April 12, 2021
Pivoting and Partner: How Fintechs Can Successfully Navigate the Pandemic
Economic conditions may be challenging, but fintechs can draw hope right now from accelerated adoption of digital channels during the pandemic. Forty two percent of consumer respondents called mobile banking apps their primary banking solution in one survey conducted after the pandemic’s onset. In the post-COVID world, digital tools and services will only be further cemented in customers’ financial lives.
To navigate the current climate and emerge successful, fintechs must leverage their inherent agility. Some fintech segments have better short- and long-term prospects than others. More challenged segments will feel pressure to pivot to new offerings or business models. Those in brighter segments may well find opportunities to reach new customers and expand market share as conditions evolve.
Fintechs can leverage partnerships with other organizations — including traditional financial services providers, government bodies, and other fintechs and technology providers — to pivot to new opportunities. Venture funding in fintech is stuck in a holding pattern, according to data from CB Insights. As investors wait to see how events unfold, most significant funding rounds are being raised by larger, more mature fintechs like Stripe and Robinhood.
With funding limited, forming new relationships with more established organizations will help fintechs pursue new opportunities. In today’s fast-changing and uncertain circumstances, those more established organizations should be enthusiastic to partner with agile startups that possess innovative assets.
The pandemic’s impact on different fintech segments will determine the need to execute new pivots and partnerships. Here’s how different segments are faring:
Payments and e-commerce: Fintechs facilitating in-store payments were devastated by the COVID-19 lockdowns. Square’s card present volume fell 60% in the final two weeks of March as the pandemic took hold, per CB Insights. It pivoted to distributing PPP loans leveraging all of its data on its merchants’ businesses. With no certainty of when in-store commerce will return to pre-pandemic levels, fintechs in this area will need to keep searching for new opportunities. Conversely, those enabling e-commerce have been boosted by the spike in online shopping. PayPal’s payments volume jumped 22% in April, CB Insights reported.
Challenger banks: With transaction volume declining, challenger banks have been exploring new opportunities to replace transaction-based revenue. Moven is selling off its consumer offering to focus exclusively on building digital solutions for other banks, while Chime rolled out an advanced payments feature for recipients of government aid programs during the crisis.
Online lending: Loan volumes for online lending platforms collapsed amid the pandemic. LendingClub’s loan origination volume dropped 90% in this year’s second quarter, according to CB Insights. Additionally, the historical data and models lenders used for credit decisioning may have been disrupted by recent unprecedented events. However, if they can update these assets and keep them relevant during the pandemic, fintech lenders could pivot to licensing technology to banks. Numerated, which provides digital lending solutions for banks, reported seeing heightened interest for its offerings amid the pandemic.
Digital banking and regtech: These two segments will continue to enjoy high demand for digital banking and compliance solutions. The growth in online and mobile banking, along with desire for cost efficiency in the face of lower economic activity, will bolster banks’ appetites for working with fintechs in these areas. One survey over the summer found that nearly half (43%) of banks plan to increase their investment in regtech over the next 12 months.
Robo-advisors: Consumer savings have grown substantially since March. Though consumers may invest cautiously in the near-term, providers could take advantage of the opportunity to broaden their offerings to new products and services. Betterment added checking and savings products for customers in April through partnerships with several banks. This could position robo-advisors to offer general financial advice beyond investing at a challenging time for many consumers.
Fintechs could engage a diverse array of partners to pursue new opportunities. As already mentioned, many traditional financial institutions will likely engage fintechs to help them digitize processes and offerings. Other examples could include:
- Working with government organizations to distribute funds from government aid programs, as Square and other fintechs did with PPP loans.
- Integrating payments and other financial services with healthcare organizations that increasingly interact with patients remotely.
- Partnering with retailers to accelerate their shift to online and mobile commerce, and potentially offer financial services themselves as Amazon and Walmart have for years.
- Working with Big Tech companies as they push further into financial services, as evidenced by Google’s plans to launch mobile checking accounts.
Legacy banks and enterprises in other industries should know that the pandemic won’t sweep fintechs away — it will instead afford them opportunities for growth. The aforementioned MX survey found that 71% of consumers already use products and services from fintech — and 39% said the pandemic has made them more willing to use financial services from fintechs. Fintechs and the organizations that partner with them could position themselves for new growth even in the face of today’s uncertainty.
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