N’Gunu Tiny on how the pandemic is creating new opportunities for fintech

N’Gunu Tiny, CEO of the Emerald Group and fintech expert on why he thinks the pandemic is creating new opportunities for fintech.

Digital solutions will be in even more demand due to the ramifications of the pandemic, including distributed working and the need to cut costs. Could fintech lead innovation into a new normal?

What creates innovation? Often, it is times of extreme stress. Look back at the emergency of Google and other tech giants from the wreckage left by the dotcom crash in the early 2000s. Or the development of fintech from the financial crisis that hit the world in 2008/2009. Given that the world is facing perhaps its biggest collective challenge yet, there’s evidence to show the pandemic is creating all kinds of new opportunities for fintech.

How is COVID-19 opening up new opportunities for fintech?

N’Gunu Tiny, CEO of the Emerald Group and fintech expert says: “Seismic events always create innovative change. We can see from the past that challenging times have spurred people to find ways to solve problems in truly innovative ways. For fintechs now, it’s about creating a new model that fits into our COVID-19 world. I am absolutely sure that this is what will happen as the world moves out of lockdown and into a new way of living and working.”

The pandemic has shone a strong spotlight on just how important digitisation is across the board. During the height of lockdown even cash was off limits, banks were closed or working on reduced hours and the main source of information and services is online. Whether people start visiting banks and other services in person again remains to be seen, but it’s extremely likely that it won’t ever return to pre-pandemic levels.

“Because fintechs are, by nature lean and carefully structured, their operating models continue to work during the pandemic,” says Mr Tiny. “Operationally, fintechs save up to 70% on legacy financial institutions that are stuck with traditional branch networks. They’re cheaper, more flexible and are already built to scale when needed. The fintech model is resilient and ideally placed to get the world through the post-pandemic aftermath.”

Demand will continue to rise for agile, flexible fintech models

It’s likely that demand will continue to surge for the kind of agile, cloud-based distributed models that fintechs offer. Legacy banks have been forced to update their digital transformation much faster than they would have without COVID-19. Some traditional financial institutions have simply not been able to offer the same kind of service as fintechs. While it can take a traditional bank up to a week to facilitate a small business loan, challenger banks are often able to do it in a matter of hours.

“We were already seeing a significant increase in traditional large banks either acquiring fintechs or partnering with start-ups and online banks,” says Mr Tiny. “This will accelerate as we begin to move away from lockdown. I think it’s extremely likely that traditional large financial institutions and banks will acknowledge that they urgently need to work with fintechs to offer the digitised services their customers need.

“Does this mean that fintechs have had an easy ride so far during COVID-19? Absolutely not. We will undoubtedly see some start-ups that don’t make it and fintechs that fall to the immense pressures they’re under. But as a sector, fintech will emerge as innovative leaders.”

Fintechs can meet changing customer demands

Customers are changing fast. They are more risk averse than ever and need banks to provide options. They want the quality and perceived safety of traditional banks, but with the technological innovation from fintechs and challengers. Online banks that only offer one or two services must quickly evolve to avoid being hit by customer defection.

“From an investor point of view, I think that challenger banks and peer-to-peer lending platforms may experience more difficulties getting funded,” says Mr Tiny. “Funding will slow down to an extent as investors become more cautious. This is an inevitable consequence of the situation we are all facing. I think we will see a shift to funding later stages rather than seed-funding. Investors will be more careful about who and what they choose to fund, and valuations will drop. In short, the fintech market will level into maturation, pushed on by COVID-19.”

However, fintechs with a strong base and solid plans will continue to thrive. Research from KPMG UK shows that just over half of fintech companies say they have sufficient working capital for at least the next 18 months provided they cut costs by 25%. When the COVID-19 dust begins to settle, fintechs will have massive opportunities.

The pandemic opens up new opportunities for fintechs

Specific market sectors offer opportunities for fintechs with a strong business model. For example, e-wallet services and digital payment platforms are likely to boom. Digital identity platforms are also likely to increase substantially, as customers demand ever more secure systems. During lockdown there has been a spike in cyber fraud, and any fintech start-ups that can provide new solutions for this threat are likely to thrive.

Adds Mr Tiny: “The fintech sector won’t have an easy ride through the pandemic and beyond. But it is ideally placed to push the boundaries of innovative solutions for problems that have been highlighted by COVID-19 and the lockdown. Fintechs are under as much strain as every other sector right now, but the fact remains that ecommerce and digitisation is going to be in more demand than ever before. This creates the ideal opportunity for fintechs to lead from the front in getting the world’s financial services in better shape to meet the challenges of the 21 stcentury.

“We must prepare as a society, economy and global community for more abrupt challenges like COVID-19. We don’t yet know if and when a second wave will hit countries worst affected. There may be localised lockdowns or even national lockdowns in our future, and financial services, ecommerce and a vast array of other services must be ready. Fintechs hold the key.”

Image source: https://www.shutterstock.com/image-photo/fintech-financial-technology-internet-payment-digital-1185993415

Originally published at https://africabusiness.com.