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Covid-19 (coronavirus) impact on payments and fintech

As the COVID-19 public health emergency continues to unfold, one thing is clear: the economic and human impact of this virus is significant. In the first place, coronavirus is drasticly changing how consumers shop.

As the COVID-19 public health emergency continues to unfold, one thing is clear: the economic and human impact of this virus is significant. In the first place, coronavirus is drasticly changing how consumers shop. They are becoming more cautious about shopping in public places, and since many people are working from home, it is causing changes to how they shop and how they make payments. Sudden spikes in payment processing needs consequently might cause challenges in handling for both merchants and payment processors.

Urge To Be More Cashless

It's not clear if COVID-19 could latch onto currency the same way it is able to survive on other surfaces, such as doorknobs and handrails, but many people aren't taking chances. Cash is notorious for harboring pathogens such as E. coli or Salmonella, so the fears are not completely unsubstantiated.

About 38% of consumers now see contactless as a basic need or feature of payments, up from 30% a year ago.

Consumers are increasingly ready to embrace digital wallets and contactless payments. New research suggests traditionally distrustful U.S. consumers are becoming more interested in contactless payments, while in Germany more than half of payments currently made by card are contactless, compared with 35% before the coronavirus crisis hit.

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​Read more about Mercury PSI mobile wallet

Contactless and digital payment methods certainly require less physical interaction and are more secure. However, according to one study, credit cards carry more types of bacteria than even coins or cash, while smartphones can be "a haven for germs". That's why some experts still recommend keeping extra cash on hand, since banks are already taking steps to make sure any cash they handle is sanitized.

Will Ecommerce Grow And How Will It Affect Payment Industry

More and more consumers are likely to turn to online shopping to buy the products they need, and more consumers will shop online for the first time in new categories, particularly groceries and household essentials. Retailers have already seen a surge in online grocery shopping as consumers stock up on food and other essentials.

Because of the lifestyle changes of the consumers, online retailers will experience a long-term boost if they can stay in business during what will likely be a rocky economy. However, new opportunities also bring new risks.

  • Supply chain: One problem online retailers face is sourcing supplies, given the widespread factory closings in China, where many online retailers buy their merchandise.
  • The Amazon threat: Amazon is intent on taking advantage of the closing of many physical stores to increase its already-dominant online market share, by placing orders for all kinds of merchandise in a bid to garner sales from consumers unable or unwilling to go to physical stores.
  • Card fraud risks: Financial institutions and retailers must prepare to constantly adjust fraud controls against changing consumer behavior. In a survey of 1,068 U.S. adults, TransUnion found 22% have been targeted by digital fraud related to coronavirus, while the number of active phishing sites skyrocketed from 149,000 in January to more than 500,000 in mid-March, according to a new report from Atlas VPN.

Will There Be Any Changes In Transactions Volume

Online payment transaction volume is surging as consumers confined to their homes are turning to digital purchasing channels. Global ecommerce transactions were up 23% in mid-March compared with typical weekly volume.

At the same time, according to the Wall Street Journal, there are projections that overall online payment processing revenues for the full year might decline as increases in online retail transactions are offset by declines in online travel purchases, including hotels and airlines, which generally have a higher average transaction value. Furthermore, the cross-border ecommerce payments business has been negatively influenced by COVID-19.

What Does It Mean For Fintech

The economy of many industries is taking its toll and having major constraints due to coronavirus, and the sector of fintech is not exempt. Payments Journal listed some results, bad ones as well as good ones, of coronavirus' impact on every aspect of business.

  • Companies such as Mastercard and Visa have cut their predictions for revenue due to the COVID-19 scare.
  • Due to restricted travel guidelines, many airlines are being forced to cancel or reimburse flights.
  • Paypal confirmed that due to the coronavirus outbreak there has been drops in ecommerce activity.
  • Robo-advisor fintech startups are also likely to take a hit.

On the other hand:

  • Banking and Insurance Regulatory Commissions company Ye Yanfei, explained that blockchain is being utilised for medical data verification.
  • Many countries are also encouraging the use of contactless payment to prevent the spreading of the virus any further from the exchanging of money.

Along with the pandemic, FinTechs are also facing a social media "infodemic", spread of false information about COVID-19, which is sowing panic among consumers.

Source: Monzo LinkedIn

Companies such as Revolut and Monzo are fighting these fake news by issuing statements about the solid states of their companies, but the question remains is this enough to console the consumers.

Will Digital Solutions Serve As A Cash Boost For FinTechs

In fact, the flexibility in business models and the ability to dial-up or dial-down costs will become critical for FinTechs and will determine which firms survive, writes Payments Cards & Mobile. FinTechs with recurring revenue and long term contracts will be impacted less than firms with transaction-based business models, while consumer-oriented B2C FinTechs (e.g. Challenger Banks) will see business performance contract faster than B2B models.

Payments Cards & Mobile also predicts that reduced funding for FinTechs could force firms to seek collaboration, investment, or acquisition by traditional financial institutions, PE funds, or even non-financial strategic buyers.

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Source: Payments Cards and Mobile

The full economic consequences of the pandemic on payments industry overall are still unclear. The cornavirus and the drastic measures being taken to contain it, are already causing change across industries. While individual sectors such as digital payments or ecommerce are likely to grow, payment companies are anticipating an overall downturn in business as consumer spending falls