By Richard Ambrose, CEO, Azimo
The sustained growth enjoyed by many fintech companies so far in 2020 is as impressive as it is surprising. As the world plunged into recession earlier this year, most financial services companies expected business to get a lot tougher.
The remittance industry, with its dependence on migrant workers often working in hard-hit sectors like hospitality and transportation, looked particularly vulnerable. In April the World Bank predicted that remittance volumes would decline by 20% during 2020 – the sharpest decline in recent history.
But with millions of people across the UK confined to their homes by lockdown, many digital businesses saw a sudden surge in demand. Some of this was predictable.
Services like Amazon and Netflix were always likely to acquire more customers. The same goes for online banking: without access to local branches, it was a logical step for offline consumers to turn to the online tools offered by their banks.
More surprising, however, was the number of people switching to online-only providers, or trying a new financial service provider for the first time. Investment apps sessions grew by 88% between January and June, according to research by Adjust.
In Italy, e-commerce transactions soared by 81% in a single month. Digital banks, share-trading platforms and P2P lenders all welcomed new customers with more time on their hands, seeking value for money and keen to invest in their future.
Given the grim predictions about remittance volumes, the money transfer industry was rightly cautious about its prospects for the rest of 2020. Yet at Azimo, new monthly customer numbers were around 50% higher during lockdown than before the crisis. Customers in the Philippines, a market traditionally dominated by cash, chose increasingly to send money to bank accounts instead of cash pick-up points, which were closed for long periods during the spring.
For decades, money transfer was dominated by mainstream banks and incumbents like Western Union. Until relatively recently, it was normal to pay up to 10% in fees and commission to send money abroad. The industry has made some progress, but with the average charge still hovering around 7%, there remains a long way to go.
Digital remittance providers have undercut traditional players, often charging less than 3%, but it has still been a challenge to convince customers to leave their local money transfer shop behind. Before the pandemic, some 80% of the market remained offline, and data from incumbents like Western Union suggests that may have declined only to around 70% despite the disruption of global lockdowns.
While fintech is hitting the mainstream, the war is far from won. Incumbents still dominate in most financial services sectors.
How can fintech companies consolidate their gains and move forward?
First, companies must understand consumer expectations. The era of “move fast and break things” is over. The average UK consumer has become used to digital services that work first time and every time. If more consumers are going to switch to digital financial services, they must be confident of a service that’s as reliable as their
taxi-hailing app.
Second, companies must ensure that user experience keeps pace with emerging technology. The fact that software “works” is not good enough. As machine learning, AI and AR make new functionality possible, so they increase technical complexity that must be hidden from users with intuitive design. Fintech companies have enjoyed a competitive advantage in this field, but there is now a danger of complacency just as traditional players start to catch up.
Finally, and most importantly, digital companies must focus on trust. Offline consumers will not try a digital service if they think their money is at risk. People who were forced online by lockdown will soon return to the high street if they have a bad experience, or can’t get hold of customer service when they need support.
This is especially true as we endure a global recession and a potential mental health crisis. Times are already hard, and it looks like they’re going to get harder as government support is reduced and a global recession bites.
NHS leaders and charities like Mind and the Samaritans have all reported a large rise in people seeking help for mental health issues. Money worries are a leading cause of stress and depression, and financial services companies have a duty of care to their customers. When people move money, they deserve fast delivery and easily accessible support if things go wrong.
Fintech companies that understand this and invest accordingly will look back on the COVID pandemic as a defining moment for their businesses.