Coronavirus Impact on Digital Payments Startups

Coronavirus is here, and it’s making a big impact on every aspect of business. From trade market swings to airline collapses, the economy of many industries is taking its toll and having major constraints. Whole worldwide especially in Europe, those living in Italy, Spain, Germany and France have been the most impacted so far and the situation is set to worsen. The indirect effects for startups have also been huge, but some businesses are faring better than others. While many struggle to operate amid travel turmoil, others are cashing in on the health crisis by supplying much-needed medical solutions. Some London founders even launched an entirely new startup (called Epiderm) this year to help track employee and visitor contact through check-ins and calendar analysis. Similarly, there are clearly dozens of sectors that will likely be impacted such as dating apps, concert booking apps, edtech, will-writing startups, fitness apps, remote working tools and recruiting startups and so on.

What about the sector of fintech?

Like everything else, it’s also likely to be under threat. There’s more to come from COVID-19 in the coming weeks where large and small fintech companies take a hit. Some could even benefit. Fintech firms globally also have already benefited from more flexible regulations in both emerging and mature countries as many efforts are being made to improve financial inclusion and serve a broader digital economy. According to a report from Ecosystm, there were five key trends that were expected to shape the Fintech market during 2020. The coronavirus pandemic could be devastating for many companies, but it's also shining a spotlight on the power of fintechs across the world. They seem to be responding to the sudden challenge effectively, though uncertainties lie ahead.

Negative Impacts of Consumer Spending

Fear, panic, and quarantine measure heavily impact consumer spending. Canceled flights, closed stores, and social distancing have resulted into a drop in transaction volume at all levels of the economy. This means FinTech firms in the payments sector like Paypal, PhonePe, Google Pay, Stripe, or Chime will collect fewer fees, negatively impacting their profitability and valuations. Hardware shortages could also impact firms like Square, that rely on digital devices to support transaction processing. It’s evident that large businesses are already feeling the heat with the coronavirus outbreak. Companies such as Mastercard and Visa have cut their predictions for revenue due to the scare. This is because many users of credit cards are unlikely to use it to purchase flights, which is one of the more common transactions for credit card use.

The impact of the coronavirus outbreak is impacting both financial markets and consumer behavior as never before. At least in the short term, there has been a significant flight to safer investments by consumers, which could negatively impact venture capital funding of existing and new fintech firms. Combined with investors concerned with higher funding costs, the volatile market could be a catalyst for lower valuations. This potential drying up of financing to non-traditional financial services firms could force many firms to find collaboration or investment partners from traditional banking organizations. Some early-stage fintech firms may need to shut down.

Chinese fintechs will likely face the worst negative impact from the virus. Funding for Chinese fintechs was already down in 2019, likely due in part to trade tensions between the US and China. In 2019, fintechs only secured $298 million, down from $1.8 billion during the same time the year before. Having originated in Wuhan, China, the coronavirus is making the country's economic outlook particularly uncertain, and more investors may shy away from the market as a result. That means Chinese fintechs might need to prepare for an even less funding-friendly environment in 2020 and shift their focus to a sustainable business model.

Positive Impacts

Whilst we’ve seen many negative impacts recorded in the fintech sector, there is a bright side in which some companies benefiting from. It’s encouraged many companies to adopt fintech for the purpose of their business. For example, the Banking and Insurance Regulatory Commissions company Ye Yanfei explained that blockchain is being utilised for medical data verification. Similarly, consumers desire for digital banking services will most likely increase, forcing many traditional financial institutions to fast-track digital innovation efforts. As a result, many legacy banks and credit unions may look to fintech firms or startups for assistance in bringing better digital banking solutions to the marketplace during this crisis. This increase in demand for digital solutions could provide a lifeline to fintech firms at a time when VC funding may not be an option.

In addition, weakening economies may force government organizations and regulators to stimulate the expansion of fintech solutions. For instance, South Korea is planning to temporarily ease regulations on fintech and ten other industries in March, in an attempt to jumpstart its economy amid the coronavirus outbreak. The World Health Organization has also encouraged contactless payments to contain the spread of COVID-19. Moreover, Google Trends shows a significant spike in the search requests regarding online loans which is a good news for many fintech firms.

Governments are appealing for Cashless Payment

Many countries are also encouraging the use of contactless payment to prevent the spreading of the virus any further from the exchanging of money. To ensure safety of citizens amid the coronavirus outbreak, the Reserve Bank of India (RBI) governor, Shaktikanta Das, asked customers to use digital banking facilities as far as possible. Das added, "In the context of COVID 19, RBI and the government together are giving emphasis on encouraging digital payments. And over a period of time, various measures have already been taken to establish safe, secure, stable and affordable retail payment system such as the National Electronic Fund Transfer (NEFT) and the Immediate Payment Service (IMPS)." In South Korea, where regulations were once considered rather strict in the fintech domain, they’re now willing to ease the regulations that they have. This is to lessen the impact of the virus spreading and having a larger impact on the economy.

Reserve Bank of India(RBI) has appealed people to use Contactless Payment 

It could boost demand for certain insurance types. The virus' dominance in headlines may increase awareness of insurance and boost demand for health and life coverage, as well as business interruption and event cancellation coverage. For instance, the outbreak has led to many conferences and events being cancelled at the last minute. At the same time, insurers are not supposed to pay over claims of this outbreak. Most travel insurers, for example, exclude pandemic, epidemic disease or infectious diseases from their coverages, meaning that likely only few will be affected by the virus. A report has revealed India has shown a moderate increase of 7 % when it comes to availing online financial services during this period of social distancing.


Also Read: How Hiring is Affected due to Coronavirus Outbreak?


21-day Lockdown to promote Digital Payment

India is currently going through a 21-day lockdown that was imposed by Narendra Modi-led central government, as part of its plan to battle the novel coronavirus COVID-19. Several prominent names in the Indian startup ecosystem have also been promoting digital payments. There are various digital payment channels people can use instead of transacting via cash. Digital payments channels include NEFT, IMPS, UPI, etc. Razorpay's report highlighted that UPI, internet banking and wallet payments have all grown in India because of quarantine and social distancing. Surprisingly, Delhi and Bengaluru have noted a decline in digital payment but this is just a matter of time. Soon, digital payment will see a boom across all cities due to lockdown. So, this is a good opportunity for all fintech firms and startups to flourish.

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About Varad Kitey

  • Pune
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