The pandemic of COVID-19 remains a cause of uncertainty and therefore, on a variety of fronts, many fintech firms are under stress. Access to financing became problematic as many investment firms concentrated on established Fintechs with defined business models, especially for some early-stage startups. In addition, many sector assumptions have been altered by recent interest rate decreases and the economic slump.
Yet with the wider economy shifting from reaction to recovery, COVID-19 may provide some Fintech new chances. The usage of digital financial services and e-commerce for example, as social distance has taken root globally, has increased tremendously.
There has been tremendous growth in the worldwide FinTech market. The COVID 19 epidemic has naturally created a major disturbance and has left many forecasts and projections uncertain.
The FinTech business was adversely hit as regards investment, like almost all other sectors. The investment across the UK decreased by 30%, compared to more than $1.2 billion in the same time in 2019, by US$760 million in the second quarter this year.
A driver for digital transformation through financial technologies — or fintech — is the coronavirus crisis. As Hong Kong rebounds from the Covid-19 epidemic, the city’s technology industry creates trust in the ‘new normal’ economy that helps companies and individuals to take up new business practices.
“The epidemic led to an increasing demand globally for contactless payment. In Hong Kong, digital payments are being made increasingly often by traders and customers,” says Forest Lin of Tencent Financial Technology and Tencent’s Chinese internet behemoth corporate vice president.
Digitalization – towards the future
It does not only create this problem for the financial industry but also has the potential to be a significant engine of economic recovery. Many of the recent developments in the financial services sector will continue to operate. Fintech is not new to digital payments, enhanced data security and system resilience, and innovation in blockchain and digital assets. However, they now provide practical ways to solve today’s real-world challenges.
Fintech companies are highly experienced in perturbation and adapt and thrive when the world settles down in any new norm. After the immediate operational difficulties of the pandemic, other conventional financial institutions no longer choose to ignore the necessity to digitalize. Fintech will become one of the industries that will end up being of increased importance as we emerge from the crisis with government backing and appropriate regulations. During this crisis, there were many companies from the financial sector that attracted many people. One of the examples of this is Forex trading, where Forex brokers started to create sophisticated software for their customers. To make their services and software more eloquent, brokers started to use several add-ons and plug-ins, like divergence indicators, which is one of the helpful tools for investors to forecast future changes in the marketplace. This shows how the development of fintech and the merging of finances and technology can lead the economy to rebound and back to its new normal. With the global economy recovering from COVID-19, financial inclusion is a key topic for FinTech. There are now around 1,7 billion unbanked people throughout the world, according to the World Bank, and FinTech’s will be key in integrating these people into the world’s financial system.
In several areas, digital money is spreading. During COVID 19, health concerns have reduced physical payments by making digital payments and e-wallets less viable. While the usage of cash was expected to decrease in any case, the drop of the COVID-19 has hastened because of worries about the human transmission of the virus through the handing over of money. According to Mastercard, 82 percent of respondents globally considered contactless to be cleaner, and 74 percent stated that they would continue to use contactless post-pandemic payments, considering the consequences of the coronavirus pandemic.
Furthermore, better ‘customer knowledge’ services are necessary to offset the growth of digital fraud and cybercrime since the pandemic began. FinTechs, who are aware of security, build their products to this effect – even if face-to-face meetings and processes return.
While earlier integration efforts may have been limited about digital transformation, many FIs recognize that they must embrace a more comprehensive approach to digital transformation in order to offer an efficient, effective and sustainable Banking Service, including the use of FinTech.
Crisis of real economy
The 2008 crisis is distinct because it is a real economic crisis rather than a financial catastrophe. Banks and financial institutions are well-capitalized and resilient today to cope with the economic downturn in a comparably better state. Fintech companies that were exposed had not been constructed from the beginning with scalability in mind. Technical decisions were determined to be sufficiently good for most cases. Whereas market speed is synonymous with Fintech, at the start of new initiatives it is essential for the correct architectural decisions and technical choices to be made.
The efficient operating technique and satisfactory regulatory and consumer work have already been standardized and acknowledged. Companies react to changes in behavior, showing they don’t think the move to digital banking will go backward. This needs businesses to improve their historical infrastructure’s capability to fulfill the demand for real-time payments and more.
The atmosphere is shifting in order to increase regulatory supervision by Fintech companies in line with traditional financial institutions. Increased dependence on technology and connectivity between the various stakeholders, meanwhile, entails a higher chance of operational failures and safety concerns. Today’s dynamic systems provide numerous moveable components and complexity across several levels while being useful for rapid deployment and business agility. All of these can make monitoring and observability more challenging.
Opportunity and innovation
Most FinTech’s proven resilience and capacity to cope with financial challenges have provided them with an unbroken hope of survival. Due to its high degree of equity funding combined with flexible operations and a readiness to operate at a distance, FinTechs has been able to weather the disruption. They also took efforts to limit their exposure to risks and to reduce expenses, including reductions in workers.
Just 1% of the FinTechs were significantly impacted by COVID-19 and 2%. Roughly 17% of other high-growth businesses fit into these categories by contrast.
In the COVID-19 period, many FinTech’s demands have risen as work methods and consumer banking behavior change. In the financial services business, technology continues to transform the face.
It was apparent before the epidemic that FinTech played a key role in future financial services. This procedure was, of course, speeded up by COVID- 19. Business modeling in the post-COVID-19 environment is under reassessment to integrate new tactics and distant capabilities.
Established FIs were obliged to hasten their scanning plans in order to satisfy new requests. Automation and other digital services have become increasingly vital as their infrastructure demands have developed with FinTech ready to supply creative solutions.
The industry is not in fact unfamiliar with crises. FinTech has garnered substantial investments and started revolutionizing financial services following the Global Financial Crisis. This legacy has also been promoted through COVID-19.
Fintechs meeting Covid-19 challenge
Naturally, the immediate priority is to handle the present uncertainties. Many fintechs have been overdriven to respond to the crisis, like the rest of the financial sector. Many of them are reinforcing their capital and financing by investors and lenders, including insurance and prophecy firms. Other steps, including a decrease in workers, have been adopted to save costs. Since many of them generate transactions and volumes, a priority approach now ensures that the greatest possible number of expenses are variable and fixed costs minimized.
It is obviously also of utmost importance to maintain operational resiliency. Fintechs are flooded with demands for forbearance and relief from customers and to assist secure loans to small companies created under Coronavirus Aid, Relief and Economics Security Act, Payroll Protection Program. Similarly, payment and asset-driven fintech strengthen their infrastructure by extending their capabilities and investing in additional resources to resist increased transaction volumes stressing their systems. These moves might be particularly problematic for Fintech, which depends on the number of transactions and hence now lacks funds.
In view of the existing large number of start-ups, it is predicted that the attention of investors would become even more challenging for the fintechs. And it is probably not simpler to attract end-users because the insurers focus in the aftermath of the COVID-19 epidemic on immediate need and cost management.
Current conditions of the market and social dissociation practices have also hampered the growth of fintech companies, and many investors in the property have to halt until they can sell the property. Additional fintechs provide discounts and appealing retention services to keep their clients.
In addition to these more basic financial and operational concerns, each Fintech category responds to certain particular problems. In order to maintain the balance sheet’s integrity and reduce any possible growth in defaults, several online creditors have, for example, tightened their criteria. You may also soon find that the past data used to make underwriting choices in today’s climate could be less trustworthy and that their models will have to change accordingly.