Fintech Post-Crisis: The Role Of Innovation Versus Operational Resilience
The COVID-19 crisis has highlighted how rapid business response and the ability to quickly pivot have differentiated winners and losers across retail, telecom, supply chain and financial services.
Despite fast growth over the past decade, many financial services and fintech players may not survive the latest downturn because they’ve lost sight of a key business fundamental that’s crucial to sustaining a long-term competitive advantage: operational resilience.
The True Value Of Fintech
As a result of the pandemic, many fintech firms that have never experienced an economic downturn found themselves up against unprecedented market conditions and a dramatic shift in consumer behavior. While some fintech organizations are struggling to stay afloat, others have the unique opportunity to play the hero using new technology or business processes. Companies like OakNorth and Funding Circle in the U.K. have done exactly this, distributing loans and credit assessments utilizing their machine learning algorithms.
According to Rosenblatt Securities, the pandemic will reset fintech market valuations — prompting private fintech organizations with lower fixed costs to outperform and spark interest from investors as opposed to fintech that carry higher costs. As for public fintech organizations, after outperforming the S&P 500 and Nasdaq before the crisis, the FinTech Index is now underperforming by 7%. The flexibility of business models and their ability to adjust costs will determine which fintechs are able to survive the crisis.
Revealing Operational Weakness
The Paycheck Protection Program (PPP) — created to provide financial assistance to small businesses — resulted in a surge of applications that banks were unprepared to handle. As interest rates hit a record low, mortgage lenders saw a 12% surge in purchase applications, and refinance applications increased by 479%. Financial technology platforms were inundated with issues related to a significant spike in volume.
Seamless Digital Experiences Trump Face-To-Face Interactions
Before the pandemic, many businesses and consumers were satisfied with the status quo. Remember the rise and fall of Webvan in the dot-com era? Many concepts that didn’t initially take off, like grocery delivery, digital payments and curbside pickup, have recently seen dramatic increases in adoption. In March, e-commerce transactions increased by 23%, while grocery delivery apps Instacart, Shopt and Walmart Grocery saw their daily downloads increase by well over 100%. Digital wallet usage also surged past $1 billion in March.
So what does that mean for the future of payments, commerce and financial services?
• Ongoing Opportunities For Digital Innovators: Sean Healey of Wirecard predicts that the payments and commerce industries will see an increased interest in their innovative solutions even after the crisis subsides.
• Sustained Shift From Face-To-Face Interactions: 42% of consumers say they are using mobile banking more frequently and 12% of banking customers have enrolled in online or mobile banking for the first time since the pandemic.
• Continued Usage Of Electronic Payments: As cited above, digital payments have surged, with 30% of consumers trying contactless payments for the first time and 70% saying they will continue after the pandemic is over.
Companies that have performed well post-COVID-19 were able to rapidly support digital experiences. Toast, a restaurant management system, depended on in-person meetings and had to lay off half its staff in April. Contrast this with companies like Square Inc., which pivoted its services — implementing a pickup and delivery option for restaurant customers.
This article originally appeared on forbes.com To read the full article and see the images, click here.
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