The coronavirus pandemic has greatly strained financial services providers and even fintechs, despite their digital prowess, have not been immune to the economic downturn.
With the exception of some of the largest providers, the vast majority of fintechs don’t have the benefit of mature customer bases to help weather the crisis.
Meanwhile, venture capital funding across all startup segments has fallen since the onset of the crisis, cutting off an important source of funds for those yet to achieve profitability. A March survey of more than 1,000 tech startups (not just fintechs) across the globe found that two-thirds didn’t have enough capital to survive past September. This financial vulnerability may have been a factor in the slew of fintech acquisitions by larger financial services providers at the beginning of this year, when coronavirus was just starting to spread around the world.
Likewise, the pandemic also exposed banks’ weaknesses. Within a matter of weeks as the coronavirus took off, banks reported spikes in deferrals and forbearances and a nosedive in profits, even at the largest financial institutions.
Most operations shifted to remote working. And amidst all this, banks did their best to take advantage of new emergency lending opportunities like the government’s Paycheck Protection Program.
This last undertaking illustrated why now may be the most opportune time for banks and fintechs to address their respective weaknesses through greater collaboration. To withstand today’s turbulent conditions, fintechs need banks’ mature customer bases, and banks need fintechs’ agility.
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