"Fintech regulations need to be addressed by governments, not with a restrictive purpose, but to foster competitiveness and innovation in the financial sector."
When was the last time you ordered food for home delivery and paid for it with cash? A while or maybe a long while, right. It is due to the UPI payment methods, which make paying online more convenient, secure, and hassle-free. It aligns with the above quote made by Mr. Carlos Fernandez, who is the Governor of the Banco Central del Paraguay. The quote proves why the banking sector needs to fight for a middle ground or risk irrelevance soon.
Fintech is the future of the financial sector. However, like any other sector or industry, even the fintech industry paused when the Covid-19 pandemic hit hard. Precisely, in the first five months of the pandemic, even though the pandemic kept most of the fintech activities on hold, it didn't suffer much during the Pandemic phase. As a result, while the impact was severe upon some sectors, others made a lot of profit and even set themselves up for long-term gains.
Fintechs During the Pandemic
It is evident that while there were some heavy losers during the pandemic, there were some massive gainers during the pandemic. We can classify them as the short-and long-term effects of the Covid-19 pandemic based on five parts of the fintech ecosystem.
Payments
Payments are the first and foremost important part of the fintech ecosystem. The short-term effects of the pandemic brought some payment companies to face existential challenges. The companies that, most likely, will fall under this category are from the travel, entertainment, restaurants, and event management industries. To avoid the critical situation, these companies will soon have to look for new sources of transaction volume to survive.
The long-term effect will see Ecommerce payment companies benefit at large from the changed consumer behavior caused by the pandemic. It won't be wrong to say that while the whole world suffered from the effects of the Covid-19, the e-commerce businesses boomed enormously as consumers are preferring enhanced personalisation in payment. But it did come at the expense of the short-term losses mentioned above.
Insurance
The pandemic's short-term effects on the insurance sector are a mixed bag as it mainly depends on the insurers' line of business. The P&C market (Property and Casualty) looks like the pandemic's downright casualty as auto claims decreased due to fewer people driving. The P&C startups will have a tough time recovering from their losses as their vulnerability has been exposed and hurt at large.
Its long-term effects will see digital business models emerge victorious as more and more distribution shifts towards direct and digital services. Instant underwriting and online purchasing capabilities will contribute towards the digital life insurance startups growth. However, it will depend upon how easily they can offer easier underwriting life insurance processes.
Banking and Lending
When it comes to the banking and lending part of the fintech ecosystem, there are mainly short-term effects caused by the pandemic. It is because big retail banks are short-term beneficiaries who can make profits through the Payment Protection Program (PPP) as it doesn't involve credit risk. Furthermore, loans are inevitable in this time of crisis that is causing a rapid rise in unemployment. It means as long as the banks can maintain a strong balance sheet, they will remain in a stable position. For it the big retail banks will have come with some innovation in banking.
The only long-term effect that we may see is a reduction in online consumer and business lenders. Although, there is a silver lining as it may lead to industry consolidation. Credit startups like ODX, Amount, and Powered by Upstart will find themselves in a more sustainable position with a cut interest rate and indefinitely halted withdrawals for investors.
Wealth & Capital Markets
With the market coasting along without a clear direction, the short-term effects in the wealth and capital markets have it tapping upon all available forms of cash facilities. For example, Robinhood went ahead and upped its brokerage valuation to $8.3 billion after raising a $280 million Series F led by Sequoia Capital. Also, firms struggling to maintain themselves are now getting scooped up at decreased valuations. It may lead to a more consolidated market where we can see more wealth and capital market startups shore up.
Here the long-term effect will see more companies and firms start adopting various hybrid Robo-advisory services to hold and increase their consumer bases in these difficult times. Also, consumers looking to save more have led to the demands for the centrally managed "autopilot" personal finance solutions.
Real Estate
Real estate was amongst the worst hit fintech industry as the pandemic brought the world to a standstill. The pandemic caused a short-term effect that led to restricted movements, and lending standards grew stiff in the freezing real estate market. Even the popular online real estate portals such as Zillow and Realtor.com suffered from the impacts of the pandemic. They witnessed fewer leads, with the website traffic reduced by 40% approximately. The short-term effects were so harsh that despite the historically low mortgage rates, many prospects struggled to secure financing owing to tightened credit requirements by the banks.
The long-term effect will accelerate digital processing capabilities as people will favor virtual and online experiences more to secure deals. Virtual agent services toolkit will see a rise, and demands for 3D staging location-based apps will be in more need. The same Zillow that suffered from the short-term effects has benefited tremendously after equipping itself with 3D staging capabilities as it secured around a 200% increase in 3D home tours.
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