The economic crisis brought about by the COVID-19 pandemic is disproportionally impacting small businesses and low-income households. While there is emerging evidence about how individuals and MSMEs have been impacted by COVID-19, the impact on the providers that serve these customer segments is less clear, particularly when tech-enabled providers play an important role in mitigating the economic impacts of the pandemic for households and businesses by deploying services quickly and efficiently. Additionally, fintechs are well-suited to bounce back and reorient themselves in times of crisis given their agile nature. However, in order to determine how best to support fintechs, more information is needed to understand how these providers have adapted to a challenging economic landscape.
To understand more about the impact on and the role of these providers, CFI, in partnership with the Swiss Capacity Building Facility, conducted research to understand fintechs’ early adaptation and coping models under COVID-19. This brief draws findings from the Inclusive Fintech 50 applicant data coupled with key informant interviews with investors and fintechs conducted in March 2020. During June and July 2020, 403 early-stage fintechs (Figures 1 and 2) applied through a publicly available online form that gathered data related to target market, financials, product details, as well as seven COVID-19-specific questions exploring changes in fintechs’ business and operating models between December 2019 and May 2020. The findings also include COVID-19 survey findings from six 2019 Inclusive Fintech 50 winners.
Inclusive Fintech 50 Sample Distribution
Figure 1. Inclusive Fintech 50 Distribution by Product Category
N = 409
Note: Infrastructure includes a fintech whose main business is to provide processes and tools that enable multiple types of financial services such as credit, payments, insurance, and personal wealth management.
Figure 2. Inclusive Fintech 50 Distribution by Fintech’s Operating Country
The findings show these early-stage fintechs innovated rapidly to meet the changing needs of their customer base, while simultaneously reconfiguring operating models, internal policies, and growth strategies. Importantly, the findings present clear opportunities for investors to play a central role in expanding financial services to the underserved through these critical providers.
Findings from our research reflect five key takeaways:
- Fintechs are operationally resilient. Fintechs are maintaining a cash buffer and employing diverse strategies to keep their staff on board.
- New partnerships. The pandemic is enabling early-stage fintechs to increase their business opportunities by creating new partnerships with banks, government, and non-governmental organizations (NGOs) that need to digitize their services.
- New approaches to customer acquisition. Early-stage fintechs are employing digital delivery channels like platforms to increase uptake.
- New products and product changes. Early-stage fintechs are pivoting products to meet client needs. Payments and — surprisingly — savings and financial management fintechs grew their services between December 2019 and May 2020.
- New funding sources: Almost all of the fintechs have had to change their fundraising strategies in light of COVID-19, mainly diversifying their funding base.
While fintechs have shown resilience by innovating and evolving their offerings in the wake of the COVID-19 crisis, their biggest need remains access to capital in order to continue innovating.