Fintech will lead the charge in the post-COVID-19 recovery
Fintech companies will remain profitable and offer SME’s better opportunities to grow following the economic downturn, says new report.
While the pandemic has hit every industry, affecting growth and profitability, one sector, fintech, has remained solvent and profitable. As consumers and B2B companies shift their focus to a cloud-based approach to managing business, fintech is experiencing an unexpected demand for services. Corporations have been forced to move away from more traditional business models to accommodate the demand for services available online.
But the unprecedented growth will change direction from its early 2020 boom, which saw the emergence of a new set of unicorns valued at £1bn or more. Today, funding for such new start-ups has slowed considerably, and there has been a shift from launching new enterprises to managing profitability in current businesses.
Justin Knowles, Director of Digital and Payments at CitiBank, said, “I believe this pandemic has created an urgency for all financial services. I see two large factors that will play a part in success or failures of anyone in this market. 1) Current employees’ ability to be agile - to work quickly and to adjust and modify the existing strategic plan. 2) Partnerships with fintech partners out there will also be key.”
A shift towards far more M&A and consortiums are also predicted to spike in 2021, though Knowles added picking collaborations should be done with care. “We must be cautious when creating those partnerships in these unstable times.”
A new business structure
But strong leadership will be required to lead companies away from their traditional business models towards a restructured format that is conducive to the post-pandemic business environment. Competition is predicted to be fierce, with the longest-established fintech businesses thriving, while new entrants to the market will be challenged.
“The board and exec teams have to lead from the front by being great models and communicators, developing a convincing post-COVID-19 business and financial strategy,” said Susanne Chisti, CEO at Fintech Circle. “
She commented; “Investing in a diverse talent pool and the right innovation and fintech infrastructure, [is essential] to turn the existing global recession into an opportunity for sustainable growth.
However, the report also suggests industry innovators will find themselves in an advantageous position as the fintech industry grows and explores newer and better solutions to digital business practices. Currently, payments have been identified as a key market, ripe for investment.
“Payments is an overly saturated space,” said Nasir Zubairi, CEO at The LHoFT Foundation. “Europe has to move forward to building its own card scheme and payment infrastructure to mitigate dependence on Visa and Mastercard. It’s likely to cause a frenzy of M&A activity in the sector.”
With the marketplace becoming ever more crowded, competition will be fierce, making marketing and branding, as well as customer experience and service, a priority. In a survey carried out by Fleishman Hillard, 77% of respondents said they expected there to be an increase in focus on the customer experience, and “maintaining an authentic voice amongst the chaos to ride out this crisis.”
One thing is clear; fintech continues to be a cutting-edge industry and will be contributing greatly to the re-shaping of business commerce over the next decade.
BIS and MAS publish blueprint for cross-border payment idea
The Bank for International Settlements and the Monetary Authority of Singapore (MAS) has published a proposed blueprint for the multilateral linking of domestic real-time payment systems across borders.
The blueprint, titled Project Nexus, outlines how countries can fully integrate their retail payment systems onto a single cross-border network, allowing customers to make cross-border transfers instantly and securely via their mobile phones or internet devices.
The Nexus blueprint was developed through consultation with multiple central banks and financial institutions across the globe. It builds on the bilateral linkage between Singapore's PayNow and Thailand's PromptPay, launched in April 2021, and benefits from the experience of the National Payments Corporation of India's (NPCI) development and operation of the Unified Payments Interface (UPI) system.
The Nexus blueprint comprises two main elements:
- Nexus Gateways, to be developed and implemented by the operators of participating countries' national payment systems, will serve to coordinate compliance, foreign exchange conversion, message translation and the sequencing of payments among all participants. These gateways will be predicated on a common set of technical standards, functionalities and operational guidelines set out within the proposal.
- An overarching Nexus Scheme that sets out the governance framework and rulebook for participating retail payment systems, banks and payment service providers to coordinate and effect cross-border payments through the network.
“To achieve significant cost-reduction in cross-border payment transfers, enhancements must be made on two fronts: direct connectivity between domestic faster payment systems, and frictionless foreign exchange on shared common wholesale settlement infrastructures. The BIS Innovation Hub Singapore Centre is working on both. The Nexus project maps out a much-needed set of standards to achieve seamless cross-border payment systems connectivity.” said Sopnendu Mohanty, Chief FinTech Officer, MAS.
How do cross-border payments work?
Cross-border payments are currency transactions between people or businesses that are in different countries. The sender will choose a front-end provider, such as a bank or a money transfer operator (e.g. Transferwise), to initiate the payment. The receiver then receives the payment via the medium specified by the sender. Traditionally, cross-border payments flow via the correspondent banking network (CBN) which most front-end providers use to settle the payment. But, in recent years, new back-end networks emerged to optimise cross-border payments and enable interoperability between payment methods and provide senders with more possibilities to reach the receiver.
The increased international mobility of goods, services, capital, and people have contributed to the growing economic importance of cross-border payments. The value of cross-border payments is estimated to increase from almost $150 trillion in 2017 to over $250 trillion by 2027, equating to a rise of over $100 trillion in just 10 years.