Commerce Ventures
Apr 28, 2020 · 9 min read

The Third Wave of COVID: Industry Transformation

This is the third installment in our series on how COVID is reshaping financial services. We published the first and second articles at the beginning of April, as the crisis was rapidly evolving. In these articles, we discuss the impact of COVID across three waves and cover the First Wave, focused on near-term consumption shock (read here) and the Second Wave, examining the risk of a broader financial crisis (read here).

The Evolution of COVID in Four Phases

Today, at the end of April, we look at the Third Wave — focused on how COVID will transform the industry and accelerate an existing shift to digital capabilities and experiences.

The Three Waves of Impact

At its core, this Third Wave is driven by a long-term shift in behavior. While it is impossible to fully predict the extent of this shift, we believe there is an emerging set of implications that are shaped by the way consumers and businesses will interact, conduct commerce, and manage their lives.

For financial services, there is an opportunity and increasing need to invest in capabilities that address five key implications:

  1. Shift away from physical branches: The demand shift away from physical branches creates opportunity to digitize branch transactions and re-invent the physical experience through remote servicing tools and technology.
  2. Acceleration of digital experiences and capabilities: There is an increasing gap between the players that satisfy increasing demand for digital experiences through best-in-class tech and those laggards that operate with legacy approaches to account opening, onboarding, and servicing.
  3. Consumers will need new products and tools to address financial uncertainty: Consumers are looking for solutions to help navigate sudden, severe income shocks and broader concerns around financial wellness/ planning in an uncertain environment.
  4. Small businesses will need new products and tools to address financial uncertainty: Small and medium-sized businesses face existential questions stemming from sharp revenue declines during quarantines and a potentially longer-term, fundamental shift in consumer behavior that disfavors physical commerce.
  5. Decline in physical currency: Concerns around the convenience and hygiene of cash will accelerate an existing trend away from the use of physical currency and motivate a broader set of businesses to accept mobile / digital payments.

Looking at each of these five implications, there is an opportunity to better meet consumer and business needs through new capabilities and experiences.


We estimate that 20% of all U.S. branches were closed in the last four weeks. These closures carried an estimated wasted cost of $1 billion. However, just because branches were closed does not mean that people did not transact. If these transactions simply moved to a digital channel, banks could save an estimated 98% in variable transaction costs.

While it is unlikely that banks will close or significantly reduce their physical footprint in the near-term, these numbers illustrate that it is possible to save money AND deliver better experiences through other channels.

We believe that the move away from branches creates five possible responses for incumbent financial institutions:

  1. Enable branch transactions to be done digitally: Enhance digital options and experiences for common branch transactions, drive awareness and incent digital alternatives
  2. Enable branch interactions to be done digitally: Enable core aspects of the branch experience (e.g., high touch, interpersonal engagement) to be served with lower-cost channels and digital interface
  3. Enable video-based private banking: Provide an immersive digital experience for private banking and wealth mgmt. that leverages effective and engaging video-based advisory tools
  4. Digitize commercial loan origination: Digitize front-end process and interaction for businesses to apply for new loans (e.g., application, underwriting, onboarding workflows)
  5. Enhance digital lockbox solutions: Enhance speed and convenience of existing cash management and lockbox solutions — enabling businesses to receive and reconcile funds faster


Data from Socure, a Commerce Ventures portfolio company, showed significantly different performance between digital and non-digital account applications in the wake of Covid-19.

Impact of COVID on new account applications (% impact to activity, March 15 — April 17)

The data from Socure underscores the broader trend centered around the move to digital — and reflects the fact that average weekly hours spent in finance apps have increased 35% between December 2019 and a recent peak in March.

