The current pandemic sweeping through most of the world has wreaked havoc in most areas of the economy as well as our personal lives. As schools and businesses gradually shut down, governments plead for people to stay home to contain the spread of Covid-19. With the virus showing no sign of going away, countries could remain on lockdown for many months to come.
However, as is the case with every change, among the many challenges, the pandemic might provide some industries with an opportunity. As we minimise personal contact, services offered in digital form are becoming more popular. While Netflix and Amazon Prime replace cinemas, DHL and FedEx does the shopping for us, and Uber Eats and Grubhub connect us to our favourite restaurants, people have an option to manage their finances remotely too.
Within financial services, FinTech companies have been the main drivers of digitalisation. With some more mature FinTech services appearing to have plateaued recently, could the current crisis provide the next push for the industry? Let us have a look at some obvious suspects that could gain traction during the pandemic.
- Peer-to-peer payments: As people across the world are advised, or even forced to stay home, digital wallets (e.g. Venmo) and mobile money (e.g. M-Pesa) might be the easiest and quickest channels to send money to peers, whether within the country or internationally. With many of the world’s borders closing, sending money to family members / friends stuck in a foreign country is likely to become more relevant. Cross-border payment solutions (e.g. TransferWise, Revolut) can help people send much needed funds to others faster (even real-time) and cheaper (even fee-free and at mid-FX rate) than banks and traditional FX companies.
- Online merchant payments: As part of the lockdown enforced by many governments, ‘non-essential’ shops are being forced to close, while more wary consumers will likely try to also avoid stores that continue to be open such as supermarkets and pharmacies. Thankfully, ordering groceries, ready-made food and medicine, as well as non-essentials such as books and clothes should not be a problem across most of the world. With a variety of digital payment methods such as mobile money in Africa, QR payments in Asia and digital wallet payments in Europe and North America available to online buyers, we expect the likes of PayPal in the U.S., M-Pesa in Kenya, AliPay in China and Swish in Sweden to accelerate their war on cash even further.
- Consumer lending: As people might lose some of their income or even their jobs over the next months, loans of all types are likely to rise in demand. While banks are still kings in the lending arena, their digital loan propositions are often cumbersome and require personal visits to the branch. On the other hand, some FinTechs are mastering digital credit scoring by utilising advanced machine learning and artificial intelligence to better understand their customers through alternative sources of data. In areas including consumer loans (e.g. Affirm, Klarna, Tala), mortgages (e.g. LendingHome, Blend) and student loans (e.g. SoFi, CommonBond), these solutions can help provide, facilitate or refinance loans more efficiently.
- Business lending: Similarly to individuals, some businesses might find themselves in need of cash to cover their costs as they face a slump in demand or even being forced to close down for some time. With their advanced credit scoring algorithms, small business lenders of the likes of Kabbage and Funding Circle as well as payment service providers such as Stripe and iZettle might see an uptick in demand for their short-term loan and cash advance services.
- Health and life insurance: Amidst a life-threatening pandemic, health and life insurance will always be amongst the most in demand financial services. While some countries offer universal health insurance for all their citizens, in some others such as the U.S. many people rely on private health insurance. With incumbent insurance companies generally slow to innovate, InsurTechs such as Oscar in the U.S. have come to the fore with their digital solutions, offering personalised plans to individuals, families as well as businesses, the latter who are looking for coverage for their employees. InsurTechs such as Ethos in the U.S. are tackling the life insurance space and are increasingly gaining traction, using predictive analytics and sophisticated data technologies to provide cover that is easy to access and available for all.
Other than the immediate traction some of the above solutions might experience, the pandemic is likely to trigger FinTech activity in other areas and have a long-term impact in previously underpenetrated industries, none more likely than the healthcare sector. With current FinTech solutions only scratching the surface of the industry, the pandemic is likely to reveal the shortcomings of healthcare systems globally that need streamlining. HealthTech and other forms of digital health innovation will become more critical as Covid-19 spreads. Looking towards the future, the FinTech solutions that emerge from this crisis will help people, businesses and the government better manage our finances and lives in such unprecedented times.
For this to happen, there is a call to action for the investment community and governments around the world. They need to remain committed to and protect FinTechs as in these difficult times many may find themselves short of funding and / or working capital. Covid-19 is set to reset many parts of the global financial services industry, with FinTech (including start-up valuations) amongst the most affected. On the other hand, the current situation may also spur M&A activity as some FinTechs look to scale their operations in response to new opportunities or to just survive.