While everyone is probably tired of hearing about how “unprecedented” this time and our experiences are, the fact of the matter is that there continues to be uncertainty surrounding the COVID-19 pandemic. While we are still in the response stage, many are looking ahead and strategizing how to step into a recovery period in an effective way.
Fintechs are uniquely positioned to leverage their assets and offerings to help businesses and consumers adapt to the realities of the pandemic. In simple terms, some fintechs are thriving as a result of the pandemic. Blend, a fintech that simplifies applications for mortgages and consumer loans, reported year-over-year growth of about 400% in March.
Immediate reactions to the uncertainty include cost-saving measures, including workforce reduction and minimizing fixed expenses. Additionally, many are being called to aid customers with obtaining relief from federal programs or forbearance to delay payments. As the Paycheck Protection Program (PPP) of the Coronavirus Aid, Relief, and Economics Security Act (CARES Act) rolls out, many fintechs have been tapped for guidance and assistance in procuring funds.
There are also fintechs that specialize in payments who are facing additional stress to their systems, making operational resilience a top priority. As more transactions move to the card-not-present (CNP) space, many payments companies will be looking for ways to expand capacity, including new investments to upgrade or fortify resources.
Expense management will be the main focus for many, especially as VCs and investors liquidate their assets. Cutting costs and tightening the belt will be critical for fintech startups to survive this period. This will play out differently for each organization, but one example is U.K. challenger bank Monzo, where the CEO has announced he will forgo a salary for the next 12 months. Senior management and the board of Monzo have also volunteered to take a 25% decrease in salary.
Naturally, some fintechs will contract and others will thrive in current conditions. What remains to be seen is whether the forced changes in behavior — consumers moving to ecommerce, online channels, and digital financial services — will position fintechs as the obvious remedy. What’s more, fintech startups are built to weather some of the fallout as they tend to be fast, flexible, and agile.
What the Future Holds
The outlook for fintech will largely depend on the niche in which the organization falls among other factors. Obviously financials and scalability are important; however, product categories will matter, too. According to BCG, fintechs in unsecured and secured consumer lending, small business lending, international payments, and other high-risk sectors may face the most severe impacts from COVID-19 while sectors like B2B will be a less vulnerable group.
McKinsey predicts that revenue growth in global payments will turn negative. The original projection of growth by 6% has been adjusted to reflect that a drop of as much as 8 to 10% is possible — or a decrease from $165 billion to $210 billion. While much of this will depend on how behavior evolves alongside economic activity and the interest rate landscape, McKinsey notes that the share prices for payments companies are already in steep decline as investors expect a drop in revenues.
P2P payments, on the other hand, are flourishing as people flock to platforms that enable cash and card alternatives for payments. Zelle reports that the COVID-19 pandemic has boosted demand for the P2P network economic disruption has spurred the need for people to send money to family and friends. The company says enrollments are up double digits year-over-year.
Online payments firm Ordo recently announced the release of a new peer-to-peer (P2P) payments platform, now available free of charge to users as a response to the pandemic. The need for such platforms is spurred by the need for a fast and seamless exchange of funds between people, especially as people take on additional tasks like grocery shopping for at-risk relatives and friends.
As big banks continue to close branches — and as the coronavirus makes in-person branch visits less palatable — consumers will increasingly turn to digital financial services solutions. This provides a window of opportunity for fintechs who can provide value and utility during this “unprecedented” time and beyond to help customers manage money, make payments, access credit, and transfer funds.
While we may be on the brink of additional economic turmoil, this is a critical time for investors to step up and support fintechs who can contribute positively to the financial well-being of both consumers and businesses. As the pandemic continues to prove that digital is the future, fintechs have a chance to illustrate their necessity in this increasingly digitized reality.
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