Global Fintech Industry: Market Trends and COVID-19 Impact

To surmise, fintech offers all the services individually, which were earlier offered by the financial services institutions collectively. As compared to all the activities, including banking, mortgage, or trading services being offered under a single umbrella, fintech ensures individual offerings and a combination of streamlined offerings with technology, which helps the fintech companies to cut down on costs related to each transaction, therefore being far more efficient than the traditional sources.

The introduction of fintech has caused huge dramatic upheaval to the traditional banks and money managers as they are directly affected by the emergence of fintech innovations. Fintech can be viewed as a ‘disruption’ as it has taken hold of all the financial products and services offered under the deeply rooted system of the financial institutions and made it available to customers via smartphones, thereby untangling a chain of services offered by branches, salesmen, and others.

Some of the prominent platforms under the fintech industry are ‘Robinhood’, the mobile-only stock trading app which charges no fee for trades and websites like Prosper Marketplace, LendingClub, and OnDeck, which are peer-to-peer lending sites that open up competition for loans to broad market forces by a reduction in rates. The sites like Kabbage, Lendio, Accion, and FundingCircle have been offering platforms which helps the start-ups and established businesses to secure capital. Funding rounds are also not very uncommon for fintech start-ups, and one such was received by Oscar, an online insurance start-up, in March 2018, receiving about USD 165 million.

One of the significant factors that have led to the popularity of fintech companies in the market was the downfall of traditional financial companies during the global financial crisis in 2008. The fintech companies were well accepted by the customers as the traditional banking systems lost customers’ faith. Other factors boosting the fintech companies in the market were free software and cloud computing, which made it easier to launch a tech company. After California, cities like New York, London, Shanghai, and Beijing also witnessed a rise in fintech companies.

Some of the thriving fintech innovations include:

• Cryptocurrency and digital cash.
• Blockchain technology.
• Smart contracts, which use computer programs to execute contracts among buyers and sellers automatically.
• Open banking, in which third-parties could have access to bank data to build applications that can create a network of financial institutions & third-party providers. For example, Mint, which is a money management tool.
• Insurtech, which uses technology to simplify the insurance industry.
• Regtech, which helps financial service providers in meeting industry compliance rules, especially those with Anti-Money Laundering and KYC protocols, which fight against fraud.
• Robo-Advisors, such as Betterment, uses algorithms to automate investment advice and increase accessibility.
• Unbanked/underbanked services that serve disadvantaged or low-income individuals who are underserved by traditional banks and mainstream financial companies.
• Cybersecurity

The use of chatbots and AI interfaces by fintech companies helps in assisting customers with basic tasks and cuts down the cost of employing staff for the same. The development of ‘learning apps’ record the habits of users and help them to avoid unconscious spending and make better savings decisions. Frauds are also prevented because the information of transactions is crucial, and it is against the provided norms to be used illegally. The fintech users can avail of the benefits of the opportunities created by fintech and help them all to interact. These opportunities will be created by mobile banking, increased information, data, and more accurate analytics and decentralisation of access.

COVID-19 and Fintech Industry

The outbreak of the COVID-19 pandemic has had a major impact on the financial institutions across the world, and the crisis has put the banking systems under distress globally. The fintech industry has not been untouched by this crisis and is also facing negative effects like slowdown in funding, drop in the establishment of new fintech firms, and revenues being reduced in the already established businesses in this sector. Even though the traditional banking systems are facing a downfall, still in many ways, the fintech firms are found to be more vulnerable than them, despite all the digital transformations occurring in banking.

A survey conducted by Genome in March 2020 of more than 1,000 tech start-ups (not just fintech firms) across the globe, found that almost half of these start-ups do not have enough capital to survive past June and a significant numbers of these firms do not have enough capital to survive past September. The funding trends were already lowering in the first quarter of 2020, and it was predicted that it would yield as low a funding as recorded in 2017.

The most severe impacts for the fintech industry will be on international payments, small business lending, and secure and insecure consumer lending. However, the fintech firms on B2B banking are less vulnerable as a group. Despite all the problematic conditions and the effects of the crisis, the fintech firms that survive the blow of COVID-19 will also see growth in the future as the combination of consumer behaviour, and the dependency of financial services on the digital platform will again yield good results. It is an unavoidable fact that advanced technology coupled with AI and low fixed overheads has the upper hand over the institutions, which have to focus more on the physical structures and a staff which is not trained enough for the upcoming digital future. Therefore, with a diligent combination of personalised digital solutions, a strong capital foundation, and visionary leadership for the upcoming future, the impact of this pandemic can be overcome, and the fintech industries can still ensure a secure and yielding future.