7 Effects of Covid-19 on the Chinese Fintech Market

Believed to have originated in the Chinese province of Wuhan toward the end of 2019, COVID-19 was officially identified and named on February 11, 2020, by the World Health Organization. As of March 6, the coronavirus has spread to over 80 countries around the globe, including the UK and the US, with the number of cases of infection surpassing 100,000.

According to Euler Hermes, COVID-19 will cost $320 billion in trade losses every quarter. The coronavirus outbreak is taking its toll on many business aspects.

The impact of the virus could potentially and significantly affect the fintech landscape in China, posing a boon in some segments or for certain cases (less air pollution!) and not so much in others.

Let’s look at the top ways Chinese fintech companies might get hit due to COVID-19.

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1.Consumer-facing fintech companies at a larger risk

If people start working from home and staying home for the most part, digital-first banks could harshly suffer. That’s because these banks make virtually all their revenue on the transaction deals that merchants pay when customers swipe their debit or credit cards at the checkout.

Additionally, if markets are down, customers will shop less often. For automated robo-advisor apps, declining stock prices would mean less revenue, as they charge their fees as a percent of customer assets under management.

2.Low or no funding for fintech startups in China

Funding for the Chinese fintechs was already low in 2019, potentially partly due to the trade tensions between the US and China. In Q4 2019, fintechs in China only secure $298 million, a whopping crash from $1.8 billion during the same time a year before.

The coronavirus is making the country’s fintech market and overall economy look fairly uncertain, and we can expect investors to shy away for the time being. This can mean Chinese startups should look for other ways to sustain themselves in the grim funding environment of 2020.

This trend will not be exclusive to China as VC firm Sequoia has warned startups to ‘brace for turbulence’.

3.A blow to the investment landscape

Consumers may become warier of investing in these turbulent times. This might negatively impact the business of wealth managers and online trading platforms. Stock markets have been highly volatile and many fear a global recession.

The Federal Reserve has already implemented an emergency rate cut, indicating that the coronavirus is already affecting the economy. Under these circumstances, in China and elsewhere, consumers will be less keen to invest their savings, impacting wealth managers that charge consumers a percent of assets under management.

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4.Boost for certain insurance types

The coronavirus pandemic might increase awareness of insurance and boost demand for health and life coverage, as well as event cancellation coverage and business interruption. For instance, the virus has led to the cancellation of many global events at the last minute.

At the same time, it’s not expected for insurers to witness a rise in claims on the back of coronavirus. Most travel insurers exclude pandemic, epidemic, or infectious diseases from their coverage.

5.Low revenue numbers for cross-border payment players

First Mastercard and then Visa cut its predictions for revenue growth in Q1 2020, while also lowering sales expectations for Q2. These companies are expecting a 2-3.5 percentage points drop in revenue.

The reason behind the cut is simple- cross-border payments fear. When a flight is canceled, it means none of its 300+ passengers will be using their credit cards to spend on travel-related stuff.

Multiplying this single loss by the number of events getting canceled will amount to a significant loss. The most frightening impact has been on travel to and from Asia, resulting in a sharp slowdown of cross-border business.

6.Low international e-commerce activity

A top player in the segment, PayPal, has indicated that international e-commerce activity has been impacted by the coronavirus, which brought its revenue expectations down. PayPal currently estimates that the COVID-19 pandemic will result in a one percentage point reduction in its revenue, on both a spot and foreign currency-neutral basis, to PayPal’s YoY revenue growth for the first quarter, compared to its revenue guidance provided on Jan 29, 2020.

7.High fintech adoption

It all boils down to fintech adoption to reduce human touch. WHO advised in a statement that people should use contactless technology. According to Ye Yanfei of the China Banking and Insurance Regulatory Commission (CBIRC), the coronavirus outbreak has become one of the major catalysts for fintech adoption in China.

Also, MYBank, a part of Ant Financial, announced zero interest annual loans for companies in the Hubei province. After three months, companies are offered a 20-percent discount for the remaining nine months.

The coronavirus is leading to a lot of uncertainties in all aspects of life. And the fintech industry in China and worldwide is definitely not an exception. Did we miss talking about something? Tell us in the comments below!

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