Boost to Fintech in Response to Coronavirus

The Coronavirus pandemic is proving to be the boost needed for fintechs to gain traction with consumers who have been hesitant to move their finances online. With prolonged social distancing measures and lockdowns around the globe, the world is getting a crash course on why accelerated fintech adoption is necessary. History proves that crises can work to accelerate adoption of new technologies. The 2008 financial crisis moved a notable portion of traditional financial institutions’ customers over to the fintech sector and urged the banks to invest heavily in their technology and digital strategies. The present Coronavirus crisis is the biggest opportunity yet for fintechs to break habits and meet the needs of consumers who now need, more than ever, to take care of their financials remotely instead of through in person visits to brick and mortar stores.

The Move to Fintech is a Global Trend

According to data analysis from App Annie, Japan, South Korea, the U.S. and China saw the biggest uptick in time spent on fintech apps during the first week of March 2020, compared to the last week of 2019 at 55%, 35%, 20%, and 20% respectively. Countries all over the world have seen a sharp rise in fintech adoption. Latin America already had a high fintech adoption rate prior to the onset of Coronavirus, however, the rapid spread of the pandemic has spurred even greater adoption. Fintech apps in Europe saw a 72% rise in usage in March. Southeast Asian countries such as Indonesia and Philippines are struggling with the pandemic, but fintech companies which offer remote financial services continue to thrive. Clearly, the adoption of fintech is a global phenomenon.

Here are three of the best performing fintech sectors that have gained growth momentum in the midst of the pandemic to seamlessly be adopted into our everyday lives.

Digital Payment Services

Consumers in lockdowns are rapidly turning to e-commerce, even in sectors that have been relatively slower in attracting online consumers such as groceries and household essentials. A study by Mckinsey & Company found that within one month of lockdown in Italy, e-commerce transactions soared 81%. To facilitate these online transactions, consumers are forced to sign up for digital payment services which allow them to send and spend funds digitally. Even consumers who had a stubborn preference for in-person shopping are opening accounts for digital payment services. PayPal, one of the biggest online payment processors, gained 20.2 million new accounts in 2020 Q1, with about 250,000 new users joining every day in April amid the pandemic. Naverpay and Kakaopay, two of Korea’s leading payment providers, both reported 49.4% and 68% sales growth respectively in the first quarter of 2020 compared to the previous year. The direct-deposit volumes for Square Inc.’s digital payments tool, CashApp, roughly tripled from March to April. Inflow of new users meant to be temporary during the lockdown are likely to become a permanent customer base. 

B2B online payment infrastructure providers like Adyen and Stripe are expanding their business during the crisis as well. These companies are responsible for providing the technology to make it easier for companies like Amazon, Lyft, and Shopify to accept online payments and bill customers. Notably, Stripe raised $600 million in equity just in the month of April and its valuation grew dramatically to reach $36 billion as investors saw growth potential of online payments growing day by day. Online payment infrastructure providers are expected to continue enjoying this growth momentum as the volume of online payments will not be declining any time soon. Curbside pickup and online shopping for an expanded range of products are habits that will likely stick even after lockdowns end.

Digital Lending

Digital lending platforms have moved fast to respond to the surge of loan applications triggered by business shutdowns and layoffs. Incumbent banks alone have not been able to meet the needs of borrowers. Tech-powered digital lenders have proven to be much more nimble and effective in screening borrowers and issuing loans during the pandemic. In March, PeopleFund, the number one digital lender in Korea focused on consumer finance, attracted $1 billion worth of loan applications and saw a 123% increase in loan applications compared to the same period last year. The increase in the sheer quantity of loan applications indicates the shift of borrowers turning to easily accessible online digital lenders, compared to physical branches of traditional financial institutions. The increase in loan applications also means PeopleFund has more data points to input into its proprietary machine learning credit scoring system (CSS) which is continuously updated to make more accurate credit decisions and reflect changing customer behavior in real-time.

Like many fintech companies, PeopleFund and other digital lending platforms saw an expansion of its customer demographics during the pandemic. Prior to Coronavirus, the majority of users were tech savvy people in their 20s and 30s. Since the pandemic hit, older users in their 40s and 50s who preferred traditional banks have also started to turn to digital lenders. In fact, in the U.S., digital lenders such as Funding Circle and Kabbage have helped funnel millions of dollars in emergency aid to small business owners by participating in the Paycheck Protection Program. Powered by technology, fintech lenders have been able to offer faster and more convenient loan approvals. 

Digital Investing

Investing apps have also gained popularity amid the pandemic lockdowns. Digital investment platforms aim to make investing easier and have started to add other financial functions such as bank accounts, debit cards, and more. With more people staying at home and looking for better returns than what passive savings accounts offer, digital banks and investing apps are having a moment.

Robinhood and Stash are two fintech startups that have gained traction during the pandemic. Robinhood, a mobile trading app, added a record 3 million new accounts in the first quarter. Stash, another mobile money management app, announced closing its Series F round despite market uncertainty. As people all around the world had to work from home because of Coronavirus, these digital investing platforms were well positioned to accommodate a huge spike in users. Millennials’ growing interest in the high-risk, high-rewards stock market also accounts for the surge of new trading accounts.

Fintech Built into Consumer Habits

Despite the devastation and loss brought on by Coronavirus, it has also given fintechs an unprecedented opportunity to rapidly grow its user profile, geographical foothold, and reputation. Fintech adoption which was expected to take years was shortened to just a few months as a result of the pandemic. Adaptation and agility are core traits of the fintech industry and vital to overcome the current economic uncertainty. As such, the dominant players in the fintech industry are well poised to deliver the digital needs of consumers and will ultimately be ingrained in consumers habits even after a vaccine is finally found.