Fintechs Have Seen Growth, But the Pandemic Was an Accelerator, Not the Cause

GDS Modellica

15/09/2022

It has been commented on numerous occasions that certain markets have benefitted from the pandemic. In particular, it has been noted that the pandemic served to accelerate changes that were already well underway. As more measures were adopted to contain the spread of the virus, this had the knock-on effect of bringing about transformations that would have otherwise taken years or even decades to materialise.

In our last article, we took a look at the executive summary of The Global Covid-19 Fintech Market Impact and Industry Resilience Study by the World Economic Forum (WEF). Today, we want to go into a little more detail on the section dedicated to the direct impact of lockdown measures on the fintech economy, as well as the “relief measures” adopted by most countries around the world. Looking at both sets of indicators together, it is clear to see that the pandemic accelerated change, but it was not the prime mover. The fintech market certainly benefitted from the COVID-19 pandemic, but there is far from a direct relationship between the transformations that have occurred and the spread of the virus.

In those countries with less stringent lockdown measures, the fintech industry grew some 30% more in 2020 than in 2019, with the total value of transactions reaching $32 billion compared with $25 billion the previous year. These figures still remain small in comparison to those seen in countries with more intermediate lockdown measures, where the total value increased from $41 billion to $75 billion, an increase of 81%. And in the majority of countries, where measures were much stricter, the increase seen was proportionally less (66%) but was undeniably large in absolute terms, growing from $288 billion in 2019 to $478 billion in 2020.

Presented this way, it would be very easy to draw two erroneous conclusions from these figures. Firstly, one might conclude from the volume of transactions in 2019 that the toughest restrictions were applied by countries with a more developed fintech ecosystem. After all, previous total transaction values were $25 billion in less-strict countries, $41 billion in intermediate countries, and $288 billion in those countries with the toughest measures. However, this is not the case. It is simply that the majority of countries in the world opted for stringent measures, and therefore the total value of fintech transactions in these countries was greater.

The second false conclusion that one might draw would be that the fintech ecosystem should be grateful for these lockdown measures. But nothing could be further from the truth. The increases in revenue and profits seen in each of these three sets of countries are practically the same: 22% and 27% respectively in countries with less stringent measures; 24% and 30% for countries with intermediate measures; and 25% and 32% in the case of stricter countries. What this tells us is that, whilst those countries that implemented more stringent measures did see improved performance, the figures cannot be said to be statistically significant enough to draw a direct relationship. Once again, we can see that the COVID-19 pandemic is far from the principal cause of the growth that has been observed.

The impact of restrictions is considerably more notable when looking at full-time employment. Whilst fintechs in stricter jurisdictions grew around 14%, the same measure in countries with more lax measures grew just 6%. And this is observed despite the fact that the number of unsuccessful transactions was significantly greater in those countries with tougher restrictions (8%) compared to less strict countries (1%). In other words, despite having to deal with more uncertainty and greater vulnerability, fintech verticals generated more wealth in countries with tougher restrictions.

In any case, the acceleration of changes that could be of potential benefit to the fintech ecosystem is balanced out by participation in COVID-19 relief measures. The most recent day shows significant levels of participation compared to initial estimates (WEF Rapid Assessment in 2020), to the point that 20% of companies in the sector were playing an active role to make sure that support reached both SMEs and private individuals. Digital payment firms, digital lenders and insurtech companies were amongst those that most actively participated.

Another significant insight is the fact that three-quarters of companies participating in these relief measures claim to have needed to adjust their products or processes, particularly with respect to pricing and eligibility criteria. In most cases, these changes were reportedly positive as 6 in every 10 companies claimed that they have enabled them to achieve greater profits. Indeed, looking at the big picture, all companies that participated in the relief measures reported better results than competitors who did not take part.

This is merely a summary of a couple of chapters from the more than 51 that the WEF report contains (plus more than 14 appendices), but it is further evidence of what we have mentioned many times here at GDS Modellica: the pandemic has accelerated change, but these changes were already taking place in both the economy and society as a whole. Although no one in their right mind should be rejoicing in this fact, we can at least take comfort from the fact that, even in the worst moments, there are positive opportunities to be seized.