Although the COVID-19 pandemic threw a wrench into life as we know it, the fintech industry is looking particularly resilient during these turbulent times, according to a recent report.
The global study – conducted by the Cambridge Centre for Alternative Finance, The World Bank and The World Economic Forum – shows that 12 out of 13 fintech sectors grew during the first half of 2020 compared to the first half of 2019. However, fintech companies are experiencing challenges with operations and fundraising.
Firms reported growth in transactions and volumes on average of 13% and 11% respectively, however, the overall growth was not even across sectors, geographies, economic development and COVID-19 stringency in a given location.
The industry sectors that experienced transaction volume growth over 20% year-on-year include digital savings, wealthtech, digital asset exchanges and digital payments. Areas that showed growth around 10% include digital banking, digital identity and regtech sectors.
However, not every sector in the fintech industry is thriving, the report shows. Digital lending was the only sector to report a decline during the first half of 2020, seeing an average 8% decrease in transaction volumes and a 6% decrease in the number of new loans issued. Additionally, fintechs facilitating digital lending saw a 9% increase in defaults on outstanding loans.
The pandemic has clearly disrupted the economy with lasting rippling effects for both businesses and consumers, Matthew Blake, head of financial and monetary systems, World Economic Forum, was quoted in the report as saying.
“Despite this challenging backdrop, fintechs have proven resilient and adaptable: contributing to pandemic relief efforts, adjusting operations and offerings to serve vulnerable market segments, like micro, small and medium-sized businesses, while posting year-over-year growth across most regions,” Blake added.
One of the factors that could play to the fintech industry’s strength is being able to adjust quickly to new conditions by rolling out new products. For instance, two-thirds of surveyed firms made two or more changes to their products or services because of coronavirus. Additionally, 30% of firms surveyed reported being in the processing of doing so.
At the same time, the report showed that not all is perfect in the land of fintech. In fact, many are having issues with fundraising and challenges with their operations.
Where fundraising is concerned, more than half of firms in the industry surveyed said their capital reserves were negatively impacted by COVID-19 and about 40% said that the pandemic had either a significant or slightly negative impact on their valuations.
“Whilst it is encouraging to see the growth reported by fintechs in the study, there are also cautionary indicators that some firms are suffering a deterioration in their financial position and are concerned over their ability to raise capital in the future,” said James Duddridge MP, the UK’s Minister for Africa at the foreign, commonwealth & development office. “This is something that the fintech community should be mindful of given the significant economic opportunities that fintech presents.”
Fintechs are also experiencing challenges with operations amid the pandemic. Fintech firms reported an 8% rise in onboarding expenses and an 11% increase in data storage expenditure.
The report gathered data from 1,385 fintech firms in 169 jurisdictions. The primary dataset used was collected through the Global Covid-19 FinTech Market Rapid Assessment Survey, an 18-question survey of which 7 were “compulsory,” according to the report.