How is the pandemic affecting global fintech? N'Gunu Tiny explains
N'Gunu Tiny, founder and executive chairman of the Emerald Group, is an expert in fintech, blockchain and innovative tech.
In just six short months, Covid-19 has impacted our world in fundamental ways. From a global shutdown in March 2020 to the emergence of what has to be called a ‘new normal’, nothing will be quite the same again for business and the economy.
This new normal involves a worldwide scramble for resources and data so that we can all better understand the overall picture. With a US election on the horizon, civil unrest in many other countries and Brexit facing the UK, even without the pandemic 2020 would have been a turbulent year. But what does it all really mean for global fintech and are there opportunities?
Global fintech sector is key to economic recovery
Productivity and economic recovery are in their early stages as the world faces the reality of an unprecedented economic downturn that will likely impact our collective stability for a long time to come. Short-term emergency recovery plans will keep things going on a week to week and month to month basis. But to truly understand how to thrive within a post-Covid business landscape, we need to look at the bigger picture.
Whatever happens over the next few months for businesses and individuals around the world, dependable financial services will be vital. Being able to provide innovative digital services means that fintech companies are in a relatively positive position to take advantage of opportunities.
Fintech companies must be prepared for an increase in demand for their products and services. But they must also be prepared to scale up their business and infrastructure to cope with the changes. All business sectors in every country will be doing the same, with cost cutting, digitisation and streamlining of processes and overheads the priority for most.
Fintech startups versus established financial institutions
While fintech startups are obviously more susceptible to short-term major disruption given their small size, their integrated flexibility also works in their favour. Fintechs start with a blank slate and can therefore develop workable, cutting-edge solutions without the need to migrate from legacy tech and systems. The technological and creative edge helps fintech start-ups to attract clients looking for a simple, easy-to-use, innovative digital solution.
On the reverse, established financial companies have found it difficult to move as fast as fintech startups. They’re slower to realise the need to adopt disruptive tech, and even slower to get round to changing their tech. This is because they are hemmed in by their legacy systems. Their monolithic and piecemeal It infrastructure and associated systems are generally firmly embedded and extremely difficult, expensive and time-consuming to change in any meaningful way.
This leads to large financial institutions acquiring small fintechs, rather than internally developing and altering systems. However, the large financial institutions that decide on acquisition as a digitisation strategy often fall at the next hurdle. They buy the company because they want to integrate the startup’s fintech systems, but this often fails due to incompatibility with their existing systems. Often this will result in spending more money on workarounds or adjustments that not only compromise the systems themselves, but also data security.
Covid-19 has forced major institutions to speed up their digitisation plans. Any businesses unable to offer the kind of online services demanded by customers during lockdown, for example, will not survive the pandemic. If large financial institutions don’t want to be left behind in the wake of another wave of fintech start-ups then they need to completely review the very foundation of their IT systems.
Consumers are increasingly happy to trust newer brands and fintech startups if it means they get a faster, better digital experience. The unflinching loyalty that financial institutions have enjoyed from consumers for decades is shifting fast. People are far less likely to have any demonstrable loyalty to a bank, financial institution or financial services in today’s ever-shifting world.
Speeding up the need for digitisation
As I’ve already mentioned, Covid-19 is pushing businesses towards digitisation in a way that has never happened before. There is simply no more time to prevaricate or plan for a distant digital future. In addition, the pandemic has shone a light on the fragility of IT infrastructure and the limitations under a steadily increasing level of demand.
Reduced service desk capability has also affected many businesses. It is now absolutely essential to be available 24/7 online across multiple platforms. Financial services that do not offer this will eventually fall by the wayside. Companies are now facing urgent and sustained demand for technological staff who have the knowledge and experience to answer technical queries and sort out customer problems.
This is leading to a rise in artificial intelligence (AI) and automated responses to technological issues. In short, the rise of automated assistance and technological support. Machine learning and AI are not susceptible to a virus, and do not need to quarantine. It’s likely that 2020 will be the key time for a fundamental shift in operations management for technology, where companies begin to hand over control to these kinds of solutions.
Fintech is much more than a ‘bubble’
Before Covid-19, there was some talk in the media about the ‘fintech bubble’, complete with predictions of a fall in the market. However, the pandemic has clearly shown just how integral fintech is to ensure the economy and businesses everywhere remain on their feet. Without peer-to-peer lending platforms and easy ways for both individuals and businesses to manage, borrow and deal with their finances, the pandemic would have caused even more havoc.
In the UK peer-to-peer lending platforms were used by the government to provide the urgent financial support needed for small businesses. This is how the country’s SMEs received the funds they needed throughout lockdown.
For the wider population there has been a marked shift away from using cash. This is down to the huge decline in face-to-face interactions, the rise in online purchasing and the risk of contagion from coins and banknotes. Again, fintech has filled this gap and been able to increase people’s use of cashless transactions across multiple platforms.
Fintech is, without question, one of the few industries that has space and opportunity in this extremely uncertain time. I think we’re likely to see more evidence of this as the smoke clears from lockdown, and as the global economy begins to right itself.