The COVID-19 (Coronavirus) infection is an ongoing public health crisis across the globe now. What started as the viral outbreak in China has spread across all continents, not only affecting the lives of people across the globe but also having a deep and serious impact on the global economy.
As the sudden coronavirus outbreak continues to wreak havoc on markets and industries across the globe, businesses are currently facing significant and unique challenges. Due to the nature of how the virus spreads, governments have moved quickly, imposing restrictions not only on the way people work and travel but its spread has also left businesses around the world on counting costs. It has brought an economic collapse globally over the past few weeks with shut down of various industries and millions of people afraid of losing jobs.
What does this mean for the FinTech industry?
As long as the fintech industry is concerned, it’s not immune to the virus either. We’ll definitely see some fintech or finance companies taking hits or some gaining traction.
Let us take a closer look at the impact of both the aspects the negative and the positive:
It’s seen that businesses of great size are already starting to feel the heat of the virus outbreak. Companies like Visa and Mastercard have cut their predictions for revenue due to the fear. This is because many credit card users are unlikely to use it for purchasing flight tickets, which is one of the most common transactions for use of credit cards. Due to the imposed restrictions on travel guidelines, many airlines are being forced to cancel or reimburse flights due to which there are plenty of losses being made with many companies be it airlines or the medium of booking tickets by flyers.
Paypal, a mobile payment fintech is also experiencing drops in its e-commerce activity. As most parts of the world are facing lockdown situations, governments have asked people to maintain social distancing that results in people not dining out at restaurants, pubs, and other public places. Due to which companies like Stripe and Square that provide payment terminals are recording losses as local businesses are receiving fewer payments.
Another fintech, Kabbage, the SoftBank-backed lending startup that uses machine learning to analyze loan applications for small and medium enterprises, is sacking out a considerable number of its U.S. team of 500 employees and completely closing down of its office in Bengaluru, India as the outcome of terribly changed business conditions for the company.
The fintech companies that rely on customers having active activity on the stock market are also likely to take a hit. With the stock market being so skeptical, there has been a massive rise in account sign-ups that meant long hour outrage and maintenance for the infrastructure that supports such activities.
Positive Impact/ Newer Opportunities for Fintech:
World Health Organisation (WHO) is also encouraging the use of contactless payments as a more convenient and safer alternative to contaminated cash. The significant increase in the format of contactless payments is expected even after COVID-19.
Currently, most of the customers are avoiding going to bank branches because of the fear of getting infected and are going digital for their banking requirements. This approach of branchless banking may take place in the future also as this is more accessible to people living in remote areas and preferential to Millenials and more cost-effective too.
The increased digitization will also lead the traditional banks to upgrade and add new functionality to their legacy products by collaborating with Fintech companies. The collaboration b/w banks and fintech companies will take the economy a step ahead towards growth and to achieve financial inclusion.
The current outbreak could increase demand for specific insurance types such as insurance for health and life coverage and business interruption and event cancellation coverage. At the same time, such insurer providers remain unaffected as most of the insurers exclude pandemic or any other contagious diseases from their coverage.
The resulting impact of the COVID-19 outbreak on the global economy could also lead to reduced borrowing and lending that will affect the lending industry, such as banks and other institutions. The governing bodies have already formally requested banks to implement measures to counteract the effects of COVID-19, including rescheduling loans, offering temporary deferrals on EMIs, and reducing commissions and fees. On the other hand, non-bank lenders could see a sharp rise in their default rates and credit costs owing to the impact. With the pandemic causing social distancing and shutdown of banks and other commercial spaces, digital lending would become the norm.
Digital lending is emerging as a promising platform for many individuals and organizations to partake in loans and other forms of the transaction of money. The requirement of digital solutions for financial systems will lead to the expansion of the FinTech industry. The digital lending platforms may also see a small rise in non-performing assets but still be recoverable. SME lending will also take a hit over the next few quarters. In the securities sector, many investors will focus on safe investment opportunities that could have a negative impact on the venture capital of new financial start-ups.
Business downturns are not unusual. Those firms that identify and adapt to new market conditions have the chance to outperform and will likely to stay even after the current COVID-19 storm.