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CCAF Report: Global COVID-19 FinTech Market Rapid Assessment Study

CCAF | Tania Ziegler | Dec 3, 2020

covid fintech rapid assessment report - CCAF Report:  Global COVID-19 FinTech Market Rapid Assessment StudyThis global study seeks to assess how financial technology firms (FinTechs) have been impacted by COVID-19, and how they are responding to the resultant challenges and opportunities. The study is a joint initiative of the Cambridge Centre for Alternative Finance (CCAF) at the University of Cambridge Judge Business School, the World Bank Group and the World Economic Forum. This research was supported by the UK Foreign, Commonwealth & Development Office, and the Ministry of Finance of Luxembourg.

Key findings

This study finds that, despite unprecedented uncertainty and rapid changes in market conditions, FinTechs across the globe have been resilient in responding to the challenges of the COVID-19 pandemic. Twelve out of 13 surveyed FinTech verticals reported growth on average in Q1-Q2 2020, compared with the same period in 2019, although the growth was very uneven across markets and geographies. FinTechs were nimble and innovative in adapting to market conditions by both tweaking existing products and services and launching new ones. However, they still face significant headwinds in operations, fundraising and regulatory challenges across the world.

FinTech market performance in general during COVID-19

Despite COVID-19, FinTechs continue to grow globally. On average, FinTech firms reported a year-on-year increase in their transaction numbers and volumes of 13 per cent and 11 per cent respectively in Q1-Q2 (used interchangeably with H1 throughout the report). This is consistent with reported improvements in other key market performance indicators such as new customer acquisition and customer retention.

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However, the impact of COVID-19 on market performance is not uniform across FinTech business verticals or geographic jurisdictions. Except for digital lending, all verticals reported an increase in transaction volume, however the rate of growth varied significantly. Digital Asset Exchanges, Digital Payments, Digital Savings and WealthTech all reported year-on-year growth in transaction volume in excess of 20 per cent in Q1-Q2, whereas Digital Banking, Digital Identity and RegTech sectors reported more modest year-on-year increases of around 10 per cent in Q1-Q2. Conversly, Digital Lending firms reported an eight per cent year-on-year contraction in Q1-Q2 globally in transaction volume and numbers of transactions, as well as a six per cent decrease in the number of new loans issued. This situation was compounded by a nine per cent rise in defaults on outstanding loans. All geographic regions reported growth by transaction volume, but with pronounced variations among them, with the highest increase reported in the Middle East and North Africa (40 per cent), followed by North America (21 per cent) and Sub-Saharan Africa (21 per cent).

FinTech markets with more stringent COVID-19 lockdown measures reported higher growth in transaction volume. With OxCGRT dataset[i], countries in the FinTech survey sample were grouped into low, medium and high-stringency quantiles according to the stringency of government responses to COVID-19. On average FinTech transaction growth in high-stringency countries was 50 per cent higher than those in low-stringency jurisdictions. This trend was most evident for Digital Payments, where FinTechs in high-stringency jurisdictions reported a 29 per cent growth, twice the average growth of Digital Payments providers in low-stringency jurisdictions during the same period. The demand for Market Provisioning FinTechs (i.e. Digital Identity) also followed this trend, with transaction growth of 20 per cent for high-stringency jurisdictions compared to just two per cent for low-stringency jurisdictions.

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FinTechs in emerging market and developing economies (EMDEs) reported higher growth but also more operational challenges and risks than those in advanced economies (AEs). EMDE FinTechs reported an average H1 growth in transaction volume and numbers of 12 per cent and 15 per cent respectively – more than the 10 per cent and 11 per cent reported by firms from AEs. FinTechs from EMDEs also reported higher growth in new customers and higher customer retention than firms from AEs. While FinTechs from EMDEs were able to grow their customer base and transactions during COVID-19, they also reported larger increases in operational challenges, costs and risks than firms from AEs.

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