The growth of the worldwide FinTech market has been paramount. In 2019, the global FinTech market reached a value of USD 5504.13 Billion. Between the years 2020 and 2025, this value is forecasted to grow at a CAGR of 23.58%.
No doubt, the Covid-19 pandemic has caused substantial disruption leading to many forecasts being contested. Like other industries, the FinTech sector has been negatively disrupted, particularly in terms of investment. In 2020, the FinTech sector saw a 30% reduction in investment across the UK. Speaking in terms of numbers, in the second quarter of 2019, investments worth USD 1.2bn were made. In the same period of 2020, investments dropped to USD 760m.
Despite these figures, most FinTech exhibited resilience and an ability to manage financial crises. By combining high levels of equity financing, agile operations, and an acceptance of remote working trends, FinTechs have enabled themselves to withstand any disruption.
A Window of Opportunity and Innovation
Research conducted by Beauhurst in 2020 revealed that only 1% of FinTechs were critically affected by the pandemic, while 2% were severely affected. With working practices and customer trends changing in the Covid-19 era, many FinTechs experienced a surge in demand as their technology continues to change the landscape of the financial services industry. For example, the advent of digital financing has enabled a faster and more efficient approach to banks as compared to traditional methods. Even before the Covid-19 outbreak, it was evident that FinTechs would be playing a pivotal role in enhancing the financial services industry. Post-Pandemic, the process has undoubtedly accelerated.
Established financial institutions all around the globe have been forced to accelerate their plans for digitalization in order to meet new demands. With infrastructures needing improvement in this regard, digital solutions and automation has become a pressing priority. Fortunately, FinTechs are ready to deliver AI-powered, efficient and innovative solutions.
- From a Historical Point of View
Indeed, the FinTech industry is closely conservant with difficulties and crises. In fact, the FinTech wave primarily emerged as a mechanism of combating the chaos caused by the Global Financial Crisis of 2007-2008. As uncertainty breeds innovation, FinTechs were able to attract significant amounts of investment which resulted in revolutionary innovations. Covid-19 presents a similar opportunity for advancing this legacy to Digital Covid Pass.
FinTech-Enabled Financial Inclusion
As the global economy continues to recover from the Covid-19 pandemic, one particular field of interest for the FinTech industry is financial inclusion. A World Bank report states that currently, 1.7 billion unbanked adults exist worldwide, yet two-thirds of these individuals are in possession of a mobile phone that could assist them in accessing financial services.
By offering digital technologies, FinTechs are successfully taking advantage of this gap by integrating these people into the global financial system. This way, the social and economic impacts of the pandemic can be mitigated. Based on the findings by Deloitte, if FinTechs and financial institutions form a strategic partnership, numerous businesses and government sectors can assist the economically vulnerable populations by delivering basic financial services in a transparent and fairway.
FinTechs and Digital Financing
Digital finance is also positively impacting other sectors. Owing to the rising health concerns in this COVID-19 era, physical cash payments are deemed as less practical as exchanging money is linked with human-to-human transmission of the virus. This opens the door to the increasing popularity of e-wallets and digital payments. To back this up with numbers, a Mastercard survey revealed that 8 in 10 consumers prefer to use contactless payments over cash-based payments, and 74% claimed to continue using contactless payments post-pandemic as well.
Additionally, automated KYC (Know Your Customer) services are now crucial to counter the rise in cybercrime and digital frauds, especially as global economic and financial systems shift online. Security-conscious FinTechs are able to deliver on this end as well, by providing products that are integrated with cyber defenses.
Given the rising dependence on technology, financial institutions will be focusing more closely on digital transformation in the months and years ahead. Where previous efforts on technology integration were limited in scope, FIs are awakening to the reality that to deliver efficient and sustainable financial services, a more holistic approach to digital transformation has to be adopted, which involves efficiently utilizing FinTech.
Light at the End of the Tunnel
The current level of uncertainty has placed industries worldwide under economic distress, and FinTechs are no exception. However, many firms within the sector are already rising to the challenge and adjusting their products and services to meet the changing needs of customers. What’s more, given their capabilities of innovation and adaptability to new trends, many FinTechs are in a perfect position to not only survive the pandemic but also to continue contributing to society once the crisis is behind us. If history delivers any lessons for this unprecedented crisis, it is that uncertainty is an innovator’s friend.
Check out our blog here.