Wednesday, September 28, 2022

COVID-19 Impacts on Fintech: challenges and emerging solutions

COVID-19 impacts on Fintech

The Fintech industry is developing rapidly, however like most other sectors it has been hit hard by the pandemic. We take a closer look at the top COVID-19 impacts on Fintech, both the challenges and unexpected developments.

Digital finance is on the move  

With quarantines and lockdowns enforced, the use of remote services has increased, be it from delivery to online shopping and entertainment, streaming services and mobile payments. Individuals that are used to the convenience and efficiency of digital services are likely to continue using them post-COVID-19.

Take cashless payments as the ultimate example. Germany, Ireland, UK, Poland, Norway, Egypt, and several other countries raised the limits on the size of contactless payments – and in some cases, it more than doubled.

Survival of the fittest 

CB Insights, a marketing intelligence platform reports that investor appetite for Fintech in Asia was at an all-time low during Q1 and Q2 of this year since the end of 2016.

Limited access to funds and capital will drive out several small and medium sized players leaving the industry to larger and stronger companies. Several startups are struggling with the pandemic, as an example, Sequoia Capital recently issued out a warning that it will need three to four quarters at least to recover from the COVID-19 pandemic. 

This prolonged uncertainty will only decrease the number of Fintech startups whilst adding momentum to businesses already coping with the challenges brought on by the pandemic. New players will find it hard to catch up.

Move towards increased personalization 

As the pandemic caused telemedicine to peak, this surge in interest has the potential to spark into a large-scale phenomenon. It may potentially boost commercial interest in biological data, like blood pressure, and body temperature. It will also help governments and companies to improve their assessment and forecast, and influence the way people act and think. 

AS 5G promises massive updates, it also promises to shift the consumer paradigm noticeably. These changes in the scene will directly impact Fintech services especially areas such as customer acquisition targeting, and credit scoring procedures. 

This will pave the way for a more tailored and personalized customer experience as IT solutions will be automated to an optimum level. Within a single frame, they can combine solutions for several different Fintech segments and cater to diverse audiences. 

Alternative lenders decreasing

As recent data suggests, there is a notable decrease in incomes across small and big businesses, and retail customers as well. This in turn has decreased consumption and purchasing power but also raised defaults. Research brought forward by Robocash Group found that 54% borrowers will loan only after lockdown measures are lifted. In addition, repayment holidays have affected and reduced revenue streams for lenders. All of these factors have led to a lower demand and tightened requirements have caused a drop in issuance, and in some cases a complete cease of operations. 

Insolvency of borrowers, and tough economic uncertainty have caused an outflow of investors’ funds from P2P (peer-to-peer) lending. During March and April in Europe, P2P lending decreased to 1/3 of the total volume of pervious months and has forced several platforms to completely collapse highlighting the COVID-19 impacts on Fintech. Some reports however are hinting towards a potential comeback, however the longer the uncertainty period lasts, the less players will stay afloat in the market.