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Coronavirus has upended payments, and fintech investing

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The payments industry has been in a state of disruption for years, with new technology, greater flexibility and customer experience improvements defining the past decade of innovation. The COVID-19 pandemic all but guarantees an accelerated adoption of new payments technology, both online and in physical stores, but the trajectory of new solutions is going to pivot according to the new pandemic reality. Over the next few years, we’re going to see fintech investments evolve accordingly.

Let’s look at the effect that today’s widespread upheaval will have on the payments and broader fintech investment landscape, as well as the types of startups that will come out on top.

The adaptation toward contactless payments has been underway for years, but the pandemic has prompted us to reconsider whether the solutions we’ve been pursuing are truly “contactless” enough.

Sure, cards, chips and mobile technologies that replace cash do remove a certain level of contact in the physical store environment, but in the context of reducing virus transmission potential, do they go far enough? Viewed through today’s lens, we’re seeing a lot of systems—even ones like Apple Pay—fall short of the market’s current need. A wave of a card or device might be enough to initiate a transaction, but too often, people are still being asked to touch store devices to confirm amounts or sign for transactions.

In an era where every point of physical contact poses a heightened exposure risk, we find room for improvement. And where there is room for improvement, we find areas ripe for investment. Over the coming months and years, truly contactless options that transmit payments via mobile methods like text will gain traction and help alleviate pain points with today’s point-of-sale solutions. Likewise, we’re going to see interest in technologies that reduce contact at ATMs, via similar texting methods or the scanning of QR codes.

While cash transactions aren’t going away overnight—hence the need for better ATM experiences—the pandemic is going to fuel much broader adoption of cashless transactions between individuals, not just individuals and businesses. In this regard, there’s a lot of room for challengers to obtain market share from PayPal’s Venmo and Square’s Cash app, especially if a solution can solve more than one problem for customers and seamlessly integrate into their broader financial management processes.

As cashless transactions jockey for the lead of payment options, consumers will also pursue platforms that offer a secure solution. Thus, the winners in the peer-to-peer payments space will be the ones that favorably balance consumer-friendly efficiency and security.

In addition to peer-to-peer payments, in a recession we should expect to see a larger market emerge for peer-to-peer lending. Current leaders in the peer-to-peer lending space, such as LendingClub, have benefited from a first-mover advantage. LendingClub’s online marketplace acts as a loan facility between borrowers and investors, but with the origination fees ranging from 1% to 6%, watch for newer, cheaper and more efficient peer-to-peer lending platforms to have an opportunity to capture LendingClub’s existing market share.

Speaking of the recession, we have seen a severe curtailment in consumer spending, which will continue to influence the ways in which people look to save and invest money for the foreseeable future. Rather than large-sum movements of cash, we expect to see consumer interest—and thus, investor interest—surge around micro-investment solutions.

We see current manifestations in platforms like Robinhood and Acorns. Robinhood, which targets active investors, recently rolled out Fractional Shares, which allows users to invest as little as $1 into Wall Street’s most beloved companies, such as Apple Inc. This eliminates previous restrictions under which one had to save up hundreds of dollars in order to buy one share. Acorns, on the other hand, is for passive investors. Acorns’ Round-Ups feature builds on a person’s digital transactions by rounding up each payment to the nearest dollar and invests the change into low-fee ETFs.

When it comes to micro-investing, as with many other fintech areas, there’s still tremendous room for new solutions that better integrate with people’s daily lives and simplify the number of apps and platforms required to manage their financial lives.

Regarding micro-investing apps, solutions that can serve more than one purpose (for example, by enabling payments, savings management and investment all in one place) will gain favorable consideration from investors and consumers alike. These solutions—along with others designed for a post-pandemic, lean-living future in which prodigious swaths of people adopt digital payment and financial management solutions—will also be prime acquisition candidates for today’s leading financial brands as they look to keep pace with consumer’s ever-evolving needs.

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Coronavirus Fintech Investments Digital payments
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