Fresh From the Oven: The Global COVID-19 Fintech Market Impact and Industry Resilience Study
The wait is over!
The Global COVID-19 Fintech Market Impact and Industry Resilience Study, published by Cambridge Centre for Alternative Finance, Cambridge Judge Business School -CCAF-, World Bank Group, and World Economic Forum and supported by Contextual Solutions and European Innovation Bridge, is finally out.
The Global Covid-19 Fintech Market Impact and Industry Resiliency Study provide insights into the medium- the to-longer-term impact of the pandemic on the financial technology (fintech) industry, and the survey underlying the study captured a total of 1,448 fintech firms headquartered in 105 jurisdictions and operating in 192 countries.
The study took almost two years, analyzing thousands of data points diligently and revealing the impacts of the pandemic on the FinTech sector.
Although we are facing unclarity regarding the months to come, it already feels like the pandemic is over; therefore, there is a general tendency to pretend that it never existed in the first place. However, since this is also the summer that we see the (positive and negative) impacts of the pandemic clearly, we should look into how we handled the crisis and whether we made the most out of the wave of digitization that followed afterward. Thus, the Global COVID-19 Fintech Market Impact and Industry Resilience Study is and will remain a critical reference point for the fintech sector and must be studied carefully before "the history repeats itself," considering the ongoing war and the economic hardships that await us all.
We are glad to take place in such an important empirical study, capturing the changes the fintech sector underwent during the pandemic and analyzing the FinTech start-ups' responses to the global crisis.
Let's take a look at the essential findings and conclusions.
Fintech in times of the pandemic
According to the study, the fintech ecosystem has grown despite the challenges of the pandemic. From 2019 to 2020, transaction values of retail-facing fintech platforms increased by 47%, reporting USD357.77 billion in 2019 and USD526.21 billion in 2020. In addition, digital payments and digital lending firms remained the top two verticals in terms of transaction value in 2020. This performance was topped up by crypto exchanges, which reported a growth of over 800% in their annual transaction value, which seems to reflect the increased interest of investors in this emerging asset class.
In tandem with their growth, FinTechs reported significant operational challenges and increases in risks.
Firms reported an increase in all costs, the only exception being fixed costs (associated with office or other physical workspaces). For all fintechs, the highest increases were in R&D costs, followed closely by cybersecurity and data storage costs. The increase in data storage costs is more elevated than FinTechs had anticipated in The Rapid Assessment Study, while customer onboarding costs remained the same.
Firms in jurisdictions with more stringent lockdown measures reported faster growth.
Overall, firms reported a higher increase in operational challenges, such as unsuccessful transactions and agency downtime, with platform downtime declining slightly.
Fintech firms responded to Covid-19 by changing their existing terms, products, and service agreements. Of the surveyed firms, 89% reported making two or more changes to their current products or services.
In most cases, these changes continued throughout 2020 or were permanently adopted.
Overall, more than one-third of fintechs prioritized enhancing cybersecurity features and fraud prevention in 2020.
Globally, nearly 18% of respondent fintech firms used Covid-19 relief schemes in 2020.
In general, fintechs reported an increase in operational challenges, which may be related to the rise in consumer demand for digitized services because of lockdown measures. In particular, partner downtime and unsuccessful transactions rose as stringency levels increased from low to high.
Fintech Monetization and Profitability
The study reveals that globally, FinTech firms noted substantial increases in their revenue and fiscal year turnover compared to 2019, exceeding their turnover targets for 2020. In addition, market provisioning firms reported higher gains in both growth indicators than retail-facing firms.
Specifically, InsurTech firms reported an increase of 22% in both fiscal year revenue and turnover in 2020 compared to 2019. Digital capital-raising platforms reported an increase in both revenue and fiscal year turnover (29% and 30%, respectively) in 2020 compared to 2019, with non-investment-based firms reporting slightly less growth than investment-based firms. The panel of digital payment firms also reported increases in revenue and turnover. Firms indicated a rise of 22% in revenue and 21% in fiscal year turnover in 2020 compared to 2019. All in all, the increase in turnover far exceeded expectations.
Fintech Vertical Snapshots
Lending: The global digital lending landscape experienced an increase in total loan origination from 2019 to 2020. Overall, digital lending platforms reported that 47% of their borrowers were from low-income populations, 39% were women, and 46% could be categorized as new or first-time borrowers.
Digital Lending: Despite the pandemic, most digital lending models grew in 2020 overall. Only a few of the smallest business models reported decreases. The P2P/marketplace consumer lending model remained the largest business model globally, predominantly in APAC, Europe, North America, and SSA, and continued to lead global transaction values.
Payments: The P2P/marketplace consumer lending model remained the largest business model globally, predominantly in APAC, Europe, North America, and SSA, and continued to lead global transaction values. When considering the types of changes to pricing, service agreements, or policies related to their product offerings, digital payment firms reported that their top changes were enhanced fraud-prevention measures, enhanced cybersecurity features, changes to transfer or payment limits, and deploying additional channels. Firms also prioritized changing their product offerings to create additional revenue streams and improve customer experience, such as introducing value-added non-financial services.
InsurTech: Looking at the changes to pricing, service agreements, and policies made by insurtech firms due to Covid-19, the key priority for firms was safety, with the top changes being enhancing fraud-prevention measures and cybersecurity features. The most prioritized product that insurtech platforms introduced was enhanced benefits or additional coverage. This was followed by the introduction of insurance products related to COVID-19.
Digital Assets: In 2020, most retail-facing fintech firms (65%) increased their use of digital assets, especially electronic money. All respondents from the exchange services and digital custody fintech verticals used digital assets, particularly native crypto assets and e-money. Both the exchange services and digital custody verticals reported more than 800% growth in 2020 from 2019 in absolute transaction value delivered to end-users.
Despite operational challenges and increases in expenditure, fintech firms perceive the sector to be relatively resilient.
Click this link to access the 198-page report.
You can also read the executive summary in Turkish via Fintech Istanbul Blog.
