When the Global COVID-19 Fintech Market Rapid Assessment
Study provided a snapshot of the fintech market’s performance during the first
six months of the global pandemic, the indications were that it had fared
pretty well.
All but one of the fintech verticals reported growth in the
first half of 2020 compared to the same period in 2019, with some sectors even
reporting a 21% year-on-year growth in transaction volume.
But after two years of lockdowns, vaccination programmes and
varying levels of governmental intervention, what impact has this had on the
fintech industry? And why is this important?
As a follow-up to the initial study, the Cambridge Centre
for Alternative Finance at the University of Cambridge Judge Business School,
the World Bank Group and the World Economic Forum have jointly published the
Global COVID-19 Fintech Market Impact & Industry Resilience Study.
Based on responses from 1,448 fintech firms, operating in
192 jurisdictions, the latest data shows that the fintech industry has been
more resilient than the initial study had shown, though its performance was
uneven across geographies and verticals.
Factors influencing fintech growth
Ultimately, all verticals except one grew at a faster pace
than initially reported in the Rapid Assessment Study, with retail-facing
fintech firms surveyed reporting an average increase of 47% in gross values
transacted. So what has been the catalyst for this growth against one of the
most difficult business environments in living memory?
First, it is important to acknowledge that the level of
development of the countries remains a key factor explaining growth. It was
observed that firms operating in advanced economies (AEs) still dominated in
terms of transaction volume and growth when compared to those in emerging
markets and developing economies (EMDEs). The only exception is digital
payments (the largest vertical by global transaction volume) where growth rates
were higher for firms in EMDEs.
In addition, the data suggests that the more stringent the
COVID-19 related lockdown measures applied, the faster the growth of fintech
firms, with respondents overall reporting higher increases in transaction
values. It also suggests that for retail facing firms, participation as
distribution partners of government relief programmes had also been an
important factor driving activities.
This bears testament to the capability of fintech firms to
utilize digital channels and instruments to deliver financial services, their agility
and nimbleness to rapidly pivot their businesses models and launch new products
and services.
A catalyst for increased financial inclusion
One of the keenest observations from the responses to the
study relates to the potential of fintech to contribute to greater financial
inclusion – a much-vaunted advantage that has been difficult to quantify
previously.
Although more is needed to understand the full impact of
fintech on financial inclusion, the study takes a first step in gathering
empirical data, revealing that a large proportion of the clients reported by
fintech firms are new customers and from groups that have traditionally faced
challenges to access financial services. These groups include women, low-income
households and small and medium-sized enterprises (SMEs).
Globally, for most of the retail-facing verticals observed
in the study, the proportion of low-income households and women clients served
was higher in EMDEs compared with AEs. Indeed, in many fintech verticals, the
proportion of low-income households and women exceeds more than 50% of total
clients served. For instance, digital payments firms report that the proportion
of low-income clients was 55% globally, and 73% when looking at those in EMDEs.
This ability to serve these groups better during a global
pandemic links back to the digital nature of the fintech delivery model, for
instance, via a mobile phone to reach unbanked and underbanked populations and
businesses and offering them more affordable products or services.
The impact of regulation on fintech
Another aspect that could have contributed to the
performance observed, was the availability of regulatory support. Generally
speaking, fintech firms felt that the regulatory responses during pandemic in
their respective jurisdictions was adequate, particularly in respect of
measures related to customer acquisition – such as support for remote
onboarding, standardization of cybersecurity measures and simplified customer
due-diligence.
However, fintech firms considered that there were many areas
where more support was needed. For instance, faster authorization or licensing
processes and less burdensome supervisory requirements were the key aspects
cited by firms as needing more support and streamlined processes.
And there were differences in satisfaction with the
regulatory support provided according to the level of economic development,
with firms in EMDEs reporting an overall lower level of satisfaction with
available regulatory support when compared to their peers in AEs.
This might suggest the need for regulatory authorities in
EMDEs to continue working towards the creation of an enabling regulatory
environment, striking a balance between the need to support financial
innovation and the need to address potential risks to consumers and/or
financial stability that these activities can pose.
COVID-19 and fintech operational health
From an operational resilience and financial health
perspective, fintechs perceive that their sector has adapted well to the
challenges presented by COVID-19, with firms reporting increases in revenue and
turnover across all verticals.
Although the study does not assess whether these increases
in turnover and revenue offset the reported increases in all costs (except
fixed costs), it does record that firms report higher valuations and capital
raising activities compared to their forecasts in the COVID-19 Rapid Assessment
Study.
Similarly, in keeping with highlights identified in the
previous study, fintechs have continued to prioritize making their platforms
more secure, with more than a third identifying the enhancement of
cybersecurity features and preventing fraud as the main changes to their
services in 2020.
These changes appear to be in response to risk assessments,
as these were the two most reported risks in 2019. The changes appear to have
been effective, as firms reported lower levels of these perceived risks.
Clearly there are still challenges for the fintech industry,
including closer relationships between firms and regulatory authorities –
particularly in EMDEs – but this study highlights the resiliency of the sector
during the COVID-19 pandemic.
It not only illustrates how fintech firms have risen to
unprecedented operational challenges, but also how they can play an important
role in the provision of financial services to key customer groups that have
traditionally faced challenges accessing such services. This resilience will be
essential to weathering additional stressors as current economic and
geopolitical uncertainties continue.
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