Our conversations with numerous FinTech players highlight a number of actions that companies can take to improve their existing account opening and servicing experiences:

  1. Improve digital discovery and conversion: More aggressively target new customers via digital acquisition channels and enable best-in-class digital account opening funnel
  2. Improve account opening infrastructure: Drive higher conversion, in real-time and at lower cost by leveraging better identity capabilities and underwriting processes
  3. Drive digital activation of new accounts: Drive quicker account activation and increase account value by enabling immediate funds transfer and direct deposit switching
  4. Enhance underwriting for lending products: Process lending applications faster, at lower cost and with broader credit boxes by leveraging real-time access to alternative data sources
  5. Automate and improve digital servicing: Enhance servicing capabilities inside products/ channels and digitize call center operations to provide faster resolution at higher NPS


The dramatic rise in unemployment that we have seen over the last couple of weeks is likely the beginning of a longer period of uncertainty for countless Americans. Our projections, based on initial calculations from the Federal Reserve, indicate that unemployment levels at year end could range from 6% (returning to pre-Covid territory) to as high as 32% in a pessimistic scenario. Regardless which scenario plays out, Americans will need innovative solutions to counter financial uncertainty and combat the risk of rising poverty.

Three scenarios for potential unemployment (% unemployment, # adults by quarter)

While there is no cure-all for the loss of employment, certain tools and products could help empower individuals to better manage their financial lives and ease some of the near-term term stress:

  1. Develop personal financial auto-pilot: Optimize cash flow needs by automating savings, ensuring overdraft protection and managing bill payment on behalf of individual consumers
  2. Provide smart budgeting and planning tools: Empower consumers with proactive PFM solutions that dynamically optimize spending based on budget constraints
  3. Provide access to alternative sources of income: Identify and match consumers with income-generating opportunities that are specifically aligned to their unique needs
  4. Actively build credit for consumers: Enable consumers to build or fix credit standing automatically and persistently through non-credit-exposed approaches
  5. Empower people nearing or at retirement with better planning tools: Enable consumers to better manage income and assets based on individual risk and budget parameters


Similar to the challenges facing individuals, small and medium-sized businesses (SMBs) are disproportionately affected in the current crisis. We estimate that nearly 40% of all SMB are fully closed today and that 1 million of these businesses are likely to close permanently. In all, we estimate that 70% of all SMB employees — representing over 30% of the entire American private workforce — will likely see some negative impact in the near-term.

The smallest of these firms (1–4 employees) are on average 47% more likely to suffer than companies with 20–499 employees and almost 20% more likely to close completely. We are already seeing these firms take out new credit cards in order to float expenses, but this is simply a short-term solution. Small businesses need new, innovative solutions to navigate this crisis, including:

  1. Enhance commercial loan origination: Enable loan applications to be fully completed online and reduce processing time with the use of best-in-class data and technology
  2. Enable fully digital business bank account set-up: Enable businesses to set-up new bank accounts in real-time using an entirely digital interface
  3. Provide servicing tools for greater support: Drive greater insight on business operations and identify areas for efficiency improvement
  4. Provide better billing and receivables tools: Enable businesses to generate and process invoices faster — including integrated real-time payment and financing options
  5. Extend eCommerce functionality: Facilitate digital commerce capabilities — including payment acceptance as well as functionality for delivery and pick-up
  6. Provide flexible financing products: Provide cheaper, real-time access to financing, including working capital, supply chain financing, and factoring


We have seen individuals shift away from physical currency (and even physical cards) — with concerns around safety and hygiene. Perhaps unsurprisingly, this shift has been most visible in countries with high rates of digital payment and contactless adoption. As illustrated below, the U.K. saw 60% decline in ATM usage between the end of February and the middle of April.

Decline in ATM volume in the U.K. (# transactions, compared to same week in 2019)

While there have been many efforts in the U.S. to accelerate the adoption of digital and contactless payments, adoption is well below that in the U.K.

We are already seeing some players, like Publix, emphasize the rollout of contactless payments as a mechanism to improve efficiency and safety in stores. However, we believe this is just the beginning. Broader adoption of cashier-less checkout in high traffic environments such as grocery is critical. Better tools that enable businesses to accept digital payments easily are necessities in a world where consumers are reluctant to go to stores — let alone use physical payment forms.

