New opportunities for fintech companies
Adversity inspires creativity
As the COVID-19 pandemic continues to create uncertainty, many fintech companies (fintechs) are under stress on a number of fronts. Access to funding was already becoming difficult, especially for some early-stage ventures, as many investors focused on established fintechs with clear business models. In addition, recent interest rate cuts and the economic slowdown have radically changed many industry assumptions.
Yet as the broader economy shifts from respond to recover, COVID-19 may create new opportunities for some fintechs. For example, as social distancing has taken hold worldwide, there has been tremendous growth in the use of digital financial services and e-commerce. While we can’t predict what form post-crisis opportunities will take, we do believe that fintech – a sector that is steeped in innovation – is likely to generate new and transformative solutions.
How fintechs are meeting the COVID-19 challenge
The most immediate concern, of course, is managing through the current uncertainty. Many fintechs, like the rest of the financial system, have gone into overdrive to respond to the crisis. Many, including insurtech and proptech companies, are shoring up their capital and funding from investors and lenders. Others have implemented cost-saving measures, including workforce reduction. Because revenues for many of them are transaction and volume based, a priority strategy right now is making sure that as many expenses as possible are variable and fixed expenses are minimised.
Maintaining operational resilience is clearly top of mind as well. Lending fintechs are being inundated with customer requests for forbearance and relief, as well as for help in securing the small business loans, established in the United States for example by the Payroll Protection Program (PPP) of the Coronavirus Aid, Relief, and Economics Security Act (CARES Act). Similarly, payment- and wealth-focused fintechs are bolstering their infrastructure by expanding capacity or investing in new resources to withstand the stress to their systems from higher transaction volumes. These actions could be especially challenging for fintechs that depend on transaction volumes for revenue and are thus cash-starved at the moment.
