The coronavirus pandemic could be devastating for many companies, but it's also shining a spotlight on the power of fintechs. They seem to be responding to the sudden challenge, though uncertainties lie ahead.
The virus-driven moratorium on travel and the trend of companies encouraging people to work from home are changing the way people behave and communicate, and some of these changes could become permanent.
“The behaviors that people can execute from their living room or from their den are going to grow, and behaviors that require face-to-face interaction or getting out into the community are going to diminish,” said Nigel Morris, managing partner of QED Investors and a co-founder of Capital One. “What does that mean? You should have greater mobile apps and digital adoption in general. If I had been holding off on signing up for PayPal, for instance, I might just do that.”
Fintechs that help people do things remotely, like communicate about work, apply for a mortgage or make electronic payments, appear to be thriving, at least so far.
Instant messaging
In the broader business world, the trend of companies encouraging employees to work from home is driving sales and usage of web conferencing and instant messaging tools. The video-conferencing provider Zoom, for instance, says it has had a 78% increase in revenue over the past year to $188 million and its share price has risen 67.27% in the first three months of the year to $114 while the broader stock market has been mostly down.
Loans with favorable terms and gift certificates are among the solutions being promoted by companies like Kabbage and Honeycomb Credit.
Online platforms and apps can be utilized to quickly support small businesses and consumers facing unexpected financial hardship.
Automated and interactive teller machines aren’t germ-free in the best of times, and the pandemic has raised new concerns about the possibility of those devices infecting consumers and staff.
If you focus in on financial services, this trend is even more apparent. At Symphony, which provides instant messaging for bankers, the past two months have been busy.
In recent days, CEO David Gurle was dealing with surges of messaging activity ranging from 80% to 500%.
“I do not have a mathematical direct correlation that it is the coronavirus” causing the spikes in volume, Gurle said. “But clearly there is a correlation because it's happening during the timeframe that the coronavirus is happening.”
The volume of messages passed over Symphony has increased by 40% since mid-January, when coronavirus news began emerging globally. The volume of attachments to instant messages — PDFs, Word files, PowerPoint presentations and such — has gone up by 500% at some bank clients, he said.
“This is something that our customers are very careful about because attachments can contain, as you can imagine, confidential information like Social Security numbers or intellectual property that should not be leaked outside the company,” Gurle said. “Banks have been very reluctant to enable the attachment feature because they need to have significant control and data loss prevention.”
The coronavirus has broken through this resistance. In a two-week period, Symphony's clients averaged a combined 800,000 attachments per day. In October, they were sending 280,000 each day.
Some customers have called Gurle in the past few weeks to confess that their messaging volumes are exceeding the terms of their licensing agreement. In such cases, the company is granting three months of “all you can eat,” he said. It will revisit this policy in July.
Traditionally, Symphony has been used primarily by traders. But now, because so many people are working remotely, it's being used by people in many other departments, including finance and HR. Some bank clients are asking their suppliers to start using Symphony, too, he said.
None of this has strained Symphony’s system, Gurle said, because overcapacity is built in. Symphony runs mostly in the cloud, though clients keep their encryption key managers (and therefore control over who can access what) on-site.
However, the vendor is under some pressure because of the virus pandemic. Some bank clients have asked Symphony to make sure it can stay operational through a crisis and have asked questions about its resilience.
“Customers have reached out and said this is a mission-critical time for us, you are an essential part of our value chain, and we want to make sure that you’re going to be able to sustain your services,” Gurle said. “The market is crazy. And some of our customers have said, we do not want you to have any challenge to your infrastructure for the next 30 days. We want you to keep everything, and we don't want to have any potential risk. Keep it up and running. There is a real focus and worry that the value chain of the infrastructure for communication is in place and it's anchored.”
Digital mortgages
The digital mortgage software provider Blend, which has 230 bank clients, has also seen spikes in usage.
Each business day since March 4, the volume of refinance applications running through Blend has been up 1500% to 2000% from the same days last year. Most days, the company has also seen an 85% to 95% increase in mortgage purchase applications from the same days last year. With these increased volumes, the entire Blend platform sees between 15,000 and 20,000 applications per day and is processing daily loan values as high as $8 billion.
Bank and credit union clients have been telling the vendor that their volumes are spiking, but that using an online application helps them handle increased demand better than forcing customers to call an 800 number and wait on hold.
Timothy Mayopoulos, president of Blend, said the coronavirus is creating an additional sense of urgency for financial institutions that may have been on the fence about investing in digital mortgage technology before.
“But there has been interest in digital technology for lots of other reasons before and will continue to be,” he said.
Another mortgage tech vendor, Black Knight, has not seen a change in behavior since the coronavirus outbreak.
“Adoption of our digital mortgage tech continues to be strong, but doesn’t appear to be driven specifically by this as of yet,” a spokesperson said.
Julian Hebron, founder of the consultancy The Basis Point, said that banks and other lenders' digital mortgage projects are on hold as they cope with an "avalanche of new refi production as well as hedging and other financial risk that comes with it. Consumer, salesforce and loan production systems in place will be used until this production spike and associated management priorities subside. Then banks and lenders will resume their digital visions to improve customer and employee experience."
Contactless payments
Mobile and contactless payments are becoming more popular as people spurn physical stores for ordering by smartphones, and amid heated debates about whether people can become infected with coronavirus by touching cash.
“We know that money changes hands frequently and can pick up all sorts of bacteria and viruses,” the spokesperson for the World Health Organization told The Telegraph recently. “We would advise people to wash their hands after handling bank notes, and avoid touching their face. When possible it’s a good idea to use contactless payments.”
The mobile and online payment provider PayPal had a good fourth quarter, though the coronavirus outbreak started Dec. 1; it generated 13.3% higher net income than in the third quarter.
"PayPal is continuously growing," said Kryptoszene analyst Raphael Lulay. “The segment of online payment services is very competitive. Nevertheless, survey data shows that PayPal is in a significant lead. The group is also less affected by the coronavirus pandemic, among other things. PayPal is less dependent on advertising money than, for example, Facebook and Google.”
PayPal itself is cautious about its propects through the pandemic. It recently lowered the guidance of 15% revenue growth it had provided on Jan. 29.
“PayPal's business trends remain strong; however, international cross-border e-commerce activity has been negatively impacted by COVID-19,” the company said in a Feb. 27 press release. “We currently estimate the negative impact from COVID-19 to be an approximate one-percentage-point reduction, on both a spot and foreign currency-neutral basis, to PayPal's year-over-year revenue growth for the first quarter.”
Unknowns: budgets and the economy
As PayPal's guidance suggests, lurking behind the positive trends for some fintechs is the risk that the economy will continue to tank, taking household incomes and bank technology budgets with it. The hashtag “cancel everything” hovers over spending decisions of all kinds, said Peter Wannemacher, principal analyst at Forrester.
“People are holding off on doing lots of things,” he said.
This goes for buying houses. “I would not be surprised if a bank told me that their digital mortgage application volume hadn't changed at all or gone down slightly,” he said.
But in the long run, assuming the economy steadies itself or bounces back, the fintechs that make banking more efficient could do well, he said.
“There's really not a good reason that a customer of a bank can't accomplish any task through a digital touch point,” Wannemacher said. “I wouldn't be surprised if in two years the state of digital applications had grown and matured faster than it has in the past five years because COVID-19 made them take it more seriously. Unless it is countered so strongly by such a deep recession that the problem is banks just don't spend any money.”
