Fintech Challenges And Opportunities Amidst The Pandemic

As with any other business, this worldwide epidemic has provided significant hurdles for FinTech startups.

Despite the current crisis, this inventive industry is continuing to evolve and create new possibilities by embracing disruptive concepts such as real-time payments, omnichannel payments, and cashless societies.

Successful financial software development companies like TatvaSoft have always relied on analytics of market trends and developing strong relationships with their clients. By doing so, they have opened up a massive window of opportunity for themselves.

However, the pandemic completely altered the landscape by upsetting the way the majority of businesses communicate with one another and with their consumers.

Without a doubt, the global business market environment will alter permanently, but this transformation will teach everyone, including fintech organisations, some valuable lessons.

Therefore, let us examine how the epidemic has influenced the fintech business and the underlying problems and possibilities they face in these chaotic times.

What Impact Will COVID-19 Have on the FinTech Companies?

Around 3 billion individuals in more than 70 nations have been warned to remain inside due to the COVID-19 pandemic. The effects of such a widespread shutdown are visible in everyday financial transactions.

According to a poll done by Lightico, about 82% of individuals have turned their back on traditional banks. Additionally, the poll indicated that customers are more willing than ever to experiment with digital apps for financial transactions.

Additionally, fintech items such as digital wallets and contactless payments are more fashionable than ever. Indeed, in Germany alone, contactless payments now account for more than half of all transactions, up from 35% before the epidemic.

Numerous further fintech developments of nature may be observed across the whole business.

Opportunities From Financial Services Industry

1. Blockchain Technology

The payment business is being disrupted by blockchain, and it is projected to become much more apparent in the financial sector, particularly in fintech. Blockchain technology offers ultra-secure payments and transactions without the use of middlemen, resulting in huge cost savings. According to the World Economic Forum, by 2025, blockchain technology will be responsible for storing 10% of global GDP.

According to Professor Ahmed Banafa, “unlike other conventional organisations, the banking and financial industries do not require fundamental changes to their procedures in order to utilise blockchain technology.” Financial institutions began actively investigating blockchain deployment for traditional banking operations after it was successfully applied for.”

Blockchain technology has the potential to assist the financial sector in the following ways:

Reduced fraud Automation of trading procedures Verification of clients independently Intelligent payments Payment processing is secured

2. Digital payment services 

As people worldwide adjust to the new normal, the manner they pay for goods and services is also swiftly changing. Thanks to fintech’s cutting-edge technology, more than 75% of customers in a majority of nations now choose contactless payments (according to a Mastercard survey).

Given their simplicity of use and rapid global use, the future of cashless payment systems appears extremely bright in this chaotic period. Increased smartphone use and growing reliance on e-commerce both contribute to the continued expansion of innovative cashless payments. Surprisingly, a few contactless digital payment methods are gaining traction in the aftermath of COVID-19. Among them are the following:

2.1. Omnichannel payments:

Businesses that formerly depended exclusively on cash and bank transfers are increasingly embracing the omnichannel payment framework to provide a consistent and pleasant client experience. To serve as many clients as possible, an increasing number of digital payment methods are being embraced.

2.2. Payments in real-time:

By facilitating electronic currency exchange within minutes, real-time payments have continued to transform retail and business-to-business transfers. When business choices must be taken quickly, real-time payments have unquestionably proven their importance.

2.3. Payment gateways:

To maintain relevance, large banks are focusing their efforts on the next big thing in digital payments – payment centres. Payment hubs are well-known for processing nearly all types of payments, regardless of their channel.

2.4. Cashless societies:

Due to the present financial crisis and the impending fintech revolution, a number of nations, including Denmark, Sweden, and Norway, are on the verge of becoming cashless societies by adopting the ‘no cash’ concept.

2.5. Virtual money:

Built on the blockchain architecture, virtual currency solutions such as Bitcoin provide secure and trustworthy transactions at an optimal degree of efficiency and speed.

2.6. Payments through NFC:

NFC payments are unquestionably the trendiest trend in digital payment right now. NFC is used to power popular wallet payment methods such as Google Pay, Apple Pay, and Samsung Pay. These financial technology titans rely on this technology, in which simple electromagnetic waves created by cellphones simplify life for everyone.

