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Only the flexible fintechs will survive the coronavirus recession

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The COVID-19 pandemic hit the financial industry stronger than the 2008 crisis, with lockdown and uncertainty only exacerbating the situation.

Fintech companies were able to adapt to the lockdown much faster than the traditional banks, as they are more tech-savvy, provide their services mostly online, and have a less-crowded employee structure. But this doesn’t mean that fintechs had it easy.

The immediate impact, which lasted from around Feb. 20 to the beginning of April, had different effects on fintech segments. The exchanges and insurance segments’ performance dropped by 20% to 25% at the beginning of the lockdown. But by April 2 the losses were reduced to 13% and 17% respectively. While the former found great benefit in elevated volatility, the latter had to adapt to the new challenges presented by the pandemic and were more or less successful.

That cannot be said about payments and lending sectors, as by the beginning of April both suffered a 28% performance decrease. Payments faced some of the hardest-hitting consequences of the immediate COVID-19 impact, as global spending declined and many businesses in the services industry found themselves in a very difficult position. However, e-commerce became essential during the lockdown, allowing payments to keep afloat.

Needless to say, some of the fintechs still had to dial down fixed expenses or lay off personnel due to uncertain times ahead. These and other issues are still prevalent: Some fintech companies struggle to keep up with the operational resilience, the fight for investors gets more severe, and higher transaction volumes should be dealt with by improving inner system capacities.

It certainly doesn’t help that in the first quarter of the year global fintech funding dropped to $6.1 billion, which is equivalent to the 2017 rates. For reference, in the last quarter of 2019 funding amounted to 11 billion — the biggest since 2016.

Not all fintechs will be able to withstand the coronavirus crisis — companies that specialize in loans, travel services, and some of the startups are topping this list. Traveling was significantly restricted by the lockdown, lenders have to compete with traditional banks and may be overwhelmed by the growing demand, and startups are likely to lose clients that in times of uncertainty might prefer using more well-known payment service providers.

The ability to adapt is crucial for fintech companies to survive the crisis and thrive afterward. Right now, fintechs are embracing the pandemic as a tool to help their clients. Some introduce features that allow them to donate money to COVID-related charities, while others cancel software subscription fees.

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