Impact of COVID-19 on disruptive Fintech industry
The economy and society worldwide are affected by the corona crisis. The effects of COVID-19 on banks and FinTechs are manifold. The numerous short-term challenges and risks could be offset by diverse opportunities in the medium term.
The current corona pandemic has swept through most of the world bringing society and the economy to a halt partially. As schools and businesses are gradually closing, governments are calling for people to stay at home, to curb the spread of COVID-19. Since the virus is not yet showing signs of disappearing, current restrictions in many countries could last longer than planned.
As with all crises, COVID-19 could offer opportunities in addition to the associated challenges. While personal contacts need to be minimized, digital services are becoming increasingly popular. So the start of Disney’s new digital streaming service was (unintentionally) chosen optimally. In addition to streaming services, many online retailers could also be among the winners of the crisis.
Effects of Corona on the business models in the financial industry
The banking industry was much stronger before COVID-19 than before the 2008 financial crisis. However, the need for different strategies in terms of marketing, innovation and digital banking was clear long before the pandemic. The question is whether financial institutions will continue to be committed to new business models after the crisis.
Payments in the post-corona period
The European Credit Sector Associations (ECSA), which jointly represent the banking sector, have published a paper outlining the policy direction for EU payments over the next five years that goes beyond the immediate challenges of the coronavirus. The main headlines from the paper include an increase in contactless payment and online transactions.
Challenges and opportunities for FinTechs
According to a report published by Finch Capital, 2020 will be a year of challenges for the Fintech sector, but the post-crisis era will be prosperous for the Fintech industry and its enabling sectors including IoT, clouds, Blockchain, and artificial intelligence. As the demand for digital transformation will surge in the post-pandemic era, the fintech sector will emerge as the disruptive winner.
The crisis triggered by the corona pandemic has not yet reached its peak, but if the dust settles, there will not only be losers but also winners. What does this mean for the FinTech sector in terms of opportunities and how does this affect businesses?
To get a better overview, here are five tendencies that are seen in the industry.
1. Opportunity for online financial services
With a surge in remote work and social distancing, a new opportunity arises for the challenger banks and Fintech apps. As the digital payments trend and mobile application adoptions see a sharp rise some fintech apps are seeing a 72% rise in the usage.
Neo-banks are offering a range of payment options and guidance for their customers by creating online guides and newsletters. There is also an increasing trend of unusual partnerships between tech giants and Fintech startups. For example, Microsoft partnered with Plaid to let people automatically import their bank account and credit card data into the Excel sheets.
2. FinTechs make financial management easier
FinTechs cannot replace all aspects of normal life, but make things easier in people’s financial lives where we can buy everything without being physically present in the store or using our physical cards or cash.
3. Digital Transformation is inevitable
As the world goes to a lockdown situation, the need for digital channels and products is inevitable for businesses and firms everywhere. Businesses that have the potential to transform their technological capacity and investments into the digital channels will deal with the impact of the pandemic and keep their daily operations running smoothly.
4. Increase in the demand for digital enabling technologies
In its report on The future of disruptive and enabling Fintech, Finch Capital emphasized the increasing demand of digital enabling technologies. Digital Identity verification and contactless KYC verification are an important part of any organisations digital transformation. As the Fintechs are primarily based on digital platforms, they need to verify that customers’ digital identity matches their physical identity while conducting businesses online. Especially, as cyber fraud is on the rise during the pandemic, businesses will more than ever need reliable solutions to verify customer without any physical connections.
5. Biometric authentication is becoming increasingly important
In a survey conducted by TransUnion on 1068 U.S citizens, 22% were founded to be the victim of digital frauds related to COVID-19. This explains the need for new methods for authenticating the user. Conventional authentication methods such as SMS-based two-factor authentication and knowledge-based authentication make it impossible to really know whether a person who logs in is actually the account holder.
This is different from biometric methods. Biometrics such as fingerprints, face recognition ensures that only the authentic user is allowed to log-in to their accounts online. While experts were previously predicting an increase in the adoption of biometric authentication, the frauds related to pandemic has made the appropriation of biometric technology for user authentication important than ever.
Are FinTechs among the Post Corona winners?
While the fintech sector is currently struggling with the economic consequences of the coronavirus, there is some evidence that the crisis could ultimately benefit the industry by accelerating the onslaught of digitization.
This also means that despite the economic crisis and hardships that are expected to follow, now is the time for the businesses to go digital especially for the financial sectors. The investors and businesses need to adopt fintech solutions which can increase customer experience. The economic-financial crisis has already proven that digital financial services will be the future and digital enabling solutions including contactless authentication, digital identity verification, online KYC will be more than ever necessary in the increasingly online world.