Beyond Covid-19
Fintech’s Accelerated growth during the pandemic.
The fintech market has continued to help expand access to financial services during the COVID-19 pandemic — specially in emerging markets — with growth in digital financial services except lending, according to a joint study by the World Bank, the Cambridge Centre for Alternative Finance at the University of Cambridge’s Judge Business School, and World Economic Forum.
Access to affordable financial services has been critical for poverty reduction and economic growth. For poor people, especially women, access to and use of basic financial services can raise incomes, increase resilience, and improve their lives. Fintech innovations are certainly helping reduce the cost of providing services, making it possible to reach more people, and reducing the need for face-to-face interactions, essential for keeping up economic activity during the pandemic.
“Fintech has shown its potential to close gaps in the delivery of financial services to households and firms in emerging markets and developing economies,” said Caroline Freund, World Bank Global Director for Finance, Competitiveness and Innovation. “This survey shows how the fintech industry is adapting to the pandemic and offers insights for regulators and policymakers seeking to promote innovation and reap the benefits of fintech, while managing risks to consumers, investors, financial stability, and integrity.”
“This study reveals a global FinTech industry that has been largely resilient in spite of COVID-19. Nonetheless, its growth must be interpreted with nuance and in the context of unevenness, and the opportunities for the industry should be juxtaposed with the challenges it faces.” says Bryan Zhang, Co-Founder and Executive Director of the Cambridge Centre for Alternative Finance.
“It’s clear COVID-19 has disrupted the global economy with lasting implications for corporations and consumers,” says Matthew Blake, Head of Financial and Monetary Systems, World Economic Forum. “Despite this challenging backdrop, FinTechs have proven resilient and adaptable: contributing to pandemic relief efforts, adjusting operations and offerings to serve vulnerable market segments, like micro, small and medium-sized businesses, while posting year-over-year growth across most regions.”
“Covid-19 is accelerating change in how people interact with financial services, which has led to unprecedented demand from developing countries to progress their transition to secure and inclusive digital finance. Whilst it is encouraging to see the growth reported by FinTechs in the study, there are also cautionary indicators that some firms are suffering a deterioration in their financial position and are concerned over their ability to raise capital in the future. This is something that the FinTech community should be mindful of given the significant economic opportunities that FinTech presents,” says James Duddridge MP, the UK’s Minister for Africa at the Foreign, Commonwealth & Development Office (FCDO). “
The study, which gathered data from 1,385 FinTech firms in 169 jurisdictions from mid-June to mid-August, showed most types of FinTech firms reporting strong growth for the first half of 2020 compared to the same period in 2019, which was prior to the pandemic. On average, firms in areas including digital asset exchanges, payments, savings, and wealth management reported growth in transaction numbers and volumes of 13 percent and 11 percent, respectively. Digital lending slumped eight percent by volume of transactions, while also suffering a nine percent jump in outstanding loan defaults.
Regionally, the Middle East and North Africa saw strongest growth, up 40 percent, sub-Saharan Africa and North America, both up 21 percent. In general, emerging markets and developing countries experienced faster growth than developed markets.
However, firms also reported some operational and funding challenges during the pandemic. Two-thirds of firms said they had changed their business model in response, including by reducing fees, changing qualification criteria, and easing payment requirements. About 60 percent reported launching new products and value-added services, such as offering information. Forty percent of firms surveyed indicated that they have either introduced or are in the process of introducing enhanced fraud or security measures as a response to business conditions under the pandemic. Other operational challenges reported by firms included more agent or partner downtime and increases in unsuccessful transactions and access requests. Further, fintech firms reported increases in expenses for onboarding and data storage.
Despite the fact that the pandemic shows signs of slowing due to increased vaccination rates (at time of writing, more than 1.98 billion vaccines have been administered) we expect that the trend of online purchasing will continue to grow. Now that many firms have updated their business models to accommodate buyers during the pandemic, they have valuable knowledge about how those alterations can continue to allow spending to trend upward in the future. It remains to be seen whether businesses will keep these changes in place post-pandemic, but this data shows that there is value in offering alternative services.
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