Faced with the coronavirus pandemic, will entrepreneurs and business executives remodel their enterprises? The world may be moving for a recession following theCovid-19 outbreak, which indicates that financial markets and consumerization are affected.
In the short term, we have witnessed numbers of investors resorting to safer investments, other than digital assets. According to the Financial Brand, this implication is likely to have an impact on Venture capitalist funding of the Fintech industry. Mastercard and Visa even warned investors that sales would drop by at least 2 percent and 4 percent.
Visa has already seen a slump in cross-border transactions, particularly those involving travel services. The other implication is the fall in stock prices for video conferencing companies. Mastercard and Visa, on the other hand, have reduced their stocks by 12% since February 19, 2020. Compared to the 10% drop in the S&P 500.
Presently, the quarantine policies will likely implicate consumerization. Making people think twice before spending. People will travel and dine less, as well as minimize their visits to shopping stores. Two days ago, President Donald Trump announced the American economy could be heading for a recession, and the Dow Jones Index dropped to 12.9%. The London FTSE 100 closed at a 4% low, while other leading global financial markets witnessed similar slides.
Investors have also become skeptical about stocks for payment processors. This is due to a decrease in the amount of day-to-day transactions. This has resulted in low amounts of fees collected.
Factors Signifying a Fintech Slump
The horror of the financial crisis of 2008 is still a fresh memory. The recession resulted in a rapid and sudden fall in the stock market, plus a severe economic interruption. Despite joint efforts on the part of central banks to save the situation and ease the effects of Covid-19; investors have noticed the concern and have blindly dumped their stocks. A CMC markets analyst thinks efforts by central banks are having an opposite effect on the performance of the financial markets.
- Businesses that rely on heavy marketing spending for growth are in the blackspot. Most companies usually cut down their marketing budgets during the economic recession.
- Fintech related companies will have a problem raising venture funding. Take notes from the 2001 recession that was followed by a tech bubble burst. Valuations for tech companies were high, but after the crash, the valuation slumped. A similar situation is likely to take shape in the nascent fintech.
Negative Implications of the Coronavirus
Flight to safe investment avenues. Potentially resulting in drying up funding for nontraditional financial services companies. There is a likelihood of early-stage fintech companies having to shut down.
Limited exports and imports have caused hardware shortages. This has adversely affected companies that rely on digital components for transport transactions, one of which is Square. In addition, lowering the transaction fees that payment companies can collect reduces the valuation of transaction processing firms.
Positive implications of the Coronavirus
Coronavirus can steer huge traffic flows from fiat currency to digital banking. A trend that will track mobile payment and internet banking technology innovation quickly. Thus, institutions and banks that may have been skeptical about approaches to digital banking might turn to fintech for help. Weakening governments and organizations could loosen compliance and regulation against fintech services.
In the long run, VCs will have more finances to fund fintech firms once the economy stabilizes. Especially for the companies that withstand the tides of the virus.
