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The COVID-19 impact on the fintech industry: on a faster way to a complete disruption

While the coronavirus is gaining over more and more regions turning whole countries into isolated desert islands and announcing unpredictable economic breakdowns, its world impact can still be described as chaotic. This chaos is also highly influenced by the so called “infodemic”, the massive spread of false information about the virus that alarms customers and makes their social and economic behavior far from predictable and coherent. Thus, world trade pandemic losses are already estimated around 320 billion dollars every quarter.

It is obvious that national quarantines together with massive panic significantly impact customer spending volumes. This will certainly result in lower fees collection by transactional and payment fintech projects. Even the two card payment giants Visa and MasterCard have already announced an expected sales knockdown of around 4%. At the same time, PayPal has announced a 1% drop. In such a turbulent situation, national and central banks as far as federal reserves are cutting interest rates and lowering transactional fees. And yet they seem to be less ready for losses than they should have been.

Massive isolation and social distancing of all types looks like the best era for massive fintech technology spread. As these are the companies with such main characteristics to help stop the COVID-19 spread as: contactless payments and transactions, branchless banking and consolidation banking upgrade. These are also the main factors that lead Chinese government to work closer on massive fintech adoption and South Korean government to ease fintech companies regulation.

At the same time, Chinese fintech are currently facing their worst investment times. They have already seen a significant foreign investment decrease in 2019 related to the US-China trade tension that became even worse with the direct relation of China to the coronavirus pandemic in the public opinion. Such a situation might potentially result into their business model change over the sustainable one.

It is clear that the payment-related revenue projects like Square of Stripe are the next to be affected as the cross-border payments lower with every new country infected. Suh projects may also have a significant internal business effect related to remote work, difficulties with hiring new specialists, supply shortages and, what’s more crucial, product development slowdown. At the same time, we must admit that the last argument is just a matter of time as all the international IT corporations like Google or Microsoft are already working remote for several weeks and we do not see a significant impact on the quality of their services provided. The current statistics are already showing online work and intercompany online tech collaboration as important positive industry changes related to COVID-19. The world will obviously need some time to switch to another way of living and the fintechs are there to help people with their financial needs.

For now, another certain winners are robo-advisor fintech projects and those services related to stock market trading. Despite the uncertain and turbulent market situation, these last weeks were marked by a significant increase in their user activity.

Today, we can certainly state that fintech projects with lower fixed costs will outperform in comparison with those having big fixed costs. To survive, all the fintechs have to show a significant flexibility in their business models as far as their aptitude to effectively cut down service costs in accordance with market needs. It is also important for fintechs to have recurring revenue and long-term contracts to deal with market versatility and large customer acquisition costs. It is also quiet clear that challenger banks being B2C oriented will have a much better performance and growth rate than the B2B oriented projects. Despite this general analysis, the lending fintechs would be probably the most underperforming ones being less adaptive to the situation then insurance, payments and, of course, BaaS.

Nevertheless, COVID-19 broke into our highly developed and competitive reality establishing its own strict rules. While epidemiologists all around the world are trying to predict time until massive return to normal lives, small, medium and large businesses have already changed their habits and models as soon as possible. In such a competitive and stressful situation, fintechs have at least one certain strong point over others: they are working on disruptive technologies designed to change the world and make it a better living. In the COVID-19 environment, they are the very ones to help the world fight this killing anti-social virus together in the most effective way.

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