Restricted flow of people; accelerated flow of money

Yogesh Sangle, Global Head of Consumer Business, Nium

For close to a decade, innovation in digital payments has helped close the gaps and address the challenges faced by both consumers and small and medium-sized enterprises (SMEs). Spearheaded by Fintechs globally, the creation of effective, low-cost, customer-centric solutions, has made financial services more accessible and helped improve financial decision-making for all.

As a result of national lockdowns during the COVID-19 pandemic, the Fintech sector has found itself at a crucial inflection point. The demand for virtual, ‘contactless’ interactions and ‘digital-led’ financial services continue to rise. SMEs, especially in the retail, food and beverages (F&B) and travel sectors, must now look to new ways to reach and transact with home-bound consumers that prefer digital payments over the use of cash.

Fresh Consumer Trends for a New Era

Despite restrictions on physical movement, fear of transmitting the virus has reduced the use of cash and accelerated the trend of digital payment apps. Interestingly, this has not impacted the flow of money; in fact, it has accelerated it. For instance, in Singapore, the sales of health and wellness products has continued to grow since the outbreak, indicating a long-term shift towards healthier products and categories. In Asia, the date of 9 September has become synonymous with the region’s biggest year-end sales. The so-called ‘9.9 sales’ were initially not expected to be strong this year, but reports from e-commerce giants showed that profits were better than last year despite the economic uncertainty, breaking another annual record.

On the flip side, job and income losses have been among the economic symptoms of COVID-19, affecting remittance payments in some countries that rely heavily on such transactions. Researchers at the Asian Development Bank expect 2020 remittance inflows to the APAC region to be more than US$54 billion below 2018 levels, an overall loss of almost 20 per cent. As consumers acquire a new pattern of behaviour, discover new efficiencies and adapt to a “new normal” of digital life, more are adopting digital platforms by necessity rather than curiosity.

Filling the Small Business Gap

Digital payments are becoming more secure, convenient, traceable and, ultimately, more attractive. From contactless cards, e-wallets, payment apps to the rise of neobanks, how consumers and SMEs pay and who they trust to look after their finances have greatly evolved. The new climate has generated new opportunities for the Fintech industry to help SMEs during difficult times.

Traditionally, SMEs have often struggled to access credit and secure loans from traditional financial players, such as banks. Add in other challenges as a result of the pandemic – like short-term cash flow problems and debt exposure concerns – and many SMEs are worryingly in the red.

In addition, securing loans or credit has never been easy for them — the absence of a stable and profitable portfolio is still seen as a drawback by banks and financial institutions today. In Singapore, even before the pandemic, 61 per cent of SMEs held low credit standings and not more than 15 per cent of SMEs had access to the credit they required. The additional delays in payments induced by the pandemic have only aggravated this dearth of capital. While businesses may look to card-based payments to extend payment terms, the high transaction fees act as a deterrent for payers as well as beneficiaries.

Fintechs are developing highly innovative, user-friendly and secure solutions. As a result, SMEs are now realising that they can meet their cherished goal even in a post-pandemic world – whether it is to scale their business or to work with cross-border partners to extract powerful synergies and compete in international markets.

New Normal for Fintechs

The next question would then be, What’s next for Fintechs? Pockets of the market like digital payment and e-wallet services are expected to boom, while players offering digital identity and Know Your Customer (KYC) services will likely be set to prosper too. With so much heightened awareness of the importance of health and wellbeing, we can also expect to see increasing links between Fintechs and healthcare, with customers looking for smart new solutions to safeguard and provide for themselves and their families.

Transparency also become a new key success metric. Fintechs are known to provide low-cost contactless solutions – but there’s a catch. The reliance is on the ‘convenience’ that digital financers provides, but often times there are hidden costs that surface only after the transaction is made, or not at all, and money gets lost in between transactions. Transparency eliminates payment complexities and gains strong trust in Fintechs – trust that used to only be placed on traditional banks due to the legacy of their functional abilities.

The financial ecosystem definitely has exciting things in store – not in a decade or two, but in a couple of years. The long-term changes brought about by the pandemic will go down in history books as both unprecedented and far-reaching. However, the evolution is part of the human experience, and Fintechs provide a perfect example of this, by levelling the playing field and creating newer opportunities for growth in a world that has been irrevocably changed.