FinTech bosses must seize this opportunity

Fintech companies have historically been some of the best positioned to corner niche markets, but the unexpected upside to the current crisis means that almost every industry now has a need for their services. The adjustment to a largely digital way of living has been difficult for some, especially businesses that rely on largely analogue ways of operating.

Fintech companies, however, have been making this transition smoother and these firms stand to gain a lot from measured enacted to stop the spread of coronavirus. But this is only if their CEOs are quick enough to act. Angel investors like Andrew Dixon, Peter Cowley and Martin Mignot would be wise to invest in cutting edge companies led by forward thinking CEOs who are ready to grab the bull by the horns in this situation. This is the kind of opportunity that doesn’t come along very often.

An agile industry

It may be unexpected that FinTech companies, who represent the cutting edge of the finance industry, are not being hit as hard during the current downturn as traditional businesses. This is because the industry has been developing products over the last decade that facilitate a flexible, software-based economy. The trend we have seen over the last decade is simply being accelerated by the coronavirus pandemic.

Online payment processing company Stripe has recently raised $600 million in funding. While it is no surprise that a company with such a strong digital-first ethos is thriving in the current environment, it does highlight that the demand is there. Even before the current crisis, we were seeing a decline in brick and mortar retailers, brought about by a society whose needs were increasingly being met online.

Online payments, POS transactions and challenger banks are becoming more normal. The generally smaller and less established nature of firms in this industry mean that they can be quicker to act and fill the needs that arise during times of crisis.

New user acquisition

One of the most difficult aspects of the Fintech industry is gaining new users. However, in Europe Fintech app usage is up 72%. This represents a golden opportunity. The problem now shifts from user acquisition to the difficulty in user retention.

Most new users have a hard time differentiating between the long-standing veterans of the industry and the new upstarts making an opportunistic move given the current circumstances. Ordinarily, it is extremely expensive to get customers to use new financial products. This is where the current situation is beneficial, as traditional ways of doing business are made much more difficult by social distancing.

Smaller Fintech companies have to be very precise when aiming to grow their userbase. Larger, more established banks and financial institutions have the luxury of offering a full range of services. This is where FinTech companies need to use this to their advantage. Companies need to be specialised to retain users.

Partnering, like Venmo has done in the past offering rewards at Chipotle and PepsiCo, is one way to hold on to business. Similarly, companies like Robinhood have specialised in financial content for its users. Connecting with users where traditional financial institutions don’t is a huge advantage Fintech companies have.

The social mission

Another advantage they have in this situation is that the public mistrust banks and large companies, but challengers to the status quo benefit from the opposite. The public are more likely to trust a company perceived as trying to help them, that is different from the usual suspects.

Companies that donate to charity or practice excellent CSR are going to come out of this crisis looking strong. A unique selling point of Fintech is the use of innovative technology to improve the lives of its users. As users of these apps are generally younger and more socially responsible, companies who are able to imbue their brand with a social mission – especially amid the current crisis – will be in much better stead on the other side.

Some payments companies, such as Xendpay, have built their whole business around the idea of social responsibility and sustainability. They offer free transfers around the world during the payday period. This directly contributes to the economies in developing countries. This will be vital over the coming months when the world’s poorest nations are set to be hit hard by the pandemic.

Is cash still king?

While there is no convincing evidence that cash can carry COVID-19, cash usage halved following nationwide lockdown in the UK. The WHO has not offered any formal warnings around usage, but there has been a large-scale migration away from cash during the crisis. 

Areas that were once purely analogue operations are quickly moving to digital methods of payment. Mobile payment systems such as Square or PayPal’s iZettle have previously allowed SMEs to easily allow credit and debit card payments, but now there will be an uptick in usage. Businesses such as fruit and vegetable markets, previously cash only operations, will find it necessary to facilitate cashless payments given the current circumstances.

The unique agility of the industry, combined with the current ease of new user acquisition, makes this a perfect moment that Fintech bosses can’t pass up. The opportunity to be a driver of social change in comparison with traditional financial institutions, as well as the accelerated migration away from cash payments has created a perfect recipe for the growth of Fintech firms.