3. Robotic Process Automation

The last few years have seen a dramatic increase in demand for Robo-advisory firms. Their rise is undoubtedly due to the fact that they allow a superior user experience and cognitive wealth management guidance at a reasonable price.

Despite widespread market turbulence as a result of COVID-19, organisations providing Robo-advisory services are experiencing a rise in revenue. The public is eager to embrace the moment’s chance and is eagerly awaiting sophisticated investment solutions and in-depth market insights.

As a result, numerous organisations, including Betterment, Wealthfront, and others, have seen an increase in new account creation requests. To capitalise on this novel potential, the businesses are also open to including additional features such as life and career planning for customers who seek to prepare for occurrences such as job loss during or following the COVID-19 crisis.

4. Personalization

In the financial services business, personalization refers to the process of providing a valued service or product to a client based on their unique experiences and past customer data. The epidemic has emphasised the need for financial institutions to focus on the essentials rather than the nice-to-haves. Furthermore, a personalised relationship fosters trust.

Customer satisfaction and revenue growth are the primary drivers of digital transformation adoption.  To adapt to this shifting climate, financial institutions must rethink their approach to campaign measurement in order to gain a more holistic understanding of their consumers.

Fintech Challenges

1. Compliance and regulation failures

Due to the sensitive services they provide, FinTech firms are particularly vulnerable to regulatory regulations, compliance, and legal duties. Around 64% of fintechs were already violating the General Data Protection Regulation’s standards (GDPR).

Compliance with such regulatory demands has grown even more challenging for fintech under COVID-19, exposing them to penalties and fines.

2. Securing Customer Data

Customers want total openness regarding the usage of their data. Additionally, they desire comprehensive data security. When there are worries about privacy, confidence is weakened and the consumer experience suffers significantly.

Banks and Fintechs have access to a wealth of highly detailed user data. Secure and privacy standards that are robust are vital, as a single blunder may undermine the brand. Fintechs will need to invest in technology that keeps data secure and in the user’s hands.

Additionally, Fintechs must effectively exploit data in order to enhance client interactions, obtain a more complete picture of the customer journey, and deliver superior services. For instance, economists anticipate that lending as a sector will grow more robust as a result of new data sets and underwriting standards.

Businesses have grown by combining user data with publicly available data. For instance, by leveraging enhanced datasets and algorithms to offer solutions more efficiently, Robo-advisors (online services that utilise algorithms to execute investment activities normally performed by a human financial advisor) can assist consumers in saving and investing more effectively. These services have helped to democratise access to financial counselling, which was formerly reserved for the rich.

Plaid, for example, has developed a data interchange and an API layer that connects financial products. Due to the fact that fintech may now access substantial data via these aggregator services, it is now feasible to construct a variety of financial solutions. Fintechs may construct more personalised financial solutions on top of open data when open data standards are in place.

The Indian financial authority has permitted account aggregators (a distinct form of a non-bank financial company) to function as data mediators between users/entities that are the principal owners of data and the banks and financial institutions who retain and administer it. Account Aggregators are trusted intermediates who are authorised to act as a conduit between data suppliers and data users for customers’ financial data.

Account Aggregation is scheduled to become live in the latter half of 2020, with numerous account aggregators, significant banks, and non-bank financial companies commencing consent-based data sharing.

All of these advancements create new opportunities for Fintech companies to exploit data in novel ways.

3. Unbanked and Underbanked Population

To begin, Fintechs’ expansion was slowed by India’s underdeveloped infrastructure, including low internet penetration and literacy levels. While the Indian government is addressing these concerns with liberal policies, the advantages will not be apparent for some time.

The reality is that a sizable portion of India’s population remains unbanked and consequently prefers cash transactions over internet purchases.

Another impediment to Fintech growth in India is the Indian community’s poor level of financial knowledge. For instance, India introduced the Pradhan Mantri Jan Dhan Yojana to increase the country’s financial inclusion. However, a World Bank research indicates that after creating 180 billion bank accounts, more than 48% of them remained dormant for a year without a single transaction. Despite several measures, India is still a long way from financial inclusion.