Covid-19 on its initial start appeared to be a very distant disease in faraway Asia. From December 2019 to February 2020, nearly everyone outside of China paid no serious attention to it.
Traveling through Ethiopia to Uganda in February 2020, it was observed that hardly anyone wore a face mask nor practiced social distancing. It was simply business as usual.
However, a month afterward, the disease has spread rapidly and moved into mainstream Europe. Subsequently, the World Health Organization declared it a global pandemic. This is when governments began to react and implement wholescale lockdowns and restrictions. Financial technology companies (Fintechs) in Africa were compelled by governments to apply for some mandatory fee waivers. Across Rwanda, Uganda, Ghana, and other big mobile money countries, various fee waivers were implemented. During the lockdown, there was a heavy decline in cash-based transactions like agent cash-in and cash-out. These government measures and new customer behavior set a tone for fintech to rethink their offerings.
Fintechs quickly had to react as their bottom lines were seeing the direct negative impact. A situation that was very different from the initial spike which resulted from the pre-lockdown announcement as consumers engaged in panic buying. As predicted subsequently, Covid-19, in the absence of a vaccine continues to spread and forces consumers to re-adapt to a new normal way of life. Fintechs have been compelled to adjust their ways of working to this new customer behavior. They are rapidly deploying innovative self-service solutions to harness the full benefit of consumers desiring to have full end to end solutions on the go without physical contact. They must be prepared not just to accommodate this increased demand but also to scale up their enterprise IT infrastructure while adapting to the new world, just like everyone else.
Acquiring new IT infrastructure has a direct Capex impact. Smaller Fintech start-ups are likely to be overwhelmed by the sudden budgetary requirements to scale up. Ultimately, some may drown out even as they struggle to meet other financial obligations to continue operating. However, more established Fintechs can easily expand and quickly roll out expensive solutions that target a new market segment and in the short term increase transaction volumes significantly.
Another critical impact is the specific product categories of Fintech. As consumers are more focussed on essentials during this pandemic, they are likely to be taking advantage of microloans. The bigger the appetite for microloans, the bigger the risk for the loan provider as many consumers are unlikely to service these loans. This will directly affect Fintechs in this space in the near future. Until more robust risk assessment procedures are implemented, their profitability may be negatively impacted. Another risk category is international remittance. This is the direct opposite of lending. Consumers during this pandemic will be more reluctant to remit cash and be very open to accepting cash. This is a cautionary behaviour as they may be considering uncertainties regarding their income sources as job cuts become frequent. Fintechs that solely operate in this space may consider switching to more attractive portfolios like B2B and bill payments which have lower risk factors.
Fintechs that strongly survive the varying economic challenges posed by this pandemic are likely to build a brighter future and define new processes and ways of working that will ultimately favour them by building a robust system that is able to withstand future disruptions. The combination of consumer behavior and the economics of delivering financial services point to the need for a digital-first financial organization. Furthermore, by taking advantage of work from home policies, start-ups and even mainstream organizations can invest in cost-effective video conferencing and remote working tools that eventually cut down on the operational cost of running physical locations.
Communication is also essential in building customer trust while establishing a much more grounded niche and credibility. During this period, the customer expects near real-time feedback for queries they raise. It is important for Fintechs to step up their customer support systems and have a more proactive approach in dealing with customer complaints and queries. Further investment in more interactive customer support tools may be required. Even though such investments may significantly increase budgets of Fintechs, it will in the long term build a strong reputation that will long outlive this turbulent time; thus increasing the prospects of significant future gains with the customer.
Overall, we are not out of the woods even though governments have been compelled to ease out lockdowns in other to water down the economic impact of the pandemic. As the world shifts towards a new reality, there will be an explosion of post-pandemic opportunities. People will realize the digital tools on which they have relied during this disruption are in fact providing long term important services. The posture of Fintechs in this era and the nature of systems and processes they build will certainly determine the new direction of their business once this pandemic is over. Covid-19 is the ultimate test of Fintechs’ business continuity plans, technology, processes, and portfolio. It is safe to say the new normal has come to stay. Fintechs have only one option: “Innovate or die!”
Author: Peter Frank Eshun (Senior Business Analyst) | Member, Institute of ICT Professionals Ghana
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