Since the Coronavirus outbreak in Wuhan (China), COVID-19 has spread around the globe at an exponential rate and caused a global pandemic. So far, it has afflicted over 2,609,100 individuals and delivered heavy blows to nearly every industry. Like other sectors, the FinTech industry has also felt the effects of the virus.
Let’s take a look at the impact of the Coronavirus on FinTech and the new challenges and opportunities it has brought for this sector.
Fewer Transactions Affecting Payment Firms
The general hysteria, as well as state-wide lockdowns, have significantly reduced consumer spending. Flights have been canceled and most retail stores have also closed down. This has significantly reduced the revenues of FinTech companies in the payments sector. Popular examples include Square and Chime. These companies are unable to generate income in the form of fee collection.
Prominent multinational financial services corporations such as Visa and MasterCard have also informed their stakeholders about the impact of changing spending patterns on the profitability of these companies. These companies expect their revenues to drop by 2 to 4 percent because of the pandemic.
Bitcoin Experiences Price Fluctuations
The pandemic has brought on a great deal of economic uncertainty. As a result, cryptocurrencies like Bitcoin have seen a major fluctuation in their prices. The value of this cryptocurrency has gone as high as $9,000 but has fallen to $4,000 in the past month, as well.
With central banks like the US Federal Reserve planning to augment the money supply through artificial means, investors also expect the value of the dollar to fall. This can increase the demand for Bitcoin. The cryptocurrency is a decentralized asset and is immune to monetary measures such as quantitative easing. Cryptocurrency analysts believe this will cause another surge in the price of Bitcoin and lead to further volatility in the cryptocurrency market.
Contactless Payments Expected to Increase
Due to the nature of the novel Coronavirus, central banks have had to disinfect physical bills to limit the spread of the pandemic. This particular impact of the Coronavirus on Fintech signals a rising need for contactless payments. The World Health Organization has also directed central banks to introduce contactless payment systems and enable safe transactions.
This can propel further development in the FinTech industry and pave the way for digital innovation.
Revenues of Banking Institutions to Fall
Central banks in many countries have slashed interest rates to support local markets and curb recession. This will impact banking institutions as they earn fewer revenues through low interest margins. Other sources of revenue such as transaction fees will also see a decline.
As a result, we can expect banks to postpone investment decisions and make preparations for economic downturns instead.
Wrapping It Up
Like other industries and sectors, the impact of the Coronavirus on FinTech has been highly significant. While cryptocurrency enthusiasts and investors can rejoice over the rising demand for Bitcoin, other areas of FinTech have not been so lucky.
It remains to be seen how payment firms and banks will cope with the pandemic and its effects on consumer spending and the need for financing.