19 March, 2020
Coronavirus & Fintech: A test for digital channels

As the economy heads for recession induced by the coronavirus pandemic, fintechs are bracing for a slowdown in investment. But could digital channels ultimately get a boost from the turmoil?

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By Fabiola Seminario

 

The coronavirus pandemic has left the whole world in airplane mode – and with no navigation details like flight time or destination.

Already many sectors have felt the blow of a lack of activity. Sports and entertainment events are canceled. The tourism sector is falling over due to the closure of borders. And social distancing is paralyzing the consumption of products and services.

The price of oil continues to fall; operations on Wall Street have been suspended, and trade is falling between China and Latin America.

While the governments of more than 150 countries are trying to flatten the growth curve of those infected with COVID-19 through various measures, the economy is entering a period of uncertainty, according to experts.

Yet in retail banking, we were already moving to a contactless world. The fact that fintech companies attracted investment of US $18 billion underscores that.

Despite the bleak outlook, the financial technology sector embraces many of the social distancing measures being promoted today and is well-placed for payments, transfers, e-commerce and more.

The coronavirus pandemic will accelerate the adoption by these segments (traditional banking) that do not have it as their main access channel yet,” says Oriol Ros, director of corporate development in Latinia, an investor in fintech projects and a developer of software for financial institutions in Spain and Latin America.

For Ros, the old mantra of looking at the crisis as an opportunity does not apply to the pandemic – rather the move to faster digital channels and disruptive solutions was already necessary.

There is no better way to force the adoption of digital channels than just simply closing the offices. Crises are an opportunity to accelerate adoption,” says Ros.

Time for fintech

In Spain, online commerce has shot up 138% since the crisis began.

For Ros, this development was obvious – and even more so when travel restrictions came into effect. In the case of banking, he explains, “it is necessary to bet on this (digital) sector because we do not know how long this situation will last.”

In the face of market uncertainty, fintech companies will be an essential tool for banks to navigate in the medium term, to gradually recover the confidence or trust of their clients and to help clients see that finances are easy to handle,” says Ros.

Although the pandemic may accelerate the adoption of new virtual channels, there is also talk of an investment freeze for early stage startups.

The Financial Brand argues that some early-stage fintech companies may need to close, as the coronavirus could affect venture capital financing for new companies, as well as existing ones.

Latinia has around a dozen active fintech investments, and knows the current investment risks. As a result, they prefer to look within rather than seek new investments.

We will have to prioritize which campaigns in our portfolio are having difficulties, before thinking about allocating fresh money to new fintech companies,” he explains.

Another of the COVID-19 effects for the sector would fall on credit and loan fintech companies, in the event that non-performing loan rates rise.

Demand is not going to stop growing – especially now that people are going to need more money circulating, but the problem is when the people stop paying,” says Ros.

Waiting for the storm to pass

César Cuevas, co-founder of Linxe, a Colombian lending fintech, says the impact of the coronavirus on the fintech sector should not be discouraging. Rather, he sees it as a “matter of time”.

It’s time. We are digital. [With a fintech] you don’t have to go to a bank, so it’s better. It may sound horrible today, but our product is much more advantageous. […]. The issue of foreign investors is likely to slow down a bit; therefore, it is a matter of time. There is no other impact than that,” says Cuevas.

For Javier Álvarez Wrobel, CEO of Wipei, a fintech in Argentina, the spread of coronavirus is also an opportunity to boost e-commerce.

We will start to see investment in the medium and long term again,” he says.

What do our readers say?

Iupana surveyed our readers the impact of COVID-19 on our market. Responses to the poll, which ran online between March 12 and March 17, were highly mixed. A third of respondents said the pandemic made them less optimistic about their business, while slightly more – 40% said it made them more optimistic. A quarter said it would have no impact.

 Results of survey carried out by iupana

Results of survey carried out by iupana

Here’s some of respondents’ comments:

“All economic indexes are going down, the dollar is going up, oil is going down and investors are taking their capital out of the country, there will undoubtedly be an economic recession.”

“The digital will displace the physical”

“It could increase the demand for digital purchases and certain types of insurance”

“The economic impact will be high for everyone and investments will slow down.”

“Transactions will be done through digital channels.”

“Country emergency closings, delayed investment, and lower demand for consumer goods will directly impact local/global economies and thus fintech companies.”

“I think coronavirus will affect LatAm digital banking and fintech by disrupting their focus, possibly affecting also efficiency/health and priorities of their businesses. Banks will get additionally affected due to structural changes in margins, balance sheet management and interest rate conditions, as well as potential issues on their quality of the loan/lending portfolio, as well as the effects form the impact on supply chain models in the corporate banking sector.”

Thank you to everyone who voted. Also: please take care. The WHO has declared this a pandemic. Please be sure to do everything you can to keep yourself, your family, your team and your community safe.

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