Someone recently asked how Fintech has managed to survive the economic pressures created by the Covid-19 pandemic. I thought it was a bit of an odd question as ‘survive’ implies a struggle, but for the Fintech sector – arguably more than any other global industry – the pandemic proved very prosperous. Until this year, whether you provided Fintech solutions to banks or were a B2B or B2C Fintech, the pandemic was very good for your business. There was a Fintech boom – and there are two reasons for that.
Firstly, global lockdowns meant that large sections of people were stuck at home for more time than usual. This resulted in a massive increase in people going online. Whether it was online shopping or online shopping, people had more time and arguably more money by spending less and, for some, even receiving government handouts. The pure and simple effect was digital commerce and online investment took off.
We estimate that beyond existing growth trends, the pandemic led to an increase of between 21-26% in the relative frequency of daily downloads of finance-related mobile applications. That roughly equates to a cumulative increase of more than 900 million app downloads that probably wouldn’t have happened without the pandemic.
The second reason for the Fintech boom is the almost risk-free opportunities it provided investors and traders. At the start of the pandemic, financial markets took an absolute hammering, falling into bear market territory in March 2020, with most markets losing at least 25% in a single week and unemployment in the US alone rising to 14.7% by April 2020, the highest since the Great Depression. In fact, the US economy, as measured by real inflation-adjusted GDP, shrank by about 32% in the second quarter. As a result, central banks around the world acted to reassure markets that they would do everything in their power to maintain market stability. This was led by the US Federal Reserve when it cut the target range for Fed Funds by 50bps and then another 1% to 0 – 0.25%, which was significant given that it had not moved rates lower by more than 25bps increments since the Great Depression. In addition, the Fed restarted its repurchase agreements worth $2 trillion along with an open asset purchase program to inject liquidity into the economy
With all the central bank intervention, the initial rapid sell-off became a huge buying opportunity across all asset classes as markets embarked on a prolonged rally supported by Fed stimulus, with statements it would underpin stability; they refused to let the pandemic destabilize markets and companies.
Now there is an argument that we are starting to suffer from that, but at the time the way the markets read the situation was that it was almost risk-free. That’s why the markets went on one of the longest bull runs in history.
And that’s also why, when I heard someone ask how Fintech “survived” the pandemic, it felt backwards. It has been quite the opposite; it’s been a race to the top and in our industry – whether you’re a robo-advisor, providing online access to your bank or an online broker – business has boomed. In addition, due to the amount of liquidity and low cost of raising capital caused by the pandemic, fintech startups benefited the most. They effortlessly received good valuations based only on the ability to acquire customers rather than on profitability.
