Fintech’s Big 2020 Challenge

Global crises erase years of hard-won gains, yet they are also opportunities to create positive paradigm shifts

As we enter turbulent times, it’s worth remembering that the 2008 financial crisis gave rise to the latest wave of Fintech companies. Driven by widespread smartphone adoption and the public’s loss of trust in the old banking system, the aftermath of the great recession created an opening for a better, fairer, and more efficient financial ecosystem.

Over the last 12 years, the number of Fintech businesses has skyrocketed to 2,719, funded by over 4,226 investors from all corners of the globe. By February 2020, the industry had minted 67 unicorns, generating hundreds of thousands of jobs and billions of dollars in equity. Let’s be clear, none of this would have been possible if consumers had not been demanding a better and more transparent financial system.

The industry’s monumental growth has not been without a lack of skepticism. Throughout this time, critics have correctly pointed out that most Fintech companies are under-regulated, have not yet experienced a financial crisis, and would likely be unable to sustain the shocks of a recession.

Well, speculate no more, because we might be heading into a crisis of unprecedented proportions.

Companies with credit-driven products can expect upsides but are probably the most exposed to risk in the coming recession. As their clients turn to available sources of credit, these companies will likely experience a surge of utilization, which could drive profitability in the short term. However, as fragile households begin experiencing financial hardship in the coming months, creditors can expect a wave of increased trouble.

The rest of the industry will not escape unscathed either. Payment transaction numbers will certainly dip, mortgage and real estate activity will reduce, and international remittance volumes are expected to decline. An overall slowdown of financial activity is coming and the financial sector is likely to be one of the hardest hit.

It’s not all bad news, this crisis will push all companies to accelerate digitization efforts, enforce cost-cutting initiatives, and think creatively outside the box. In fact, the value of several Fintech startups will become even more evident to their clients.

As of now, every leader in the Fintech industry is bunkering down and designing strategies for the times ahead. Times will be tough, but make no mistake, those companies that are able to manage the crisis and navigate turbulent waters will come out stronger on the other end. Fintech’s mission is more relevant than ever and after the dust settles, we could even see yet another wave of Fintech startups lead the recovery.