Fintech companies can differentiate and thrive
Businesses across the globe are exercising caution as the Covid-19 pandemic impacts economic activity, but fintech is one sector that appears to be bucking the trend.
At a time when venture capital is largely frozen, fintech companies that provide the online infrastructure behind financial and payment services are still attracting funding. U.S. fintech Stripe Inc, whose products enable companies to bill customers and accept payments online, recently raised $600 million in an extension of a Series G funding round. Fintech companies are also still recruiting, and are snapping up talent from other sectors, with David Morel, CEO of Tiger Recruitment, explaining fintech startups and businesses in the tech sector are seeing a surge in demand for services and therefore “have roles to fill.”
The favourable situation for fintech is explained by a couple of trends. First, behaviours that were already becoming established – such as the move to contactless payments and the shift to online banking – are being accelerated by the pandemic lockdown and attempts to stop the spread of the virus. Second, money is shifting in unexpected directions – from commercial loans and consumer credit to government relief programmes, funds needs to be moved quickly and securely to support consumer and business cash flow.
But these trends don’t mean it is all plain sailing for fintech companies. In a competitive market, providers still need to differentiate their products to ensure they are fulfilling a genuine need, and make smart use of marketing and PR to articulate the benefits of their offering. Here are some examples of areas in which fintech companies can add value throughout the pandemic and beyond.
Fintech enables simple online payments
The use of online payments has surged since the pandemic began, both because consumers are avoiding cash as a COVID-19 vector and as a consequence of ordering products online while physical stores are closed. While online payments have become increasingly common over the last twenty years, the pandemic is driving their use among consumer groups and businesses that were previously unable or unwilling to use them.
For this reason, businesses have to be more flexible about the methods of online payments they accept, and must make the process of executing an online payment as easy and frictionless as possible. This situation provides opportunities for fintech companies that enable software providers to include different payment options in their products, for instance, or those that can deliver faster and simpler payment services such as one-click checkout.
Fintech accelerates distribution of financial aid
Fintech companies are getting involved with government relief programmes alongside traditional financial institutions. In the U.S. the Small Business Administration (SBA) has already approved fintech lenders such as OnDeck, PayPal and Intuit to participate in the distribution of Paycheck Protection Program (PPP) loans, and digital bank Chime is piloting a way for users to receive federal $1,200 stimulus checks before the government sends the payments. The UK government is also starting to approve fintechs as Coronavirus Business Interruption Loan Scheme (CBILS) lenders, with Starling Bank and OakNorth Bank already approved.
Even when fintech companies aren’t approved to distribute government relief, they are developing inventive ways to get involved in the provision of assistance and financial advice. The UK’s Federation of Small Businesses (FSB) has partnered with banking platform Tide to launch the Coronavirus Government Support Eligibility Checker, which will help small businesses understand the financial help available to them and tell them how to access it.
Another UK-based fintech, Muse, offered interest-free loans to businesses awaiting furlough payments through the Coronavirus Job Retention Scheme (CJRS). In the U.S, Salary Finance has integrated fintech solution SpringFour into its financial services platforms to enable free, customisable referrals to the financially vulnerable. While fintech companies won’t necessarily see an immediate financial benefit from these initiatives, they will build their reputations as responsible and trustworthy providers, and will create strong customer relationships which will be invaluable in the future.
Fintech controls credit risk
With both businesses and individuals looking for credit lines to support them through these tough times, banks and online lenders need to be confident in their liquidity. They need to deliver credit to customers more quickly than usual while also maintaining the right capital ratios to remain solvent, which is complex in an environment where delinquencies are already rising and both business and personal loans are increasingly likely to go into default.
Fintech companies can help lenders to control credit risk through automated tools driven by advanced analytics and artificial intelligence (AI). These solutions can enable smarter credit decisions and reduce risk exposure, while also speeding up financial spreading and minimising loan approval times to get credit to those who need it. Lenders can use AI-based tools to regularly model complex financial scenarios, with multiple variables, to ensure credit loss reserves aren’t placed under too much pressure.
The fintech sector was already thriving prior to the Coronavirus outbreak, but with the pandemic accelerating behavioural change and necessitating unprecedented distribution of financial assistance, fintech companies have new opportunities to differentiate their offering and fulfil pressing customer needs.
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