Lockdown will have lasting effects on FinTech

The lockdown is hurting every industry. FinTech is no exception. However, its digital nature means many companies find themselves well positioned. Some might even come out of this situation better off than before.

The lockdown will have lasting effects – both good and bad – on FinTech. While there are many downsides to the current situation, there are some new opportunities for you to consider. Lockdown
will cause permanent changes in the way businesses operate. But, surprisingly, it isn’t all bad news.

Immigration on hold

Countries all over Europe have shut their borders as a precaution to prevent the spread of coronavirus. Budget airline Easyjet has grounded its entire fleet, so even domestic travel is more difficult. Companies, particularly in the retail and hospitality industries, are being devasted. This lack of movement of people will have serious effects on the economy. How will a continent so proud of its open borders be affected by this change?

In the UK, immigrants have historically been great creators of employment. Entrepreneurs like Sukhpal Singh Ahluwalia, Bo Bendtsen and Will Shu have seen their companies become driving forces in the British economy. Some players in the FinTech industry specifically were founded by immigrants - Brex, Stripe and Robinhood to name a few. Closed borders mean entrepreneurs are no longer coming from overseas. New businesses are not being founded and many aspects of industry are on hold.

A lack of new businesses means fewer new ideas. We might not notice for some time, but this will have a knock-on effect. FinTech is an area of finance that feeds off these new ideas and benefits from fresh entrepreneurial spirit. CEOs can’t let intellectual stagnation set in. When this lifeline is cut off, the whole industry suffers. Businesses are now missing a key piece of the startup puzzle.

Cross border business

Just as there will be a decrease in immigration, cross border business will be affected. According to a report by Reuters, both Mastercard and Visa have warned shareholders of a slowdown in cross-border business, cutting expected sales by between 2 and 4%. The shutting of the retail stores also means POS transactions have declined too.

Many investors will (if they haven’t already) cash out their assets in anticipation of this downturn worsening. Venture capitalists will be less likely to invest abroad due to heightened levels of risk. This will lead to a rise in safer domestic investments, but a severe drop in funds changing hands between countries.

Cross border business is essential to the longevity of any company. Two thirds of consumers make cross border purchases, with 32% doing so every month. The lack of international shipping availability will initiate a decline in these statistics. This will hurt FinTech companies who facilitate international money transfers or online consumer purchases abroad.

The bright side

It’s not all doom and gloom, however. FinTech companies are uniquely positioned in this market to come out on top. Teams working together at the same location is no longer a luxury we can afford. This means companies and consumers need to use FinTech services more than ever.

According to deVere Group, Coronavirus-triggered social distancing, isolation and lockdowns have driven-up the use of financial apps in Europe by 72 percent in a week. The rise of remote working and the need to keep doing business being the culprit. This could see online transactions companies like PayPal pull ahead once we are out of lockdown. Mastercard and Visa also may not be hit as hard as they originally feared due to online purchasing.

Many shops that are still open are no longer accepting cash due to concerns that the virus may live on the surface. So, while POS transactions are more difficult due to the lack of retail in general, those essential services that are still open are strongly encouraging card transactions.

Lasting legacy

The coronavirus outbreak may see a permanent change in how consumers interact with companies, as well as how businesses interact with each other. This rise in app uptake and usage is here to stay. Likewise, this shift away from cash usage may permanently change consumer habits.

It is important that FinTech companies can provide fast, stable means for their clients to continue the running of their business. During remote work, everyone needs to adapt. FinTech can help limit teething pains. If companies act quickly, then they have the advantage of already being digitally focused.

The nimblest companies will be able to come out of this downturn in a strong position. This is not opportunism. FinTech can fill a gap in the market created by the increasing need for remote work and digitisation, but businesses need to be fast to act or someone will fill that gap first.