Some fintechs are still thriving. Firms that equip entrepreneurs and merchants with the
ability to process digital payments with one click, like Stripe or Square, have been
buoyed by the dash away from cash. So have those, like Marqeta or GoCardless, that
help restaurants and gyms collect delivery or subscription fees. “Buy now pay later”
upstarts like Klarna or Afterpay, which arrange short-term loans at the point of sale,
have gained the favour of thrifty shoppers. Electronic brokers, such as Robinhood or TD
Ameritrade, are seeing record volumes of trading as households take to wagering on
stocks from the sofa. Friends settle accounts by dipping into their digital purses rather
than physical wallets.
But the pandemic is throttling others. Venture capitalists still have a lot of money to
spend, yet the uncertain outlook makes them warier of startups that burn cash with no
extinguisher in sight. They also prefer older, proven firms to complete newbies, so
funding is getting more elusive and may remain so next year. At the same time, the
revenues of some popular challenger banks—many of which earn their crust by
pocketing fees on each purchase made by account-holders—have dried up as users no
longer pick up lattes on their way to work. In the name of growth for growth’s sake,
others have let costs escalate. All these pressures are forcing struggling fintechs to cut
marketing budgets, causing customer acquisition to stall. In 2021 their survival may be
called into question.
Established banks, too, have been rocked by covid-19. Many had underinvested in
digital, and were caught off guard as lockdowns started. Low interest rates, along with
rising loan losses as firms go bust and people lose their jobs, mean they will have little
to spend on upgrading their tech. But banks that had the foresight to turn paper and
manual processes into lines of ones and zeros were rewarded by millions of app
downloads, surging sales and glowing satisfaction surveys. As the laggards are forced to
close branches or trim services to cut costs, frustrating their customers in the process,
the leaders will gain market share. They will also broaden their offerings by leaning on
fintechs for some tasks and products.
As they seek to regain control of their finances in chaotic times, many customers will
trust banks more than anyone else to look after their money—at least for a while. It is
an asset the banks should do their best not to squander.
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