Beyond COVID-19: New opportunities for fintech companies

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.

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 minimized.

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 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.

For insurtechs, winning the attention of investors is expected to get even more difficult, given the number of startups already in the market. And attracting end-users likely won’t be any easier as insurers shift their focus to immediate needs and expense management in the wake of the COVID-19 outbreak.

Current market conditions and social distancing practices have also affected proptechs’ business growth, and many of those investing in real estate are being forced to pause their activities until it is clear that they will be able to sell the properties. Other proptechs, to retain their customers, are offering discounts and attractive retention offers.

Beyond these more general finance and operating considerations, each category of fintechs is responding to some unique challenges. Many online lenders, for instance, are tightening their underwriting standards to retain the quality of their balance sheets and mitigate any potential rise in defaults. They may also soon find that the historical data they use to make underwriting decisions could be less reliable in today’s environment, and they will have to adjust their models accordingly.

Additional areas covered in this article include:

• Fintechs’ unique advantages and skills and how they might innovate to recover
• Future opportunities to thrive—including partnerships, serving the gig economy and the underbanked, playing a part in disbursing government aid, or developing entirely new products and services