Analysis

COVID Continues: What are the Pandemic’s Lasting Effects on Fintech?

The COVID-19 pandemic paradigm shift will have a lasting effect on the fintech sphere.

After COVID-19 has held a grip on the world for most of this year, it’s hard not to see everything through the lens of the pandemic: in the industrial, technological, medical, educational and financial worlds–as well as in our personal lives–the pandemic has colored everything.

The virus has been around long enough at this point that while the emergency remains, the sense of urgency may have passed; COVID, unfortunately, has become an integral part of our lives, like a burglar who busted into the house a few months ago and decided to take up residence there–an uncomfortable and threatening presence that has become all-too-familiar.

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And indeed, we may only be at the beginning of the cycle of change that the pandemic has incurred, certain COVID-related changes already seem as though they may become permanent.

One of the sectors that were most deeply and quickly affected by the spread of COVID-19 was the fintech sphere.

Suddenly left without access to a number of the traditional financial services that they were used to, people around the globe turned to fintech platforms en masse: fintech platforms were relied upon to distribute loans, grant access to financial facilitate a large number of transactions that may have previously been conducted in cash, and many other things.

Additionally, the loss of income that many experienced as a result of the pandemic seemed to cause a wave of new users to seek out cryptocurrency and stock trading, as well as a number of other fintech-related methods of generating possible revenue.

Now that the fintech world–along with the rest of the world–has been living with the pandemic for several months, which changes are shaping up to be permanent? Or is it too early to say what the “new normal” is?

The wave of new fintech users that came when the pandemic began seems to have stuck

For Yoni Assia, chief executive of eToro, the answer to the latter question is “yes.”

“I think it is too early to talk about a new normal,” he said. “While we have seen some countries move out of lockdown, in others, the number of COVID cases continues to rise.”

“Similarly, while we have seen market volatility subside, many believe that there is more to come as the markets react to news such as the success of vaccine trials and the impact on jobless figures as government support comes to an end,” he continued.

Still, some of the trends that started as a result of the pandemic seem to be continuing: for one thing, the wave of new users that hit across fintech platforms seems to have led to a healthy crop of new fintech users.

“eToro has seen strong growth this year in terms of new registrants to our investment platform,” Yoni told Finance Magnates. “We saw 100% growth in H1 compared with the same time last year.”

Yoni explained that “part of this is driven by COVID as the pandemic induced market volatility has put markets and investments front-of-mind for many.

Yoni Assia, founder and CEO of eToro.

Yoni Assia also commented that some of the growth was “also driven by the launch of our zero commission stocks offering,” which “attracted more people to start investing in stocks as a key barrier to entry–cost–has been minimized.”

Additionally, “stock investments on eToro have quadrupled in H1 compared with last year.”

Similarly, Finance Magnates reported in June that other commission-free trading apps were had racked up new users by the ton, seemingly in large part because of COVID: Robinhood passed the 13-million user mark in May; site traffic on WeBull surged by roughly 294.12% from December to May.

Trending toward a cashless society?

Greater engagement with fintech companies on a business-to-customer (b2c) level seems to also have been reflected on a business-to-business (b2b) level in the fintech space, particularly when it comes to companies that have unique payments needs.

For example, Tom Gavin, chief executive of cannabis industry-focused payments company CannaTrac, told Finance Magnates that “as a cashless payment solution for cannabis companies, we have seen a huge demand for businesses looking to onboard with us during the pandemic.”

Tom explained that this particular kind of engagement is due to the fact that “many consumers are being more careful about using cash in an effort to avoid the virus and cannabis companies don’t have many reliable options, like the CannaCard, when it comes to cashless transactions.”

The trend away from cash payments isn’t just a trend in the cannabis industry; however, in fact, the trend away from cash was already underway when the pandemic began. Still, COVID does seem to have had a profoundly accelerating effect.

Tom Gavin, chief executive of cannabis industry fintech firm CannaTrac.

“The WHO recommended avoiding cash as much as possible in an effort to decrease the spread of the disease,” Tom Gavin continued, adding that “correspondingly, contactless payments have seen a huge increase in popularity.”

Indeed, Mastercard published findings in July 2020 that 51 percent of Americans are now using some form of contactless payment, including tap-to-go credit cards and mobile wallets like Apple Pay.

“Now that many consumers have seen the convenience that comes along with contactless payment methods, I think this popularity will persist, and demand for fintech companies to innovate cashless payment options will continue,” Tom explained.

