In times of uncertainty and crisis, we often see innovation and the rise of new solutions to old problems. Huge events and life changes galvanise people into action. We learnt this from the 2008 financial crisis which saw a substantial amount of traditional brick and mortar bank institutions moving over to the fintech (Financial Technology) sector.
Financial institutions were urged to invest in their digital and tech strategies to meet the needs of consumers and those that did are now massively ahead of the curve! The ongoing pandemic is the biggest opportunity yet for fintech companies to step up and meet the needs of consumers who need loans, financial security, online banking, much more, and all of that needs to be online. Have you seen the queues for banks lately?
At Salad Money, we realised that open banking technology could help us give NHS employees a fair lending option and avoid toxic high-cost loans. You can securely access our loans online, saving you time and removing the need to go into a bricks and mortar high street lender, which has become even more important during the COVID-19 crisis.
So, what is a fintech company and were people using them before Covid?
Plainly speaking, it is a financial technology company. The fintech industry itself is vast - crowdfunding platforms like GoFundMe and digital lending services all fall under the same category.
The industry is completely built around financial services and has resulted in banks using increasingly sophisticated technology. However, many banks had been putting off the expensive and time-consuming move to fintech and instead had relied on their physical premises. As governments instigated lockdowns across the country, these banks and other financial companies realised that they had to go online - and fast.
It comes as no surprise that the industry is booming. In fact, 20% of fintech companies reported a huge surge in demand in May 2020, the middle of the first quarantine.
Are fintech companies immune to the COVID-19 recession?
The tech industry is agile and innovative and the fintech sector is no exception, exhibiting significant strength in the face of the pandemic. It is better positioned than most to weather the storm.
Research carried out by Beauhurst reveals that the Coronavirus crisis has only critically affected 1% of fintech companies. Fintech is the UK’s best-funded tech sector and the majority of the companies (73%) are based in London, which has had the highest proportion of positively-impacted businesses.
As we mentioned before, the first Fintech companies came around as a result of the 2008 financial crash. Necessity breeds innovation!
According to Statista, 172 fintech companies were founded in 2008 across different industry sectors. The highest year recorded was 2014 with entrepreneurs and businessmen founding a whopping 724 fintech companies.
This shows us that yes, many people were using fintech companies before the outbreak of Coronavirus. However, after 2014 this number began to decrease with 2015 being at 577, 2016 at 347 and 2017 at 86. At the time of this report release date, September 2018, there were only five recorded fintech companies founded globally.
The number of new fintech companies may be going down, but the fintech industry isn’t going anywhere. Investment into the sector is booming; fintech companies receive £102.3 billion a year. Pandemic or not, fintech is here to stay.
How many more people are using them now?
The adoption of fintech is a global trend - data analysis from App Annie shows us that Japan, South Korea, the US and China saw the biggest rise in hours spent on fintech apps during the first week of March 2020. Compared to the last week of 2019, Japan, SK, the US and China upped their time spent on fintech apps by 55%, 35%, 20% and 20% respectively. This may reflect how consumers are increasingly worried about global economic instability.
Digital lending platforms have responded quickly to the spike of loan applications resulting from layoffs and businesses shutting down. Incumbent banks alone have not been able to adequately meet the needs of the many who are struggling.
The number 1 digital lender in South Korea, PeopleFund, saw a 123% increase in loan applications in March compared to the same time last year. This is an incredibly hard-hitting statistic and further demonstrates the demand for digital lenders in the pandemic. The 754.3 million pounds worth of loan applications to PeopleFund not only indicates how necessary these services are, but also shows the shift of borrower habits from traditional banking to easily accessible digital lenders.
UK online platform Funding Circle has doubled their shares after securing government approval to lend to small businesses through schemes assembled by the UK and the US. Funding Circle was the first marketplace lender to join the UK's Coronavirus Business Interruption Loan Scheme (CBIL).
While CBIL is not without its shortcomings, it has reduced the criticism facing banks for being too slow in responding to the pandemic and issuing loans to small businesses loans.
At Salad Money, we’re different from other fintech leaders
We wish we didn’t have to exist, but we do. We exclusively provide small loans to NHS employees who have been faced with unexpected charges or are simply experiencing a hard time financially. Our primary purpose is to act as a responsible workforce lender.
Compared to traditional financial institutions, digital lenders have proven to be increasingly more effective in screening borrowers and issuing loans quickly and responsibly. We use Open Banking which is a UK-wide FCA-regulated service that reassures us as well as the borrower that they can realistically afford to take out a loan. We are not interested in taking advantage of money misery and adding to that with repayment fees.
Open Banking is essentially the digital equivalent of allowing someone to look at your printed bank statements to assess financial information. This doesn’t affect credit score whatsoever and helps us to determine whether it is responsible to offer a loan. This runs through to how we operate as a business - our social objectives are top of the list. Equality, acting fairly and providing affordable credit for NHS workers outweighs our need to make a profit every time.
While capitalising off the back of the pandemic is not ethical, a lot of fintech companies are being formed out of necessity and are not unethical ventures.
The adoption of fintech and the boost that fintech startups have gotten was expected to take years, not just a few months. Previously, consumers might have been hesitant to move their finances online but now there isn’t much choice.
Fintechs have gained the traction they needed to accelerate in the tech sector and the world is getting a crash course in how to use them. It is clear that companies and organisations need to remain agile in times of change. The technology is there; it’s time for the brick and mortar banks to catch up.
To learn more about our services at Salad Money, contact us today.