MICROCAPITAL BRIEF: Amid Pandemic, Fintechs Pause Some Projects, But Innovate to Care for Customers, Staff

MIX, an NGO based in the US city of Washington, recently surveyed 25 financial technology (fintech) providers and investors regarding their responses to the COVID-19 pandemic. Over the past two months, investment in fintech providers has fallen, as has their revenue, due to lower remittance and lending volumes. The fees that fintechs charge are also down, sometimes at fintechs’ choosing, but sometimes by government decree. Clients have more incentive to use mobile money due to travel restrictions, branch and agent closures, and the potential transmission of germs via cash. However, they have less money to transact. One study found that four in five business owners in Kenya did not have the cash needed to continue operations. Another survey found households in Kenya, Mexico and South Africa only have one to two months of savings on which to live.

In addition to cutting fees, fintechs are granting their customers grace periods on loan repayments. While expensive, these measures may lead to increased brand loyalty in the future. Fintechs that process applications for bank loans continue to operate, with the hope that their small and medium-sized business clients will be able to access cash sooner, once bank lending begins to recover.

While fintechs are slowing down new product development, they are innovating in ways such as moving advertising online and shifting sales efforts to telephone contact. While they are pausing recruitment, some fintechs are keeping laid-off employees on their health insurance plans. For employees that remain active, “The challenge [fintechs] continue to grapple with is ensuring [their] tools keep employees engaged, preserve the existing company culture, and maintain connections among teammates.”

As for new funding relationships, many investors are holding their cash in case their existing investees need lifelines. While some grants and low-interest loans have been made available to fintech providers, these firms report that finding which options apply to them is overly time consuming. To meet with new potential investors, they are beginning to explore online methods.

The authors of the report propose that an increase in virtual meetings could push investors to use more remote due diligence. If such a trend were to continue beyond the pandemic, it could diversify the mix of markets that receive investment. On the other hand, if the post-pandemic landscape includes increased usage of mobile money, this could marginalize the poorest people, who have less access to technology.

The goal of MIX is to create “catalytic data initiatives” in fintech and agricultural finance, including elements such as client-facing products that leverage mobile devices, back-office technology for managing microfinance institutions and new technology-based business models. For the year ending June 2019, it brought in revenue of USD 2 million. The legal name of the organization is Microfinance Information Exchange.

Sources and Additional Resources

MIX report
https://www.themix.org/news-blog/disrupting-fintech-four-ways-early-stage-firms-are-adapting-to-deal-with-the-effects-of-covid-19

MIX homepage
https://www.themix.org

Internal Revenue Service financial data on MIX
https://www.irs.gov/charities-non-profits/exempt-organizations-business-master-file-extract-eo-bmf

More news from MicroCapital on COVID-19
https://www.microcapital.org/?s=covid

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