As part of The Lawyer's In-house Financial Services conference 2020, David Gardner provides an industry spotlight covering some of the main challenges (and opportunities) the Covid-19 pandemic presents to the Fintech sector.
We often hear in-house lawyers say how they wish they had more time to focus on horizon scanning and assessing the potential risks heading their way. Never has this been more crucial, with many financial services firms impacted in a way they never expected. The Industry Spotlight section aims to provide readers with quick summaries of some of the challenges on the horizon.
This next post focuses on Fintech.
Fintech has emerged as a key driver of growth and change in UK financial services, attracting £billions in investment and employing over 75,000 people in the UK prior to the impact of Covid-19. During the early part of the Covid-19 crisis, the fintech industry demonstrated its flexibility, scalability and responsiveness by quickly launching targeted products and services to help customers cope with difficulties caused by the lockdown – Open Banking’s #PowerOfTheNetwork hashtag showcases some great examples of those solutions.
Even accounting for the strengths and creativity of businesses in the fintech sector, the Covid-19 pandemic presents challenges to every industry and fintech is no exception.
The impact of Covid-19 has accelerated digitisation at an unprecedented rate – from the mass adoption of video conferencing and remote working to the rapid reduction of cash transactions. Link reported that ATM withdrawals fell by 50% in the UK in the month of March 2020, whilst research by Nucoro found that 6 million customers downloaded their Bank’s digital banking app over a similar period.
In many ways, this plays to the strengths of fintech, which frequently makes use of highly digitised, distributed business models to interact with customers. However, fintech providers need to move quickly to produce standout solutions and capture market share, as digital banking evolves quickly in the “new normal”. Starling’s new “Connected Card” for customers who are self-isolating is a good example of this.
Regulators have given the financial industry some breathing space to focus on consumer protection and resilience post-Covid-19, as shown by the accelerated publication of the joint UK Regulatory Initiatives Grid in May 2020. The grid shows delays to the timescales for many regulatory actions and deadlines, but also highlights the huge number of regulatory changes in flight. Fintech is well positioned to harness the power of initiatives like Open Banking and Digital IDs, but will need to keep a close eye on all the moving parts on “the grid” to do so.
Pre-Covid, many start-up and scale-up fintech businesses relied on initial investment to grow customer numbers and refine their service offerings prior to making profits, making them vulnerable to cashflow interruption. The UK government has announced a raft of measures to support businesses during lockdown, but to have a sustainable future fintech business will also need to secure long term credit support and investment, in an environment where lenders and investors will be more cautious and risk averse.
Until the UK economy re-starts (and the shape of the post-Covid economy becomes clear), early-stage fintech businesses may find it harder to prosper, particularly those that are relatively young, niche, and thinly capitalised.
As noted above, Covid-19 has pushed the UK rapidly towards living, working and doing business online. Whilst this aligns with many fintech business models, fear and uncertainty about the post-Covid future could make this a double-edged sword.
Major banks have welcomed the fact that many more customers are now using their digital platforms, including older and less digitally-native customers doing so for the first time.
The economic downturn post Covid-19 may cause a “flight to trust”, pushing worried customers towards the perceived safety of more established, and better capitalised, providers such as high street banks. Fintech businesses will need to demonstrate to customers that they are reliable, trustworthy and financially sound in order to win customers in a much more difficult economic climate.
For those fintech businesses that can rise to these challenges – and many have already given strong indications they will do so – it seems likely that the Covid-crisis will accelerate us more quickly towards a digital future, in which fintech can flourish and prosper.
Find out more about the In-house Financial Services Virtual Conference
Green finance can transform retail financial services post-CovidRead more
Sustainable finance provides a unique opportunity for corporatesRead more
TLT’s Fintech School – trainee interviewRead more
Aldersgate interview with TLT: green financeRead more
The new Biden administration: What does the future look like for a...Read more
Beyond BrexitRead more
The future of cash savings in 2021Read more
APP fraud: Court hands down judgment on the extent of the Quincecare...Read more
Mortgage and home finance regulation in 2021Read more
Helping you navigate your business through the risks and opportunities that Brexit will bring.Read more
The way people shop is constantly evolving, from the growth of online and the changing use of stores...Read more
The widespread disruption and closure of businesses caused by the Covid-19 pandemic and the subsequent national and local lockdowns has brought into sharp focus the question of available insurance cover for losses under...Read more
Watch our video series for information on the legal issues that are affecting the real estate sector. Each...Read more
The pandemic has had a deep and long-lasting effect on the leisure, food & drink sector, forcing operators to embrace new ways of attracting and servicing customers.Read more
The pandemic has forced the majority of the workforce into a world of remote working. As a result, our cities are evolving.Read more
Our countdown to Brexit and beyond podcast series looks at the impact for businesses on both sides of the pond of any free trade agreement between the UK and Europe and the UK and the US. ThisRead more
There's a growing demand for retailers to do more to attract the Purple Pound – the collective spending power of disabled shoppers, estimated to be worth around £274bn. We look at the opportunities, the legal issues and...Read more
Green finance is gaining speed, driven by global climate change pressures and the recognition of the vital role which sustainability plays in a resilient financial services sector.Read more
Working with UK and international banks on domestic and cross-border debt finance activity.Read more
We act for both suppliers and customers of tech and comms systems and services across a wide range of sectors.Read more
Providing a complete service covering all aspects of regulatory law.Read more