sweden, and Norway are on the verge of becoming cashless societies by adhering to the ‘no cash’ model.
Built on the infrastructure of blockchain, virtual currency options like Bitcoin offer safe and reliable transactions and that too with an optimum level of efficiency and speed.
NFC payments are certainly the hottest digital payment trend right now. The well-known wallet payment methods like Google Pay, Apple Pay, Samsung Pay, and others are powered by NFC. These fintech majors rely on this technology where simple electromagnetic waves generated by smartphones make life easy for everyone.
Despite the ongoing crisis, this innovative sector is still evolving and generating new opportunities by coming up with some transformative ideas. Some of them include:
The current remote working experience might not be something that fintech companies wished for, but somehow it might be a viable strategy for them in the upcoming future. Not only this strategy can enhance the work-life balance of their employees, but it can also boost their productivity.
Given the fixed costs that companies have already invested in remote working infrastructure, they might want to give it a shot in the long run too.
Similar to the tech startup industry, fintech companies are also known to connect with their community and potential investors via social events. If organized virtually through webinars and live Q&As, such events will still attract a significant number of participants and that too at really minimal costs.
Without a doubt, an increase in mobile app payments is one of the biggest opportunities to arise out of the current situation where a majority of the population is working from home. Most governments and authorities are discouraging people from using cash.
Owing to such a trend, major payment fintech apps are witnessing a substantial increase in their usage rate. Most of the fintech are already repurposing their resources to take advantage of this and fuel this already increasing adoption rate even further.
During these tough times, many fintech startups are coming up with ideas to support distressed communities as much as possible. This might be the beginning of a new industry trend where the customer and community needs are the topmost business priority.
Many companies like PayPal, Lending Club, Square, and Stripe are providing free investment advice, waiving or cancelling transaction charges, donating to hospitals and NGOs.
Be it the worries of funding, new innovation, or expanding into international markets, both old and new fintech companies are facing numerous struggles like every other business during COVID-19. As the industry relies heavily on data, increased data privacy issues, stringent regulations and challenges related to cloud and application security have started to haunt them even further. Let’s take a look at some of these challenges:
Fintech companies usually hold large volumes of highly sensitive user information like credit card details, income and investment details, social security numbers, etc. Increased penetration of phone and online banking services means that this data is always in transit and of course highly vulnerable. That is why application security and data privacy becomes increasingly important for fintechs.
According to a Barracuda survey, half (around 46%) of the global businesses have suffered at least one attempt of a data breach since they shifted to remote working conditions.
As critical IT infrastructure is being accessed remotely due to COVID-19 restrictions, it has become seemingly easy for hackers to target sophisticated attacks at fintech data sources. Other factors like endpoint devices holding enterprise data and lack of physical checkpoints on critical infrastructure enhance the level of vulnerability even further.
The global pandemic has pushed the demand for cloud infrastructure to skyrocketing levels. Already a cloud-heavy industry, fintechs are now even more reliant on the cloud to remotely carry out their day-to-day operations.
Transition to the cloud is on the rise and so are the concerns regarding the maintenance of cloud security. A cloud security survey suggested that almost 84% of the IT professionals were highly concerned about the potential security vulnerabilities that could arise out of the rapid cloud migration during COVID-19.
According to ImmuniWeb, even before the COVID-19 crisis, almost every fintech organization had serious data privacy, compliance or other security issues related to API security and loopholes in web application security. Majority of these vulnerabilities like cross-site scripting (XSS), system misconfiguration and sensitive data exposure are relatively well-known and can be mitigated.
FinTech companies are highly exposed to regulatory requirements, compliances, and legal obligations because of the sensitive services they provide. Around 64% of the fintechs were already failing the norms of the General Data Protection Regulation (GDPR).
Meeting such regulatory expectations during COVID-19 has become even more difficult for fintechs, subjecting them to penalties and fines.
Despite being strong on the technology front, fintech companies lack resources like established regulatory practices and experienced staff, which pushes them behind traditional banks when it comes to having a streamlined regulatory process in place.
Some regulatory bodies like the UK’s FCA (Financial Conduct Authority) have allowed some relaxations for financial companies by easing up financial reporting requirements and extending the deadlines for report submission.
For most of the fintech startups, securing funding during COVID-19 is nothing less than a nightmare, except for a few lucky fintech startups like Yapily, which managed to secure a $13 million Series A funding amid this global lockdown.
The number of startups in line for funding is endless and investors, on the other hand, are highly cautious during this phase of economic stability. As a result, many such fintech companies are tightening their lending standards when it comes to offering loans to small businesses and customers.
Google, on the contrary, has created a $200 million investment pool to support financial institutions which in turn will help small businesses to gain access to emergency capital.
The coronavirus crisis has impacted the customers of fintech companies on a personal level. Despite an opportunity to showcase digital capabilities, the lack of personal touch with consumers is creating problems for fintech.
Market conditions are uncertain, people are concerned about their jobs and capital crunch is more than evident. Under these circumstances, clients would certainly feel relieved if somehow, they get to interact personally with their financial advisors.
To cope up with this challenge, many fintech companies are already using simple yet impactful methods like check-in calls, sending personalized messages, and organizing video seminars. Robo-advisors like Personal Capital are offering personal advisory options to their clients via the internet so that they could maintain that much-needed personal touch.
The ongoing economic slowdown and harsh interest rate cuts have forced the fintechs to rethink their revenue and expenditure models and also modify or expand their resources. Many companies are adopting cost-saving strategies like workforce reduction and pay cuts to withstand economic pressure.
Some startup fintech companies like Kabbage have already furloughed several of their employees. Contactless payment fintechs are repurposing their resources to withstand the overload of increased transaction volumes.
Like every other industry, this global pandemic has posed some serious challenges for fintech companies as well. Many would even be forced to reexamine their business models and revisit their goals after the virus outbreak.
However, as the economic scenario shifts its gears from reaction to recovery after the COVID-19 crisis, the emergence of new opportunities for fintech companies is certainly inevitable.
They have a unique opportunity of delivering some innovative solutions to customers in these demanding times and position themselves in the market to thrive in the long term. Given its capabilities, it’s no doubt that the fintech industry will help to kick-start the global economy post-COVID-19 and make the world even more prepared for the future.
Harshit Agarwal is a serial entrepreneur, passionate about end-to-end mobile app security. As a Microsoft Venture Accelerator alumni and CEO of Appknox, he works with enterprises globally ranging from some of the top Fintech companies to Fortune 100 businesses in setting up continuous mobile application security processes.
This blog was originally published on May 28th, 2020 at 12:43 pm
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