Innovation has been spurred by pressing needs for change

Indeed, another aspect of the paradigm shift brought about by the COVID pandemic is a change to the rate of innovation within (and without) the fintech sphere.

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Indeed, companies who have had the resources to ride out the storm have often been forced to make decisions and build new products quickly, which seems to have accelerated the rate of innovation: “the pandemic has accelerated digital transformation,” eToro’s Yoni Assia told Finance Magnates.

Aditi Sharma, vice president of digital design at JPMorgan Chase, also told Finance Magnates that this innovation has largely been driven by customer needs and demand.

Specifically, “our users are looking for more clarity, control, and communication than ever before, especially after this crisis,” Aditi told Finance Magnates.

This is because “users tend to compare fintech to other experiences in their ecosystem—like how they order a pizza and can track how much time it takes, what process it goes through, and they can control how to pay or where to get it delivered.”

Aditi said that in the fintech space, this has materialized as a hunger for information: “[users] are concerned with the volatility of the market as well and thus like to proactively analyze and forecast market trends using machine learning models before they become financial risks.”

“They want to use intelligent, recommendation-based search (like when they shop online) to only work with relevant data,” Aditi said. “Time is a big factor to them, and thus they are trusting artificial intelligence more than ever before to streamline workflows by cutting down on redundant steps and pre-populating with relevant data.”

However, some innovation in fintech may be stunted by a lack of funding for new companies: CB Insights published findings this month that “fintech deals dropped in Q2’20, reflecting broader market uncertainty and potentially continued tough times ahead.”

Still, eToro’s Yoni Assia said that this kind of customer-driven innovation is key for the future: “one thing I do know is that the winners in the fintech space will be those companies who can successfully adapt to meet the evolving needs of their customers,” he said.

Remote work seems to be the new norm in fintech and beyond

Beyond fintech firms’ external operations with other companies and clients, there are also changes and innovations that continue to affect internal operations: specifically, the fact that many companies have made many of their employees’ roles remote.

In the fintech sphere, as well as beyond, an increasing number of companies have said that employees will have the option to make these changes permanently: for example, both Twitter and Facebook have announced that their workers will have the option to work from home if they so choose.

This is having a significant effect on the ways that companies operate. “We expect the impact of so many people working from home to have a lasting effect,” eToro’s Yoni Assia told Finance Magnates.

“It will bring the flexibility that many fintechs already offered to a far greater number of employees,” he continued. “While this has many benefits, it is not without its challenges, and it will be vital for us all to ensure that the changes are not to the detriment of our company culture.”

Thejo Kote, chief executive of San Francisco-based fintech startup Airbase, told Finance Magnates that for his company, the pandemic had reinforced the necessity for positive practices when it comes to remote work: “We were already a remote-first organization, and the pandemic has seen us even more fully embrace a remote work culture,” he said.

Thejo Kote, chief executive of San Francisco-based fintech startup Airbase.

“This includes committing to new software platforms, hiring from broader geographic locations, focusing on team-building exercises for remote teams, adjusting company values,” Kote added.

Remote work also means designing more accessible remote interactions with customers

However, a shift toward remote work has also affected the ways that employees of companies interact with companies’ customers.

JPMorgan Chase’ Aditi Sharma told Finance Magnates that for example, “as the finance industry makes this shift to complete remote models, we will need to establish trust with our users once again by making our interactions more conversational, providing support when they need using virtual assistants, and safe and secure document exchanges.”

This is an important consideration for customers who may be accustomed to in-person interactions with regards to their personal financial business: for these customers, maintaining a level of ‘human touch’ in their experience is essential.

Long before the pandemic began, a piece by Currencies Direct in that appeared in Global Banking and Finance said that “being able to pick up the phone and speak to a real person is an essential selling point for some consumers, so fintech firms should be prepared to cater for this” in order for them to “avoid becoming the soulless financial institutions they set out to beat.”

“[…] Ensuring that you offer at least some level of direct engagement and that you have a dedicated team to support customers when something goes wrong helps lead to a more seamless customer journey.”

With more customers relying on mobile and online banking services–as well as trading apps, digital wallets, and other fintech platforms–more than ever, fintech’s human aspect may be more important than ever; long after the pandemic has passed, digital human interaction could have a heightened level of importance.

What are your thoughts on the ways that COVID-19 has permanently affected the fintech industry? Let us know in the comments below.

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