These are just a few of responses that payment providers can implement to better meet the needs of individuals and businesses, including:

  1. Enable real-time digital payment acceptance: Make it easy for businesses to adopt online/ digital payments so they do not have to accept physical currency
  2. Provide better disbursement mechanisms: Extend and enhance ability for consumers and businesses to send and receive payments electronically, regardless of destination
  3. Drive adoption of cashier-less checkout: Implement solutions that enable checkout experiences with limited (or none) need for human interaction
  4. Reduced cost of digital transactions: Reduce fraud in digital and in-venue mobile transactions, with long-term goal to eliminate interchange variance with card-present
  5. Couple alternative financing with digital payments: Enable partial payment by natively integrating financing / installment options in checkout solutions (e.g. in-app, at POS…)


The implications discussed above represent an acceleration of trends that existed prior to COVID, and the responses we have outlined are obviously an incomplete list of actions that companies might consider. Many companies were already on this journey prior to the current crisis — but likely will hasten the speed and urgency of their plans in order to provide better experiences that meet today’s needs of individuals and businesses.

In addition to these implications, we believe there are four trends to watch through the current crisis and beyond:

  1. Greater interest from FinTech start-ups in white label models: FinTech start-ups that started as direct-to-consumer models will increasingly shift to white label relationships with incumbents in order to capture higher margin, more durable revenue streams.
  2. Increased pace of M&A: Well-capitalized players will acquire (1) other incumbents with depressed market capitalizations and lower cash reserves, and (2) FinTech players with depressed valuations driven by stalling performance, limited runway and a challenging venture fundraising environment.
  3. Emergence of new regulation: New regulations will accompany the substantial interventions by the government required to stabilize the market — this may loosen existing restrictions in certain areas while tightening in others.
  4. Widening gap between FinTech leaders and “also-rans”: Challenger FinTech models that have yet to go through a downturn will face significant pressure — particularly those with exposure to payment volume and lending. This will reset the landscape, with some at-scale players potentially experiencing further growth on the back of greater market demand, while other players will struggle to survive.

Obviously, it’s impossible to predict the future, but the above analysis and prediction is intended to provide a synthesis of both what we’re learning from the plans of our eco-systems partners and lessons from previous downturns. We do believe that the financial services landscape will change dramatically in the wake of Covid-19 — potentially forever — and the time to prove new models, products and experiences has finally arrived.


  • Bain & Company (Reimagining the Digital Bank Branch of the Future)
  • Company quarterly filings for 1Q20
  • Kronos (Teller Line Study)
  • MX data
  • Socure data
  • App Anie
  • Columbia Population Research Center: Forecasting Estimates of Poverty During the COVID-19 Crisis (April 16, 2020)
  • JP Morgan Institute: The potential economic impacts of COVID-19 on families, small businesses, and communities (March, 2020)
  • Federal Reserve Bank of St. Louis: Back-of-the-Envelope Estimates of Next Quarter’s Unemployment Rate (March 24, 2020).
  • Federal Reserve Bank of New York: Can Small Firms Weather the Economic Effects of COVID-19? (April, 2020)
  • US Census Bureau: 2017 SUSB Annual Data Tables by Establishment Industry
  • U.S. Bureau of labor statistics
  • Deutsche Bank Data Innovation Group: The Future of Payments: Part II. Moving to Digital Wallets and the Extinction of Plastic Cards (January, 2020)
  • ABC News: Publix rolling out contactless payment option to stores (April 2, 2020)
  • Google Trends


Powering the future of retail and financial services


Commerce Ventures is an early-stage venture capital firm investing in technology innovators in the retail and financial services eco-systems. We publish regularly on topics relating to our sector, interesting themes, entrepreneurship and broader corporate innovation.

Commerce Ventures

Written by

Early-stage venture capital firm investing in technology innovators in the retail and financial services eco-systems.


Commerce Ventures is an early-stage venture capital firm investing in technology innovators in the retail and financial services eco-systems. We publish regularly on topics relating to our sector, interesting themes, entrepreneurship and broader corporate innovation.