As retail businesses scramble to get online and banks and exchange houses shutter their doors for the foreseeable future, the one solution for consumers and businesses alike to conduct their financial services, has been financial technology (fintech).

A recent report published by the deVere Group found that the global pandemic has driven a 72 per cent rise in the use of fintech apps in Europe, indicating a huge spike in fintech adoption at a time when most sectors of the economy are suffering from what the International Monetary Fund (IMF) has described as the biggest recession since the 1930s.

The rise in the use of fintech apps comes amid a general growth in the use of digital technology in a bid to adapt to life in lockdown.

Existing fintech solutions already embrace many of the social distancing measures that are now a necessity. The lockdown is simply accelerating and strengthening trends that were already in motion and pushing the fintech sector to come up with further creative solutions to problems that have surfaced related to supporting customers, building relationships and planning for the future.

“Although there is a lot of uncertainty around the economy and how the next few months are going to look like, as we come out of this storm, there will be a lot of positives and momentum given to fintech,” says Mohammad El Saadi, co-founder of Mamo Pay, a UAE-based money transfer startup which recently raised $1.5 million in the run up to its official launch next year.

Fintech serves as a pivotal backbone of all online transactions from services like e-commerce, salary transfers to personal finance budgeting. Currently, it is the e-commerce drive that has pushed the momentum for fintech across the Middle East and North Africa (Mena) region as store closures have moved purchases online.  

“This crisis serves as a catalyst for enforcing digital transformation in companies. There was a lot of resistance from companies, and now they are forced to transform. All retailers who cannot sell anything are now putting their efforts to put everything online,” says Michael Truschler, co-founder and chief executive officer (CEO) at UAE-based FlexxPay, which provides salary advances to employees.

Social Distancing Opportunity

The growth in online commerce has not only given a lifeline for some retailers but has redefined the spending behaviour for consumers.

Egypt-based payment platform Fawry, saw a shift in the type of services consumers purchase since the crisis began. Booking tickets for transportation, cash transactions for Uber and Careem, sports and events has almost stopped, but e-commerce payments have dramatically increased because of the working hours decrease of both banks and operators.

“The current pandemic and subsequent government regulations and directives by health authorities foretell a shift in consumer spending behaviors as more people embrace forms of payment that allow them to abide by the rules of social distancing,” says Gaurang Shah, senior vice-president of digital payments & labs at Mastercard Middle East and Africa.

With bank branches temporarily closed, customers have no choice but to resort to digital services, presenting an opportunity for banks and fintech companies to strengthen their relationship.

“Anybody who is lagging behind in terms of digital adoption, this has given them a massive shot to catchup and take advantage of what you can do via a smartphone,” says Katharine Budd, co-founder of NOW Money, which provides financial services for low-income workers in the GCC such as labourers, taxi drivers and cleaners who are usually paid in cash and do not earn enough on a monthly basis to open a bank account.

NOW Money has witnessed a 50 per cent growth month-on-month since the pandemic took hold in Mena, with a significant rise in engagement from existing customers as they prefer to stay at home.

“We initially saw a bit of a slowdown in terms of new clients over the first few weeks, but now people start to realise this is the new normal for a while, and we are seeing more demand from companies who need a way to manage finances remotely,” says Budd. “Most of the companies we work with are delighted they went through the change of the payroll process to move to us at some point over the last year, because now they are able to pay their staff without having to visit a bank, and more importantly the staff don’t have to visit somewhere to collect cash.”

As per Finch Capital’s Fintech: The Future Post CV-19 report, financial Institutions are turning to fintech companies rather than in-house solutions to accelerate their digital transformation. Consumer desire for digital banking services will most likely steadily increase, forcing many traditional financial institutions to fast-track digital innovation efforts.

“Last year we started to see a shift from regulators in the region. Now we are also seeing it with a lot of the financial institutions that are accepting this as the new reality to be able to support their customers and meet their expectations. Now there is more openness from banks to partner with fintech players,” says El Saadi.

Rising challenges

“Fintech is so broad, everybody will have their own pros and cons,” says Saeid Hejazi, founder and CEO at Wally, a personal finance budgeting app founded in Dubai. “If you’re someone who powers these e-commerce companies, you might see a boost in usage. It is very sector-specific in terms of how different companies are performing.”

Fintech startups focused on crowdfunding or issuing loans according to Hejazi “might be faced with a lot of people defaulting. There’s so much volatility, you might not see so much activity now. When your product targets first time investors, they might not have the stomach to deal with this volatility”.

This volatility and the overall economic slowdown might eventually stump the growth of fintech, particularly for startups looking to secure investment. As investors become more cautious, some early stage fintech companies may not be able to survive, as the pandemic could affect venture capital funding for new companies, as well as existing ones.

In addition, the impact of the expected drop in transactions at all levels of the economy worldwide poses a challenge. Cancelled flights, closed stores and social distancing have resulted in a fall in transaction volumes everywhere, impacting profitability as well as valuations for fintech firms.

“As a lot of people lose their jobs and incomes, there will be less people paying and spending money,” says Truschler. “We also expect a negative impact from the crisis in terms of onboarding new companies, it is challenging because a lot of them moved their attention to survival mode and they don’t want to do anything else.”

This need to go into survival mode is one that will have a knock-on effect on the fintech sector too.

“Fintech is not a sector that lives on its own, payments are enabling other sectors. We need to keep an eye out on how these sectors will shift, because that will also shift the payments needs for users, merchants and service providers,” says El Saadi.

But overall, many seem hopeful. While the volume of transactions is decreasing in the short term, in the long term, companies will likely “see the functional benefits of sending and receiving money digitally” according Truschler and that is something that will outlast the pandemic.

Wamda has invested in FlexxPay and NOW Money