In anticipation of the official launch, the Cambridge Centre for Alternative Finance (CCAF) invited industry participants to join an examination into the results of the Global Covid-19 Fintech Market Rapid Assessment Study, compiled in partnership with the World Bank and World Economic Forum.
As one of the largest empirical research undertakings to date on the effect of Covid-19 on the global fintech industry, this study successfully surveyed 1,385 fintech firms operating in 169 countries worldwide, answering questions about whether sectors such as digital banking, digital payments, digital lending, insurtech and wealthtech will continue to thrive.
As an official partner, Finextra Research is joining other industry players - including Money2020, LendIt FinTech, Innovate Finance, GSMA and Crowdfund Insider - to help present this data to the global fintech industry.
A collaborative mission
As Matthew Blake, head of financial & monetary systems at World Economic Forum explains, “Covid-19 has had a dramatic effect on the way we interact with each other. No segment of society has gone unscathed by the pandemic and the cumulative costs on lives and livelihoods is simply staggering.” Therefore, the impact of the coronavirus on the fintech market must be assessed, across industry verticals and different geographies.
Before diving into the data, Bryan Zhang, co-founder and executive director, CCAF reminds listeners of their mission to “create and transfer knowledge, address emerging gaps in the financial sector that supports evidence-based decision making […] and elucidate the development of technology enabled financial instruments, channels and intermediaries.”
Touching on the intention of closing gaps, Anderson Caputo Silva, practice manager at the Finance, Competitiveness & Innovation Global Practice, World Bank Group, highlights that “fintech has shown its potential to close gaps in the delivery of critical financial services to households and firms alike, in emerging markets and developing economies.”
Caputo Silva goes on to state that financial inclusion amid the Covid-19 pandemic was expected to accelerate, as fintech facilitates the remote provision of financial services. However, ‘fintech firms’ comprise of a wider taxonomy than initially anticipated, so closer scrutinisation of the effect of the pandemic on the market is required.
Looking at the data
As highlighted by Mary Emma Barton, research & analysis specialist, financial & monetary systems, World Economic Forum and Tania Ziegler, lead of global benchmarking, Cambridge Centre for Alternative Finance, assessment of the Global Covid-19 Fintech Market Rapid Assessment Study data found that:
The global fintech market is growing, but performance is uneven across verticals
Comparing H1 2019 with H1 2020:
- Total transaction volume for wealthtech has increased by 24%
- Total transaction volume for digital payments has increased by 21%
- Total transaction volume for digital lending has decreased by 8%
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The global fintech market is growing, but performance is uneven across markets
Comparing H1 2019 with H1 2020:
- Total transaction volume in MENA has increased by 40%
- Total transaction volume in Sub Saharan Africa has increased by 21%
- Total transaction volume in North America has increased by 21%
- Total transaction volume in the United Kingdom has decreased by 3%
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Fintechs from jurisdictions with more stringent Covid-19 lockdowns also reported slightly higher transaction volume and number of transactions
Comparing H1 2019 with H1 2020:
- Transaction volumes under low Covid-19 lockdown stringency increased by 9%
- Number of transactions under low Covid-19 lockdown stringency increased by 10%
- Transaction volumes under high Covid-19 lockdown stringency increased by 14%
- Number of transactions under high Covid-19 lockdown stringency increased by 15%
Some fintechs are willing to work with governments on Covid-19 relief measures, but uptake is limited to date
- 13% have implemented or acted as a delivery partner in government job retention measures
- 32% would be willing to implement or act as a delivery partner in government match-funding schemes
Fintechs indicated that they need more regulatory support particularly in e-KYC, CDD and remote onboarding
- 36% urgently need faster authorisation or licensing processes for new activities
Fintechs are facing operational challenges, especially in jurisdictions with higher lockdown stringency
Comparing H1 2019 with H1 2020:
- Platform downtime decreased by 3%
- Cybersecurity risk increased by 17%
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Fintech’s financial position has also been impacted by Covid-19
- Fiscal year 2020 turnover target in low Covid-19 lockdown stringency decreased by 8%
- Number of full-time equivalent employees in low Covid-19 lockdown stringency decreased by 19%
- Fiscal year 2020 turnover target in high Covid-19 lockdown stringency remained unchanged
- Number of full-time equivalent employees in high Covid-19 lockdown stringency increased by 10%
Dissecting the results
While there is a lot to be unpacked here, Ana Fiorella Carvajal, lead financial sector expert, World Bank Group, surmises that there are macro factors at play here. If particular regions have a high population of under 30s and demographic trends suggest that younger consumer groups prefer digital payments, it can be expected that in countries where incumbent banks have not been challenged and are continuing to charge high fees, a fintech revolution can flourish.
As a result, governments must also implement policies that encourage financial inclusion and push for adoption of fintech. Blythe Masters, industry partner at Motive Partners, states that while financial inclusion has traditionally been explored as an issue in the emerging or developing markets, “it is estimated that there remain about 55 million people, or approximately 22% of the population [in the United States] are either completely unbanked or underbanked.”
Considering the implications of Covid-19, Masters believes that the rapid acceleration of digital adoption will have two potential consequences: easier access to digital financial services and lowering costs or other barriers to entry, such as the need for high bandwidth internet. However, while the pandemic has accelerated digital adoption, what is clear is that post-Covid, this number of contactless transactions, use of digital wallets like Apple Pay or use of QR codes, for example, will not decrease substantially.
Further to this, referencing the increase in total transaction volume for wealthtech by 24%, she says that there has been “extraordinary progress” with the likes of Robinhood now seeing daily trading volumes driven primarily by retail investors that exceed the volumes of the traditional, public, incumbent brokerage firms. On the other side, with total transaction volume for digital lending falling by 8%, Masters adds that banks must shift from “higher value, lower volume” activities to “lower value, higher volume.”
Robert Wardrop, co-founder and director, CCAF posits that “the direction of travel is clear here” and echoes Fiorella Carvajal’s comments on support from regulators and how they must adapt to meet consumers’ shifting preferences, in light of Libra and the “horizontalisation of financial services.” However, can the underbanked rely on government?
Jon Frost, senior economist, innovation & the digital economy, Bank of International Settlements explains that while the pandemic has made it clear that financial inclusion is a problem all over the world, digital methods have not been used by governments to send payments to individuals; prepaid cards or paper cheques have been lost or stolen.
Fiorella Carvajal questions whether this was a missed opportunity for governments and fintechs alike, and highlights that while in some emerging markets, digital wallets were used, in advanced economies like the UK and US, “although later in the game, the governments are opening channels and allowing fintechs to be partners in the provision of lending.” She adds that it is not merely about lowering cost, fintech firms can help to speed up application processing.
However, the survey results did reveal that fintech firms are facing operational challenges, especially in jurisdictions with higher lockdown stringency with cybersecurity risk increasing by 17%. Wardrop sees this as a wider issue and states that the lack of financial literacy, or rather “technology literacy” or “digital financial services literacy” needs to be addressed.
The full report will be released this week.