What COVID-19 could mean for the FinTech industry
As the whole world shifts towards a new reality our focus must now move towards the opportunities and factors that may accelerate the transformation of the digital financial services market and therefore the prospects for FinTech companies.
A key question is whether people will continue to use the digital and ecommerce solutions on which they have relied over the last few months? Vodafone, has reported a massive 50% rise in internet usage during the pandemic, and A European customer survey by McKinsey has also shown that people have changed the way they bank as banks severely limited their working hours during the lockdown. There was a significant 20% increase in digital engagement levels and a significant decrease in the use of cash.
The answer is probably yes and no. There will always be those that prefer to revert to managing their finances in a traditional way, but the great news is that the key banking survey by McKinsey highlights that customers, who are highly satisfied with their digital banking experience, are two-and-a-half times more likely to open new accounts with their existing bank, thereby encouraging even the most traditional bank to increase investment in their digital offering.
New research from KPMG UK, shows that the sector is positioned better than most to deal with any disruption - around half of FinTechs believe they have enough cash and working capital for the next 18 months. But like every other industry there will be those that fail to thrive and some consolidation in the sector is to be expected.
What the industry has shown during the pandemic is how innovative, responsive, flexible and agile it is even when faced with total uncertainty. Uniquely positioned new models have already been developed to fit in with the new reality as FinTechs stepped in quickly to help people during this time of need, and we can expect this to continue.
A digital solution, named ‘Covid Credit’, for the self-employed to prove a loss of income via open banking and apply for fiscal support from the government was created by Credit Kudos, Fronted and 11:FS coming together over a weekend and Greensill Capital offered their salary finance platform at no cost to allow NHS workers to be paid sooner.
Other FinTechs such as Curl came together to develop ‘Save My Local’ through a platform where people can buy advance vouchers for services in an attempt to help their local businesses.
What’s clear is that as the world slowly eases out of lockdown restrictions and reopen up borders, the real impact of the pandemic on the FinTech industry will become apparent but it will undoubtedly boost the digitalisation of the financial services sector and leave huge amounts for FinTechs to play for.
The increase of digital and cashless payments and the use of e-wallet services will drive the e-payments sector, as the use of ATMs and cash significantly falls and legacy banks find it harder to compete with the cloud enabled, agile services of FinTechs whose costs can be as much as 70% lower than for a legacy bank, with a large branch network.
Those businesses offering innovation in the areas of fraud and cyber security can also expect to see strong growth as the virus has led to a spike in incidents.
At DP Connect we have always believed that in an increasingly digitised world, digital financial and banking services will be the future. The pandemic and its legacy won’t change this; it will only make the race to succeed sooner and with a few more hurdles possibly along the way.