For close to a decade, innovation in digital payments has helped close the gaps and address the challenges faced by both consumers and small and medium-sized enterprises (SMEs). Spearheaded by Fintechs globally, the creation of effective, low-cost, customer-centric solutions, has made financial services more accessible and helped improve financial decision-making for all.
As a result of national quarantines during the current health situation, the Fintech sector has found itself at a crucial inflection point. The demand for virtual, 'contactless' interactions and 'digital-led' financial services continue to rise. SMEs, especially in the retail, food and beverages (F&B), and travel sectors, must now look to new ways to reach and transact with home-bound consumers that prefer digital payments over the use of cash.
Fresh Consumer Trends for a New Era
Despite restrictions on physical movement, fear of transmitting the virus has reduced the use of cash and accelerated the trend of digital payment apps. Interestingly, this has not impacted the flow of money; in fact, it has accelerated it. For instance, while traditional retail sales are declining, the e-commerce space has dynamically flourished. According to insights by Emarsys, there has been a 129% year-over-year growth in US and Canadian orders as of April 2020, and a 146% growth in all online retail orders. Online conversion rates have also increased by 8.8% in February, reflecting a level of shopping urgency typically seen during Cyber Mondays, according to QuantumMetric.
On the flip side, job and income losses have been among the economic symptoms of the crisis, affecting remittance payments in regions that rely heavily on such transactions. In April, World Bank projected the sharpest decline of global remittances in recent history, by about 20% this year due to the economic crisis. As consumers acquire a new pattern of behavior, discover new efficiencies, and adapt to a ''new normal'' of digital life, more are adopting digital platforms by necessity rather than curiosity.
Filling the Small Business Gap
Digital payments are becoming more secure, convenient, traceable, and, ultimately, more attractive — from contactless cards, e-wallets, payment apps to the rise of neobanks, how consumers and SMEs pay, and who they trust to look after their finances have greatly evolved. The new climate has generated new opportunities for the Fintech industry to help SMEs during difficult times.
Traditionally, SMEs have often struggled to access credit and secure loans from traditional financial players, such as banks. Add in other challenges like short-term cash flow problems and debt exposure concerns, and many SMEs are worryingly in the red. In addition, securing loans or credit has never been easy for them — the absence of a stable and profitable portfolio is still seen as a drawback by banks and financial institutions today. In the US, many small businesses across sectors came into this season with low financial resilience.
According to McKinsey's COVID-19 US Small and Medium-Size Business Financial Pulse Survey, close to a third were operating at a loss or breaking even prior to the crisis. The additional delays in payments induced by the situation have only aggravated this dearth of capital. While businesses may look to card-based payments to extend payment terms, the high transaction fees act as a deterrent for payers as well as beneficiaries.
Fintechs are developing innovative, user-friendly, and secure solutions. InstaReM's BizPay, for instance, is a corporate credit card-based funding solution that makes funds and credit more accessible to high-potential SMEs, even for those with below-average credit ratings and market standing.
As a result, SMEs are now realizing that they can meet their goals even in a post-pandemic world – whether it is to scale their business or to work with cross-border partners to extract powerful synergies and compete in international markets.
New Normal for Fintechs
The next question would then be, what is next for Fintechs? Pockets of the market like digital payment and e-wallet services are expected to boom, while players offering digital identity and Know Your Customer (KYC) services will likely be set to prosper, too. With so much heightened awareness of the importance of health and wellbeing, it is possible to see increasing links between Fintechs and healthcare, with customers looking for smart new solutions to safeguard and provide for themselves and their families.
Transparency has also become a new key success metric. Fintechs are known to provide low-cost contactless solutions – but there is a catch. The reliance is on the 'convenience' that digital financers provide, but oftentimes there are hidden costs that surface only after the transaction is made, or not at all, and money gets lost in between transactions. Transparency eliminates payment complexities and gains strong trust in Fintechs – trust that used to only be placed on traditional banks due to the legacy of their functional abilities.
The financial ecosystem definitely has exciting things in store. The long-term changes brought about by the health crisis will go down in history books as both unprecedented and far-reaching. However, evolution is part of the human experience, and Fintechs provide a perfect example of this by levelling the playing field and creating newer opportunities for growth in a world that has been irrevocably changed.
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