New report reveals the impact of the global pandemic on fintech firms and details potential of the industry to improve financial inclusion.
The Cambridge Centre for Alternative Finance (CCAF) at the University of Cambridge Judge Business School, the World Bank Group and the World Economic Forum have today jointly published the ‘Global COVID-19 Fintech Impact and Industry Resilience Study’.
The study of 1,448 fintech platforms, operating in 192 jurisdictions, reveals that the global fintech industry has been more resilient to the pandemic than initially reported in the previous ‘COVID-19 Rapid Assessment Study’, with all verticals (except data analytics) growing at a faster pace than detailed in December 2020. Indeed, retail-facing fintech platforms surveyed report an increase of 47% in gross values transacted – from USD358 billion in 2019 to USD526 billion in 2020.
The findings indicate that fintech firms operating in jurisdictions with more stringent COVID-19 related lockdown measures tend to grow faster than those from jurisdictions with less stringent lockdown measures. Fintech firms operating in Advanced Economies (AEs) still dominate in terms of transaction volume, exceeding those in Emerging Markets and Developing Economies (EMDEs). Growth rates for all fintech verticals are also higher in AEs than EMDEs with the exception of digital payments, which is the largest market segment by global transaction volume.
Additionally, growth was also noted where retail-facing fintech firms participated as delivery partners for various financing schemes that formed part of governmental COVID-19 relief efforts.
A further key finding relates to the customer base of fintechs and the potential contribution that fintechs are able to make to advance financial inclusion. The study reveals that a large proportion of responding firms’ clients are new customers and from groups that have faced challenges in accessing financial services via traditional intermediaries. This group includes women, low-income households and Small and Medium-sized Enterprises (SMEs). Indeed in many fintech verticals, the proportion of low-income households and women exceeds more than 50% of total clients served. For instance, digital payments firms report that the proportion of low-income clients was 55% globally, and 73% when looking at those in EMDEs.
In respect of operational resilience and financial health during COVID-19, fintechs perceive the sector to be relatively resilient, with firms overall reporting increases in revenue and turnover across all verticals. Although the study does not assess whether these increases in turnover and revenue offset reported increases in all costs (except fixed costs), it does record that firms reported higher valuations and capital raising activities compared to their forecasts in the ‘COVID-19 Rapid Assessment Study’.
In keeping with highlights identified in the ‘COVID-19 Rapid Assessment Study’, fintechs continued to prioritise making their platforms more secure, with more than a third identifying the enhancement of cybersecurity features and preventing fraud as the main changes to their services in 2020. These changes appear to be in response to risk assessments, as these were the two most reported risks in 2019. The changes appear to have been effective, as firms reported lower levels of these risks.
Whilst able to make use of regulatory support mechanisms during the pandemic, firms highlighted several areas where additional support was needed. Faster authorisation or licensing processes for new activities, and less burdensome supervisory requirements were the key areas cited by most firms as in need of more attention. Overall, firms in EMDEs were less satisfied with the regulatory response to the crisis than their AE counterparts, which suggest the need for deeper engagement between market stakeholders and regulatory authorities.
“Based on the unique empirical dataset collected, this report highlights the resiliency of the global fintech industry during the pandemic, driven by the growth of sectors such as digital payments, digital lending and enterprise technology provisioning in key geographies,” says Bryan Zhang, Co-founder and Executive Director, CCAF. “It also points to the potential of digital finance to advance financial inclusion and serve millions of unbanked and underbanked populations and MSMEs around the world.”
“Fintech firms are transforming the financial sector by driving innovation, introducing more competition and expanding access to financial services,” says Jean Pesme, World Bank Global Director, Finance, Competitiveness, and Innovation. “The survey indicated that fintech firms have served women, SMEs and low-income households—people who have traditionally faced challenges in accessing financial services.”
“These study results are highly promising for the fintech industry, with resilience proving stronger than anticipated during the pandemic,” says Drew Propson, Head of Technology and Innovation in Financial Services at the World Economic Forum. “This resilience will be essential to weathering additional stressors as current economic and geopolitical uncertainties continue. Increased public-private collaboration around regulation will be of equal importance, and we hope that the study findings will encourage further action in this area.”
“We are very pleased to see how this study further expands on other key building blocks of capital markets development that Luxembourg has also supported to develop, deepen, and increase access to capital markets financing,” says Arsène Jacoby of the Ministry of Finance of Luxembourg. “The growth of fintech firms is extending the reach of capital markets and allowing small businesses to access financing from investors that would otherwise not be available to them.”
“The UK is proud to partner with CCAF and support its Global Covid-19 Fintech Market Impact and Industry Resilience Study, produced jointly with the World Bank Group and World Economic Forum,” says Vicky Ford MP, Minister for Africa, Latin America and the Caribbean UK FCDO. “The UK is committed to the growth of fintech both domestically and internationally. Advancement in fintech regulation, supported by evidence and collaboration, is critical to providing regulatory frameworks that enable novel providers and services, as well as safeguard consumers. In the context of changing market dynamics and operational challenges, this study presents valuable insights for the development of future policy and regulation to ensure the benefits of fintech reach the financially excluded and help accelerate economic growth.”