Impact of COVID-19 on Global Fintech Market

Ashish Y.April 24, 202013 min

On December 31st, 2019 when China alerted the World Health Organization (WHO) about the pneumonia cases in Wuhan city of Hubei province of China, with unknown cases. This mysterious disease was first referred to as 2019-nCoV and later it was named as COVID-19.

Today, the outbreak of fatal Coronavirus infection has emerged as a formidable challenge for businesses and governments all over the world. At the moment when I am penning down this article, over 1.3 million people are infected by this virus globally and more than 70,000 people have died. The COVID-19 pandemic has affected almost all countries and every industry of the world. The fintech companies too have started to feel the heat amidst the transforming dynamics, especially the new-age digital platforms.  

Owing to the nature of how the virus spreads, governments worldwide have moved quickly to place restrictions on the way people work, shop and travelling is almost banned. What do these restrictions mean for the FinTech industry? The impact of the lockdowns, as well as the impending global recession, has been severe across industry verticals and has affected large as well as businesses. As per Euler Hermes, trade losses from the pandemic could amount to $320 billion each quarter, this number is equivalent to the annual cost of the U.S. – China trade war.

Negative Impact of COVID-19

Panic, fear and quarantine measures have a huge impact on the spending of a customer. Closed stores, cancelled flights and social distancing are expected to result in a drop in the volume of transactions at all levels of the economy. This means that fintech businesses in the payment sector like Stripe, Square, etc. will collect lesser fees, negatively impacting their valuation and profitability.

MasterCard and Visa, both the companies have warned their shareholders about a projected sharp slowdown in cross-border business and travel spendings, cutting their expected sales by 2% to 4%.

Venture capital funding of existing as well as the new companies are expected to dry up as customers flock to safer investments, potentially leading to a decrease in M&A deals. For publicly traded fintech firms, falling prices of share mean an increase in the cost of capital. Combined with investors concerned with higher costs of funding, the volatile market could be a catalyst for the lower valuation. The Federal Reserve, The Bank of England, and other central banks worldwide have cut interest rates to help the markets and prevent a new global recession. As demand continues to decrease, commercial banks will see a drop in interest margins and reduced income from business customers and transaction fees.

Positive Impact of COVID-19

Even the pandemic has some positive effects, not only for our planet but also for businesses. Alternatively, the desire of customers for digital financial services is most likely to increase, forcing most of the traditional financial organizations to fast-track their digital innovation efforts. As a result, many legacy banks, credit unions and other financial institutions might look into fintech companies for assistance in bringing better digital solutions to the market place. This rise in demand for digital financial solutions could provide a lifeline to fintech businesses at a time when venture capital funding might not be an option.

Also, weakening economies might force government organizations and regulators to stimulate the expansion of fintech solutions. For example, South Korea is planning to ease regulations on fintech and ten other industries temporarily, as an attempt to jumpstart its economy amid the coronavirus outbreak. The WHO has also encouraged digital/contactless payments.

Finally, for those fintech, regtech and advanced data and analytics companies that can endure the present COVID-19 storm, more venture funding will most likely be available. As per many reports, private equity and venture capital companies have significant cash available once the market stabilizes.

Winners and Losers of this Pandemic

Plunge in businesses are not unusual and are often caused by unexpected circumstances. In this period of change, the winners and losers will be defined by those companies that are capable of making quick and decisive transformation reflecting the new environment. This is not true only in fintech, but in every industry. How will the airline’s industry react? How about retail and restaurant businesses? How about the real estate market and investment services?

During this dip, revenue and cash-flow can fall much faster than expenses, exerting pressure on the everyday existence of a company. While credit might be cheaper than ever in the recent past, the ability to get credit is not always easy.

It is worth noting that as with any major market retreat, opportunities will eventually arise for investors and organizations that are looking for expansion. While at this moment no one wants to make a definitive declaration as to the right time for jumping into the market or reassessing the strength of financial companies.

Almost all the industries will be winners and losers in one or the other way, but COVID-19 pandemic has surely taught businesses as well as humans to be prepared in advance for even the worst circumstances.

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Aashish Yadav, Content-Editor, FintecBuzz

Aashish is currently a Content writer at FintecBuzz. He is an enthusiastic and avid writer. His key region of interests include covering different aspects of technology and mixing them up with layman ideologies to pan out an interesting take. His main area of interests range from medical journals to marketing arena.

Ashish Y.

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