We believe that digital-only financial services will become more prevalent in the time of self-isolation, working from home and social distancing. As the COVID-19 pandemic is destroying the global economy, and shutters of banks are going down, businesses will be forced to look for Plan B – going digital.

On the surface, it may seem as though FinTechs are suffering just as much. However, FinTech is about bringing financial services into a digital world – the world where there’s limited in-person interaction.

In such crisis, users will be going online and making going-digital the new norm for everything. This could also be the time for FinTech start-ups to put in the extra effort to ease short-term pain, drive adoption and obtain trust from consumers.

But what are the opportunities and challenges for FinTechs in such crisis?

Recently, Finch Capital, an early-stage venture capital firm focusing on Southeast Asia and Europe, has published a report in the attempt to cover the different challenges and opportunities that the FinTech industry could face during, and after the COVID-19 crisis.

It is very likely that small FinTech companies will have to overcome many short-term challenges in order to survive in this crisis: from fundraising and cash management to marketing and staff management.

However, Radboud Vlaar, Managing Partner at Finch Capital, suggested that the crisis could create favourable environment for development and growth for most FinTech companies post-crisis if they are able to survive these tough times:

“2020 will be challenging for Fintechs to navigate, but there are better times ahead. Post-crisis, disruptive winners will “take all”, as we expect surging demand from financial services for technology to master digital-only interaction, enabled by artificial intelligence (AI) and Big Data analytics.”

At Finch Capital, the team believes that “Crisis Mode” will last until third quarter of 2020, where it will be followed by a 12 to 18-month growth and recovery period for Fintech industry. The firm predicts that an all-digital financial industry should the new norm, accelerating the trend which started in the previous decade.

In addition, the shift to digital-only will lead to a “Big Pocket” battle between traditional financial institutions and banking challengers to win the new online consumer.

However, there could be opportunities for growth for FinTechs as consumer and SME lending platforms will be the “best-adapting mechanism” to quickly and efficiently deliver loans to important segments of the economy.

The report also stated that financial institutions would reach out to tech firms rather than working with in-house solution providers in order to adopt digital transformation at a faster rate.

In response, it is likely that FinTech enablers will expect a boost in demand for Artificial Intelligence, Internet-of-Things and Software-as-a-Service during this period of pandemic. AI would be playing an important role in managing automation; from opening an account to automating loan approvals. Furthermore, there will be a need for e-KYC in response to the increase in volume of digital transactions.

However, Finch predicted that some parts of the FinTech ecosystem could struggle. For instance, challenger banks are going to face dangers associated with the huge valuations generated and high burn rates resulting in lower activity post-crisis.

In addition, wealth and asset management firms will be under pressure at this time due to “client de-risking and lower assets under management impacting their bottom line,” the report mentioned.

Similarly, payments and foreign exchange service providers will also experience obstacles such as “decreased transaction activity affecting commission businesses.”

What do we think?

We have to agree that Finch has said it right in most of the points mentioned here. However, we believe that there will be an increase in number of transactions in FinTechs providing payment services, and FX services in the form of remittance.

Earlier in March, World Health Organization (WHO) warned against the use of cash as hand-to-hand exchange of physical currency could transmit the coronavirus. As such, this crisis could be the catalyst to promote the use of digital payments.



Similarly, as the government in many countries start announcing mandatory self-isolation, many would face obstacles when transferring money abroad to loved ones during the COVID-19 pandemic. FinTechs offering remittance services will play a major role in tackling this issue. Therefore, we believe that it is unlikely these businesses are going to face decrease in transaction activity. However, only time could prove which is true.

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