The transformation in the payments habits amid the covid-19 and post will be significantly visible in the coming months, and it will roll out into a full-fledged mechanism.
FREMONT, CA: The Covid-19 outbreak has led to a slump in digital payment transactions by 30 percent, owing to people hoarding cash for unforeseen circumstances amidst lockdown. However, the risk of transmission of the virus persists through the exchange of currency notes. While financial institutions have been appealing to customers to go digital for transactions, fintech offering prepaid card services has found its sweet spot in this covid-19 outbreak.
Many fintechs, like the rest of the financial system, have gone into overdrive to respond to the challenging environments. Many companies are shoring up their capital and funding from investors and lenders. Others have deployed cost-saving measures, comprising workforce reduction. Because revenues for several of them are transaction and volume-based, a priority strategy right now is making sure that as several expenses as possible are variable and fixed expenses are reduced.
Maintaining operational resilience is top of mind for fintechs. Lending fintechs are being inundated with customer requests for forbearance and relief and for help in securing the small business loans established by the Payroll Protection Program (PPP) of the Coronavirus Aid, Relief, and Economics Security Act (CARES Act). Similarly, payment- and wealth-based fintechs bolstered their infrastructure by widening potential or investing in new resources to withstand the stress to their systems from higher transaction volumes. These actions could be particularly challenging for fintechs that rely on transaction volumes for revenue and are thus cash-starved at the moment.
Beyond these more general finance and operating considerations, each category of fintech is responding to some challenges. Many online lenders, for instance, are tightening their underwriting standards to retain the quality of balance sheets and reduce any potential rise in defaults. They may also soon find that the historical data they leverage to make underwriting decisions could be less reliable in today’s environment. They will have to manage their models accordingly.
