The already reducing cashflow dropped even further due to the COVID 19 response restrictions and people’s skepticism of handling actual cash for transactions.
The impact of a global pandemic has disrupted the financial markets across the world. People are saving up on their existing money in anticipation of an economic recession. This risk-averse behavior is shaping a new financial sector based on digital conservatism.
Covid 19 impact on different financial markets
People around the world restricted their physical movement creating an empty vortex that impacted the supply chain, local markets, commutation and many other areas. A brief look at the background impact on financial markets.
Banking & Capital
While entering the lockdown, banks were in a better position to handle things as compared to individual households. The 2008 recession had taught banks much to survive such setbacks.
That doesn’t mean the sector is unaffected, their contribution for recovery can have a lasting impact.
– Assisting Government relief plans ~ Governments across the world released numerous relief packages to ensure the survival of people worst affected by the financial impact of coronavirus. These stimulus packages will impact the long term recovery of economies.
– Cutting interest rates on deposits ~ This is putting pressure on the bank’s profit margins.
The Insurance Domain
By their very nature, insurances are expected to be ready for unexpected events and calamities such as this one.
Some factors still weigh heavy on the insurance companies-
– Decreased level of returns ~ The COVID 19 losses will impact the capacity of the insured to pay premiums on time. This can result in a hike in insurance premiums.
– COVID 19 insurance claims ~ It is clear that people directly affected by coronavirus will rely on their insurance company. This has started a conversation around pandemic cover and future plans to factor this in.
How is Fintech adopting these changes?
In order to bring back the same level of spending and re-invoke consumers to invest in the economies, many Fintech companies are coming up with unique adaptations.
Some changes in financial trends inspired by COVID 19-
– An increase in credit & debit card payments ~ Social distancing measures in the near future will prevent people from standing in bank ques or ATM’s.
This has increased the demand for digital payments and more application usage to handle money. Even people skeptical of mixing money with mobile phones have come around now.
– Contactless transactions
The cultural shift to cashless and contactless payments will survive even post-COVID. In the current environment, everybody wants to avoid physical touch and even touching money is seen as a risk factor.
The speed of transaction, convenience, digital ledger are just some benefits of contactless digital transactions that will slowly replace cash usage.
– Impact investors ~ These investors look to fund companies that have a positive gain for society. Many financial startups were able to secure investments through this method which gave them the bandwidth to survive and grow.
Challenges faced by Fintechs during the pandemic
The reduced flow of money had a big impact on financial technology companies but there are many other indirect yet significant pandemic inspired factors that these companies have to overcome.
Data Security ~ Finance companies generally have to jump through several hoops before landing on their feet.
Data Security is probably the most important thing for every fintech. Following regulations, ensuring the safety of user data, user consent for data sharing are a few parameters that fintechs have to labor over.
Moratorium effect ~ Government-mandated banks to give citizens an option to not pay their required dues till the economy recovers.
An essential step to ensure people are able to survive the pandemic effect and the resulting pay-cuts & unemployment. This depleted resources of many smaller banks and financial institutes.
Limited purchase of non-essential products ~ The decrease in sales of most if not all non-essential products saw a decline in cash flow which also impacted the usage of e-wallets and profit margins of financial companies.
Limited customer reach ~ Many financial technology companies relied on local business vendors (domestic retail shops, Kirana shops, etc) to reach their customers. Due to the lockdown, these shops have remained non-functional. Making it difficult for companies to convert new customers.
What are the smart Fintechs doing?
Building better contactless payment methods to “win big” during the post-pandemic spend. Many organizations have started to hire an app developer to integrate new functions & features to their app and survive through the COVID impact.
A look at some fintech companies that are ready with their product and expect to grow significantly by the next financial year –
They have been helping different segments of the population adopt digital payment methods in day to day lives.
Fingpay is also looking to meet the demand for small loans and insurances in tier 3 cities.
This is still an untapped market and might even get government aid to promote recovery from the COVID crunch.
This fintech startup keeps companies updated about compliance & regulations.
It essentially offers tools to simplify complex financial regulations into digital rules that update frequently through automation.
Fintechs that are still thinking with new technologies often find a way to adapt and grow.
3) Lydia/ Paytm/ Google Pay
Cash heavy economies like Italy, India, etc have observed a sharp spike in the valuation of digital payment methods.
Fintech brands like Lydia, Paytm, Google pay etc have on boarded many new customers owing to the dependence on digital transactions.
With the release of virtual cards, Zaggle aims to capitalize on the growing trend of digital payments.
They have tied up with various banks to gain more market presence and grant better access to consumers & retailers.
Zaggle also aims to create a 1 point dashboard to view and manage multiple bank accounts via a single dashboard reshaping the entire existing digital banking architecture.
Kyepot is focussed on providing digital saving and credit options with the help of virtual chit groups.
Such fintech companies have great potential to attract audiences during the recovery phase when people are looking to rebuild their financial health.
Digital operating platforms that can have a direct impact on cost reduction and increase banking efficiency are still sought after.
Nucoro is one such business, they are helping financial companies streamline investment management propositions.
New consumer trends in 2020
The global pandemic was an unexpected event that has altered consumer behavior and market trends beyond recognition.
The best way for companies to adapt and grow is to recognize the changes & come up with offerings that facilitate the new world.
– The overall spending in 2020 reduced by 40% as compared to 2019.
– The risk of losing jobs is still restricting spendings across sectors.
– Discretionary expenses or non-essential expenses fell by 14% under lockdown.
– Travel & Tourism amongst the worst-hit sectors.
– Increase in unemployment rates.
Even in the post-lockdown world, people will prefer digital payments over physical cash due to the fear of virus spread. Once the lockdown is completely lifted, people will start to spend more, particularly on services that were not available during the lockdown.
Fintech’s “digital-only” approach will make it easier to transact, manage loan recoveries, and give a better estimate of financial health.