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How lockdown will impact fintechs - and what they can bring to the crisis

(Image credit: Flickr / CafeCredit)

The ongoing pandemic has had an unprecedented impact on almost every nation in the world and has adversely affected almost every industry sector. According to the UN's trade and development agency, the slowdown in the global economy caused by the pandemic is likely to cost at least $1 trillion. But how will it impact the fintech sector specifically? 

While relatively young, the fintech industry covers a wide range of products across both consumer and business markets. The impact of the virus on a fintech business will, therefore, depend very much on what type of service they offer and their operational model. With the global population confined to their homes, online spending down due to widespread furloughing and fears of an economic downturn, fintechs whose business models depend on consumer spending are likely to be among the hardest hit. The same can be said of fintechs operating solely in currency exchange or travel-related spending.

Survival of the fittest

For others, however, which offer flexible and innovative financial services and ways of banking and paying, the virus offers new opportunities. With people forced to stay at home, businesses across sectors are seeking ways to do everything digitally and remotely. In essence, the coronavirus is forcibly accelerating the march towards digitisation – and any fintech that can play a part in helping banks and financial services companies to digitally transform will be in demand.

For example, in an attempt to contain the virus, the World Health Organization has called for retailers around the world to limit the use of pin pads in order to slow down transmission and avoid the use of cash. Fintechs that provide innovative online and contactless payments are therefore likely to see increased demand for their services as a result of the pandemic. 

Similarly, the UK Chancellor has announced a number of measures to ease the financial burden on consumers and businesses with a view to steering the country away from recession. These include tax breaks, business rate cuts and mortgage holidays. They have been well received and have provided a lifeline for many businesses and individuals. However, they have left the banks that need to actually implement these changes with an immense workload. Many banks simply do not have the technology or resources to implement these reforms quickly. There have been reports of people spending hours on the phone trying to speak to their bank in order to suspend their mortgage payments. Fintech companies that can provide banks and other institutions responsible for implementing these measures with ways of quickly making rate and policy changes will enjoy growth.

Incumbents versus neobanks

One of the most striking findings from our recent survey (undertaken in conjunction with OnePoll) on consumer attitudes towards technology in finance and payments was the level of customer loyalty that incumbents currently enjoy. Across all age groups, around 70% of respondents said they were loyal to their chosen financial institutions, suggesting that they are perhaps not so easily poached as the popular narrative suggests

However, now more than ever, this level of loyalty will begin to dwindle if incumbents do not keep up with challengers and neobanks in terms of service offerings.  Now is the time for incumbents to make the most of the fact they still have a receptive customer base by introducing new digitalized and forward-thinking solutions.

Solutions to support this brave new world

Well before the pandemic hit, retailers had embraced fintech, paytech and initiatives such as ‘buy now pay later’ to facilitate and promote sales. But now, with practically all retail activity happening online, having the right payment technology in place has become absolutely critical. Our survey found that a significant 37 percent of UK customers have abandoned a purchase at checkout purely because their preferred digital payment option wasn’t available.  

As retailers emerge from this crisis, they will be dealing with an indebted and potential more financially-conservative customer base. They will need to introduce new means of encouraging people to part with their money such as personalised credit and payment by instalments, and these will need to be tailored to meet each individual customer’s needs and circumstances. Providing this sophisticated yet easy-to-use technology to retailers will present another opportunity for fintechs.

Ultimately, we are experiencing an unprecedented global economic downturn that has impacted every company. The focus for fintechs right now needs to be on how they can adapt their models to support a new reality and a population with everyday challenges never encountered before. Fintechs that offer solutions to help meet the challenges of both today and tomorrow will be those that thrive. Critically they will also play a role in underpinning other businesses across sectors as they emerge from the crisis.

Vilve Vene is CEO and co-founder of ModularBank