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Forecasts of a collapse in the value of the fintech market are probably premature, according to many in the industry. Bill Lumley reports.

Global fintech transactions typically grew by 10–20% in the first half of 2020 during the height of the Covid-19 pandemic, with the most noticeable growth happening in the emerging markets. This is one of the key findings of the recent Global Covid-19 Fintech Impact and Resilience Study published by the Cambridge Centre of Alternative Finance (CCAF), the World Bank Group and the World Economic Forum, which surveyed 1448 fintech firms headquartered in 105 jurisdictions and operating in 192 countries.

This contradicts some rumblings from the industry, fuelled by the recent downturn in certain tech stocks, that the fintech sector is poised to experience a correction, if not an outright crash.

For months fintech has been subject to forecasts of everything from a correction to a crash. In November 2021, for example, fintech investor JC Flowers expressed concerns of a bubble emerging in the market, and more concerns emerged after the publication of the CCAF study last month.

Some report findings:

  • 60% of firms reported launching a new product or service in response to Covid-19, with a further 32% planning to do so;
  • Fintech markets with more stringent lockdown measures reported higher growth in transaction volume;
  • Early regulatory responses to Covid-19 provided relief to some fintechs, but firms consider that yet more regulatory support is needed;
  • Emerging market and developing economies had an average growth in transaction volume and numbers of 12% and 15%, respectively, in the first half of 2020;
  • Advanced economies reported transaction volume growth of 10% and transaction numbers of 11% in the first half of 2020.

Nasir Zubairi, CEO at the Luxembourg House of Financial Technology (LHoFT), says he is not surprised by the report’s findings. “It’s what we’d experienced directly with our ecosystem here in Luxembourg and further afield talking to firms outside of Luxembourg as well,” he says.

Emerging market growth

The survey highlighted that fintech in emerging markets and developing economies grew up to 5% faster than developed nations. Many observers in those markets concur.

The potential for fintech growth in emerging economies is huge, according to Raj Kulasingam, SM River director, an angel investor in African start-ups. He says it is well-known that whereas citizens of developed economies typically have a bank account, a debit card and can open new accounts easily, those in many developing nations simply lack these basic facilities. “Because you’re starting from such a low base, Covid just accelerated things,” he explains. “And we’re going to see more growth in fintech, that’s for sure.”

The survey’s report of resilient growth in emerging markets comes as no surprise to Mr Kulasingam. “Covid-19’s effect on fintech in emerging markets was to speed up the whole process by a decade,” he says.

“Human beings are creature of habit. We don’t like to try new things. As soon as you create an environment where you can’t transact using paper money anymore, then it just accelerates [change].”

Robust performance

Overall, the fintech sector was robust and performed well during lockdown, according to Mike Carter, head of platform lending at Innovate Finance in the UK. “The report really shows that when the Covid crisis hit, fintech was exactly positioned where it was needed for the economy, because there are businesses all over the world that have built these automated platforms for payments for loans, flow tables, etc.”

The report refers to many fintechs around the world asserting that much of their business during lockdown came from new customers. “It is great that fintechs were able to serve new customers,” says Mr Carter. “Customers found that they could use the fintechs very easily. It was a really good validation of the business model.”

LHoFT’s Mr Zubairi does not believe that there is crash ahead for fintechs. “There’s way too much capital to invest,” he says. “However, there may be some shift from alternatives by the private equity industry back into fixed income, as the fixed income market wakes up again as interest rates rise.”

There will always be a race to innovate in fintech and people will always look to profit from it, adds Mr Zubairi. “Investments will continue, and the evolution of finance will continue.

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