How will coronavirus impact the fintech industry?

Fintechs have been good in keeping their momentum in the last few months, yet the recent global outbreak of covid-19, which made an unexpected hit on the global economy, has interrupted the success of the industry’s participants.

A little more than a week ago, Revolut, the British banking services provider, raised $500 million in a single funding round, reaching a company valuation of $5.5 billion. At the same time, a digital bank Monzo and a digital money transfer company Monese have each raised about $100 million, while Jumo, a South African personal finance startup has raised $55 million.

This shows that there is a lot of money circulating in the fintech sector and a lot of people willing to invest in the new developments, which has been pushing the valuations of companies operating in the industry higher than before. A CB Insights report suggests that 2019 has been a record year for fintechs, mainly due to the amount of funding they received from institutional and private investors, as well as venture capital.

But this was all prior to the outbreak of the global pandemic that has already had a disastrous effect on financial markets. According to experts, the fintech industry is already beginning to suffer significant losses. Let’s look closer into the ways coronavirus will contribute to the latter.

The number of travelers worldwide has decreased dramatically, due to the movement restrictions in certain states and strong encouragement to remain at home in others. This has created a negative dynamic in the cross-border transactional business of Visa and MasterCard. The companies have issued a warning to the investors, suggesting an expected fall in sales volume up to 4% in the current quarter. However, Forbes data shows that only in the last two weeks their stocks have dropped by 12%.

Most importantly, with pretty much entire populations of countries across continents staying at home, the types of transactions that fintechs are banking on will go down. This means that users will no longer be going out to have meals at restaurants and will be less careful with purchases, focusing on the necessities. Therefore, payment companies, such as Stripe and Square, which make money on fractions of transaction fees, will receive less income. Same is true for digital banks that profit from interchange fees in debit card transactions. Investment apps, like Wealthfront and Betterment, will be hit as well, as they depend on the stock transactions of customers that are currently decreasing due to predominant volatility.

Currently, no one is certain about the scale of coronavirus’s effect on fintechs and financial industry as a whole. One thing is true: there are a tough few months ahead.