Coronavirus and Acceleration of Fintech

By Amandeep Midha, Principal Consultant at BEC, Denmark

March 17, 2021

Around the month of May 2020, two months into the pandemic, Paypal broke a big news, the fastest growing segment in the US during March & April 2020 with Paypal was people over 50 years old. Those who had never used a financial technology (aka FinTech) app before were now signing up to use those applications, and then we saw a whole range of use cases that extend from both consumers and small businesses. 

As we use the word Fintech instead of Financial Technologies,  were already on a great path. What Coronavirus did is the entire population that has not used Fintech before had essentially been forced to use it. What Covid did is accelerated a trend which was already happening. We can see some drop back but I don’t think it gonna go back to pre-covid levels in terms of acceptance of Fintech as people realize what value it can bring to their lives, the value and efficiency of these use cases and being able to bank from you phone, I don’t think that is going anywhere as we go back to real world after this

Not just banking online, ability to call advisors from phone apps. From the retail standpoint, the payments that get cleared between in-store and online , there is a huge spike in online transactions. Some might go back to the old way, but increased level of E-commerce adoption, the online shopping & payments, that is a sticky habit as already people are using them for an year now. Also this has impacted different segments of Fintech differently

You have a huge rise seen in people signing up online for investment accounts, ability to purchase insurance via video call, and on the other side alternative lending had a relatively tough time obviously because of the risks of defaults. Therefor it has impacted different parts of the Fintech ecosystem differently and there is going to be new watermark in accepting doing your entire banking online  and other financial services activity online

Regulatory Landscape

Coming to regulatory setups, each geography has its own emphasis on issues like data privacy, and Fintechs being applying latest technologies are better able to adapt to new processes related to data management. With the UK open banking adoption the landscape has shifted towards banking APIs. EBA (The European Banking Authority) came up with guidelines in September 2019 that outsourcing includes using Cloud providers where you have faster monitoring of infrastructure, and at the same time many European banks had fines against them for not having appropriate controls in regards to money laundering, so just imagine the technology push and pull it can bring to this space. And for banks to build such a multi million dollar cost solution, it makes sense for them to partner with a Fintech. And for banks to expose certain services to Fintech they would have to again develop those APIs and interfaces to work with Fintech seamlessly, and Covid in all of it has been just a catalyst. I can only smile while working on the technology side within Fintech

Rise of Crypto Adoption

And the Crypto currencies space, well less said the better, all the models that plotted on WCC (World Corona Cases) and WCD (World Corona Deaths) show the negative relationship between currency value and reported cases and deaths. First leg of WCC shows negative correlation with price of Crypto currencies, and then onwards using WCC and WCD both as independent variables, both negatively correlated with Crypto currency prices. As WCC & WCD rise, governments impose more restrictions, and demand for non-traditional assets like cryptocurrencies go higher!

Except for one study by Thomas Conlon and Richard McGee which came in 2020, all other studies and data point to rise and adoption of crypto currencies with spread of Covid

Just like real estate entered into the portfolio of institutional money with 1% allocation in 1970s, same kind of institutional money allocation adoption we are seeing now in crypto currencies space, and it is expected to go up further, again thanks to the year of Coronavirus

Special case of DeFi

And there is particular case for The rise of DeFi(Decentralized Finance).

DeFi ecosystem started around 2015 after Ethereum Blockchain. And till January 2020 the TVL (Total Value Locked) was around 600 million USD. During the covid period, the world of crypto currencies has exploded in terms of new users and new financial applications built on the Ethereum blockchain. Currently there is around a total of 40 billion USD used in the DeFi ecosystem, from 600 million to 40 billion, all happened due to Covid. “DeFi is an abbreviation of the phrase decentralized finance which generally refers to digital assets and financial smart contracts, protocols, and decentralized applications (DApps), most of which are built on Ethereum. In simpler terms, it’s financial software built on the blockchain that can be pieced together like Money Legos”

In summer 2020, the DeFi ecosystem has witnessed a boom in terms of new users due to an increase in deployments of new applications that provide financial services to their users. These financial services include, trading, borrowing, lending and issuance of financial instruments such as derivatives, options and synthetic assets.

Due to the open API architecture of  the ethereum blockchain all these defi apps could easily communicate with each other without asking permission from their owners. This leads to unprecedented levels of integrations and creation of new features that the old banking system could just dream about. In interesting case of such open api feature is the ability for a user to borrow large funds of crypto from a lending pool and use it in his market strategy for the duration of one block on the ethereum blockchain. One block means that the user needs to perform all his operations during the duration the block, i,e, 15 seconds. This is done by him coding up the strategy to use this money and deliver it back. This is called, flash loans. 

DeFi allows retail users to deposit their cash and start earning large interest rates on their money. The way they earn their interest is by depositing their stablecoins ( converted cash into stablecoins) into market lending pools where their money is being borrowed for market traders.

DeFi is slowly creating a parallel wall street that is accessible to anyone with a crypto wallet on their smartphone. 


So what does it all lead us into ? We had a 50 year plus segment signing up for Paypa at an unprecedented pace, Paypal coming to acknowledge a spike in prices of online transactions. It is not just Paypal, it is the case with Square, Venmo, Revolut, Monzo and many more players which basically means the whole Fintech space has propelled itself to a different growth trajectory, thanks to Covid. Paypal and Square came out to acknowledge their crypto currency holdings. DeFi space TVL goes from 600 million to 40 billion, I believe Fintech space has lot to say thanks to Covid for how it has excelled