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Did COVID-19 Have an Impact on the FinTech Industry?

We can already feel the mark that the global epidemic of the COVID-19 virus is imprinting into our world.

There is no doubt that the reshaping and redirecting of different industries is going to be determined by the long-lasting consequences left by the epidemic.

But what about the specific example of the FinTech industry?

If you are in any way acquainted with financial technology or if you are considering getting into FinTech, you must wonder what kind of an impact will COVID-19 have on it.

Here are some of the most likely consequences it will leave on the FinTech industry.

What is the FinTech industry?

First things first, chances are that you are rather familiar with at least some branch of financial technology already.

However, for those who are unclear about what it actually is, let’s cover all the bases and determine what qualifies as a FinTech.

Basically, FinTech is aiming to automate and also improve delivery and the use of financial services.

Taking advantage of the ever-growing presence of computers and smartphones, it is designed to use specialized software and algorithms in order to help business owners, companies, as well as consumers manage their finances.

It includes numerous sectors and industries (such as fundraising, educations, retail banking, nonprofit, just to name a few), and that list is always changing. For example, today it is more consumer-oriented than it was at its beginning.

There are also different categories that can provide you with many diverse applications of FinTech.

The impact of COVID-19 on FinTech

Numerous branches and various sectors of the FinTech have been affected in different ways.

Some of them seized the opportunity to make larger profits and turn the current situation into a success story, while the specific structure of others made them more susceptible to the negatives outcomes of the economic climate created by the epidemic.

Negative effect

Alongside already known risks that FinTech can be confronted with, COVID-19 brought additional struggles for certain sectors.

Some FinTechs have been hit hard by the epidemic and like so many other business structures and industries they are struggling to stay afloat.

According to some experts, businesses that haven’t integrated themselves with existing digital payment infrastructure are more likely to be negatively affected by the epidemic.

Large companies vs startups

The uncertainty of the future of FinTech brought up by the epidemic was reflected in the first half of the year 2020. Investors’ interest and input in the industry has been much lower than it was for the past few years.

This lack of accessibility to capital will directly affect some companies, especially smaller startups. The recovery will be long and difficult and for many absolutely impossible, forcing the startups to shut down completely.

With the reduced numbers of startups, it leaves larger companies and stronger competitors in the mix. The remaining companies (both large and startups) will have to show the ability to handle and overcome new challenges in the industry

Alternatives lenders

In this area, a decline in income is rather noticeable, while both small and big businesses, as well as retail customers, have been affected. As a result, the general consumption has decreased and defaults have been raised.

Some research has shown that more than half of lenders will allow loans only after the lockdown restrictions are lifted.

The increased risk of insolvency has also led the investors to reduce or completely pull out their funds from P2P lending, causing a collapse in certain platforms.

Positive effect

On the other hand, the current economic climate has shown quite favorable for certain FinTech sectors.

Some areas of the FinTech industry (especially those that merged with the digital payment infrastructure) will be able to not just adapt but to thrive and grow as the result of increased digital adoption. Here are a few main ones.

Digital payment services

The need for mobile payments, credit, business, and cybersecurity has rapidly been increased by COVID-19.

And while the traditional banks can’t cope with the demand for credit brought on by the epidemic the cashless payments have even doubled in certain cases.

Furthermore, in the already digital era, the demand for things like online shopping, delivery, streaming services, etc. is higher than ever during the lockdown.

In other words, since contactless payments are becoming a priority for many consumers, some FinTechs are able not only to maintain profit but to increase it as well.

The epidemic is, in this case, providing the FinTech industry with an opportunity to grow and evolve.

Technological adoption during the crisis

Translating more and more aspects of our life into a digital form has not only become a way for us to stay safe but also a necessity inflicted during quarantine restrictions.

For example, the download of finance apps showed a significant increase.

On a larger scale that means primarily changes in the market, with the government increasing system integration and promoting schemes to accelerate the rise of FinTech most likely to follow.

Even banks are in for inevitable digitization.

Traditional banking has been in decline which is further aggravated by low incomes, unemployment, and other financial struggles during the lockdown.

The way for banks to overcome these difficulties is to change the operating model and start acquiring FinTechs that will be a crucial factor in ensuring financial stability and efficiency.

In conclusion

What is the exact trajectory and influence of these changes is hard to say at this moment, especially since the epidemic itself hasn’t run its course. The wide-spread use of the vaccine can also be a game-changer and it has to be taken into consideration.

The bottom line is – in these times of uncertainty and turmoil, it is impossible to make a 100% clear picture of what’s to come.

However, being aware of potential risks and positive changes in the industry will provide you with a chance to be prepared and knowing where to invest, all the while protecting your business and your finances as effectively as possible.

 

Staff Writer at CPO Magazine