ICT Clinic (Punch Newspaper)

COVID-19 and the future of fintech [ICT Clinic]

The COVID-19 pandemic has mounted huge pressure on the global banking systems, which simply means winners and losers will emerge from both traditional banking organisations and fintechs.

Much focus has been centered on the impact of the pandemic on the traditional banking system, however, the impact of COVID-19 on the fintech ecosystem cannot be waved aside. From all indications, there has been a reduction in the level of funding, a significant drop in the creation of new fintech platforms as well as a reduction in the revenue of many firms.

Despite being in a better position for the future of work in terms of its digital transformation, fintech organisations appear to be more vulnerable in this case. Compared to the traditional banking system, a good number of fintech organisations have not been here for long and not even all the existing ones are indicating operational profitability.

Mostly, fintech firms have depended on investors for funding. This, I can quite say is not close to a guarantee in the future considering how revenue has significantly dropped since the inception of the pandemic.

A survey conducted around March 2020 on more than 1,000 tech start-ups (fintech inclusive), across the world by Startup Genome indicated that more than 40 per cent lack sufficient capital to last them till July 2020 and about 75 per cent of them will not have sufficient capital to last them past the month of September 2020.

Compared to many businesses, fintech firms are in high competition for a limited pool of resources. From relief packages coming from the government to Venture Capital funding, tough decisions need to be made to save employees for them to continue in operations, going forward. Looking beyond fund inflows, other alternatives to try out can include partnerships with the traditional banking system.

Despite these uncertainties around fintechs, it should be noted that some level of funding has not stopped flowing into major established fintech companies that have attained unicorn status, with all indications and projections of growth.

Some big fintech organisations, most especially, the ones in the unsecured lending sector and cross-border payments may, however, just find it difficult, to secure funding, due to the market circumstances created, by COVID-19.

Asides their age, financial predicament and scalability, the operations of many fintech firms will be driven, by the product class they belong to. This is not even far-fetched any longer as in the future, the impact of COVID-19 on consumer behaviour will take the shine.

Reports have it that fintechs are not immune to the negative impact of COVID-19. This will affect fintechs that are into small business lending, international payments, secured and unsecured consumer lending as risks of funding in these fintechs would be extremely high. Fintech organisations with operations based on Business-to-Business banking are, however, less prone to risk.

Some traditional banks and fintech firms do share the same product categories nevertheless, the small non-traditional organisations may not — Finish Reading on the Punch

About the author

Chukwuemeka Fred Agbata Jnr

CFA hosts Tech Trends on Channels Television, writes the ICT Column in the Punch Newspapers & also blogs on cfagbata.com.

CFA currently serves as the African Regional Director of Founder Institute.

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