How might FinTechs drive the economic recovery?

No-one was ready for COVID-19 – except, perhaps, the fintech sector.

Necessity is the mother of invention…As a result of the pandemic, digital solutions such as mobile wallets, blockchain or crypto currencies that likely would have taken years to be adopted on a mass scale are fast becoming the norm.

So while the health crisis may have been a perfect global storm, it was perfectly timed for the global growth journey of the fintech field.

A new appetite for fresh ways of doing business has effortlessly delivered it an enhanced user base.

Be it the growing worldwide demand for contactless payments, SME funding solutions or e-commerce, the prospect for fintech startups have rarely looked better.

It commonly takes over a week to complete a loan, whereas some challenger or neo banks like Monzo, Starling and Revolut are able to do this in just hours.

Demand for fintech innovation is set to continue apace with the accelerated drive towards digitization of financial services.

And the bankers of tomorrow will no longer be the men in suits. They will be the technologists who can enable the banking experiences their customers want to use in the new digital landscape.

Is 2021 the new 2008?

2021 is different from the 2008 crisis (which arguably gave birth to the fintech sector in its reimagining of traditional financial products by means of new and disruptive technologies).

This time it is not a banking crisis, but a crisis of the real economy.

Banks and financial institutions are now well capitalised and in a comparatively better state to weather the economic storm.

But COVID has transformed the way people live, work, and interact with one another. So there is little doubt that the global crisis will have a more profound impact on our societies and world economy than we can really know at the moment.

How can Fintechs drive the economic recovery?

The last decade has seen an overhaul of the payments sector with the introduction of the Payments and Services Directives, changes in investment products through the introduction of Markets in Financial Instruments Directives and new ways of handling privacy and data protection matters through General Data Protection Regulation.

And while these new rules have meant banks have needed to twist and turn to facilitate them, fintech has grown up with them.

The growth in e-commerce activity and cashless transactions is part of the shift towards a new digital financial landscape that should benefit the economy thanks to its accessibility and equitability.

Fintech firms that offer money management and budgeting tools, roboadvisors, Insurtech and Regtech, personalised digital credit and insurance products, blockchain enabled payments and digital currencies are certain to play a big part in the industry’s future.

Collaboration between legacy banks and fintechs continues to rise as strategic partnerships provide obvious symbiotic advantages.

Banks offer a well-defined and stable client base, investment budgets and the stamp of credibility to their fintech partners. Fintechs offer technology-first innovations that are adding new value to the core business lines of the bank.

In the coming year, we can expect digital payment and e-wallet services to boom, while fintechs offering digital identity, fraud protection and Know Your Customer (KYC) services will grow too.

According to recent research by EY, global fintech investment more than doubled during 2020.

In the current climate of 2021, fintech fundraising may be more difficult as investors tighten their belts. But competition over who can offer the fastest, most diverse and cost effective range of financial services has never been more keen.

And with digital finance and e-commerce solutions set to become ever more in demand, the opportunities for fintechs to play a leading role in the post-Covid recovery is clear.