Is the Coronavirus Pandemic a Boon or a Bane for Fintechs? Let’s Take a Closer Look
The intensity of the corona outbreak has been overwhelming: 209 countries and territories around the world have reported a total of 1,431,973 confirmed cases of the coronavirus COVID-19 with a death toll of 82,096 deaths.
The fatal coronavirus outbreak has emerged as a formidable challenge for governments and businesses worldwide. Most sectors of the global economy are beginning to feel the effects of what may already be a worldwide recession, but amidst the transforming dynamics, there could be a brighter side for new-age fintech companies.
Will coronavirus damage fintech, or will it grow as a result of the outbreak? Let’s take a closer look.
1. Low transaction volume
The world has changed in the last few weeks. Closed stores, cancelled flights, and quarantine measures have resulted in the massive decrease in transaction volume across the levels of economy.
Fear and panic have set in, and the quarantine measures have impacted consumer spending massively. This means that the profitability and valuations of fintech firms in the payments sector are negatively impacted.
2. Lower valuation and lack of funding
Although there may be increased adoption of digital technology due to the pandemic, the venture capitalists may hesitate to fund young fintech firms or even the existing ones.
For a publicly-traded fintech, the fall in the share prices means an increase in the cost of the capital. The stock market slump combined with the investors’ concern with higher funding could be the catalyst for lower valuations and lack of funding.
3. Lower interest margins
Banks across the world have responded to the pandemic challenge and have dropped their interest rates in an attempt to prevent a global recession. As the demand decreases, banks will experience reduced income from transaction fees and business clients, and witness a drop in the interest margins.
New Opportunities For Fintech Companies
1. Contactless payments
Although most banks have started disinfecting the physical money, contactless payments offer a much safer and more convenient alternative to contaminated cash.
As the pandemic continues, there will be a significant rise in the total volume of contactless payments. If banks and payment companies have not introduced contactless payments, it’s time to make it a priority.
2. Branchless banking
The quarantine measures and the fear of getting infected are keeping the customers away from their bank branches. This offers an opportunity for virus-free branchless banking experience. Not only is this approach a safer and cost-efficient alternative, but it is also more accessible to people in remote areas.
3. Banking upgrade
In the wake of coronavirus, fintech platforms offer superior digital banking solutions, because of which traditional banks are increasingly losing customers. This is the time for banks to upgrade their banking system and their legacy products by working in partnership with fintech firms. This means there will be an increase in demand for digital banking software, giving the necessary boost to fintechs.
4. Credit online
Rather than visiting banks physically, people are more likely to use fintech and digital channels in the upcoming days to apply for personal loans or any other type of credit.
5. Insurance coverage
With the virus dominating the headlines, people feel the need to get insurance coverage for health, life, business disruption and event cancellation. This means that fintech firms in the insurance sector may see a boost in demand for certain insurance types.