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How Has Covid Affected The Fintech Industry Around The World?

Sep 23, 2020 15 min read

How Has Covid Affected The Fintech Industry Around The World?

While leading a global business entity, one quickly understands the importance of fintech services to the developing world. Fintechs have a unique capability to extend financial inclusion, improve the daily lives of people and spur growth. The Fintech sector has been developing fast in the last few years. But, like most other sectors, it has been hit hard by the COVID-19 outbreak. Here are the effects it has had on the fintech industry- Good and Bad.

Momentum of Survivors Disrupted

According to market intelligence platform CB Insights, investor appetite for fintech in Asia has been the lowest in the first and second quarters this year since the end of 2016. It is a direct consequence of the Covid-19 pandemic, which has raised uncertainty on the future of the industry. Prolonged uncertainty will decrease the number of fintech startups and in turn, give momentum to the companies able to cope up with the challenges.

Number of Alternative Lenders Reduced

The agile scoring approach towards assessment of the underserved segments and focus on smaller loan amounts should make a strong case for alternative lenders in the ongoing situation. But, the real picture is different. There has been a notable decline in incomes across small and big businesses and retail customers. This has not only decreased consumption but also raised defaults. As a result, lower demand and tightened requirements have caused a drop in issuance and, in some cases, forced companies to cease operations.

Digital Finance Expanded

Quarantine restrictions have raised the use of remote services—from online shopping to delivery, to entertainment, streaming services and mobile payments. People accustomed to the advantages of the digital world are likely to keep using it actively in the post-COVID-19 period.

Cashless payments are a perfect example. Thus, the United Kingdom, Germany, Ireland, Poland, Norway, Egypt and other countries have raised limits on the size of contactless payments. In some cases, it has more than doubled.

The inevitable digitization is not the only reason for traditional banks looking looking at fintech. The industry has been facing a decline in financial performance since last year. Bloomberg Intelligence stated that the average cost-to-income ratio at the top European banks amounted to 67% in 2019, the highest rate since 2008. Return on equity fell to the lowest level in three years at -8.7% .

Changes in the operating model and digital transformation are the means for banks to overcome difficulties. It may also stipulate banks to provide smaller loans and assess customers less formally, as well as start acquiring fintech firms. Remarkably, fintech are quite active in this regard themselves, as they seek opportunities to strengthen the performance.

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