FinTech will further embrace Artificial Intelligence during and after the COVID-19 pandemic. A.I. is the underlying engine supporting all the changes happening. To prepare for the future world, we need better identity verification, need real-time big data, need to be more personalized to operate completely online.
Paper money is almost 1000 years old and the oldest paper money was introduced in Song dynasty China during the 11th century. However, if you go to China, (almost) no one is using cash anymore. You can see QR codes of WeChat Pay or AliPay everywhere.
COVID-19 gives us one more reason to kill cash: hygiene.
Do you know that paper money can reportedly carry more germs than a household toilet? Some study found that virus can live on cash for more than 17 days. We will get ride of pennies. We will get rid of paper money. They are simply old and dirty.
Not surprising? You are mostly using credit card anyway? A study in 2019 found that credit card is on average dirtier than NYC public bathroom and paper money.
We should promote contact-less payments, which include payment with facial recognition, NFC, and or voice.
- Stress testing of risk management
Those who have been doing proper risk management will survive the short-term crisis. With million of people being unemployed and losing income, consumer finance industry is facing a unprecedented risk as users lose ability or willingness to repay.
Economists have been warning about the economic recession but few expected this to be a pandemic-driven crisis. This is not a drill. In the field of BNPL (Buy Now Pay Later) in Australia, Zip Co has been doing credit check on its customers while Afterpay does not. UBS predicts Zip Co is better placed with debt crisis compared to Afterpay¹. BNPL players who didn’t diversify it’s merchant partners will also face tremendous amount of risk in the short run, especially those who rely heavily on fashion, luxury, and travel.
- Discretionary spending is not dying
The recession following COVID-19 pandemic will make people rethink their consumption. People will cut down discretionary spending, especially leisure travel and luxury. However, discretionary spending is not dead and will exist for a long time.
This current wave of stay-at-home lifestyle drives Furniture and Home Fitness sales. For example, Peloton is in surging demand right now that you should expect delivery delays of up to a month, according to their website.
There will certainly be a reshuffle in consumer spending after COVID-19. In the future, people will probably rethink fast fashion, luxury, unnecessary consumer electronics, and other verticals. It is still unclear now what changes will happen as they largely depend on how long-lasting and how severe this pandemic is becoming.
- It is an antidote to economic recession
To stimulate consumption, in addition to local cities giving out consumer vouchers, the government is counting on consumer finance.
According to Financial Times⁴,
Ye Yanfei, an official at the China Banking and Insurance Regulatory Commission, said at a press conference on Sunday the government would “count on” consumer credit to help consumption recover.
Personal Finance Management
It is time to rethink personal finance management as well. It is a lesson for everyone to control debt and diversify their portfolio. There is a huge psychological impact on consumers, especially those suffered financial hardness during the pandemic.
MX, a digital transformation platform for banks and credit unions, has released a study showing that 60% of those 1000 customers surveyed said “their main financial institution doesn’t make them financially stronger, but that could change if they moved toward digital banking”².
According to a 2019 survey by GOBankingRates³, almost half of Americans live paycheck to paycheck. But, is it just become they don’t earn enough income? Not exactly.
As illustrated by the chart, a large proportion is due to poor finance management. We need more transparent and responsible personal finance management tools to improve financial health.
Many big banks are simply taking mobile banking as supplement to their brick-and-mortar business. Now it’s time to change this. With the video conferencing and identification technologies, why do most people still need to go to banks? Signing document? E-sign it. Submitting paper document? Scan it. Or even better, bank will come and pick it up. Traditional banks will abandon their luxury downtown branch office and embrace a technology called the Internet.
There is also incentive coming from the customers. Needless to mention that for hygiene reasons, people will avoid going to physical banks. As Ryan Caldwell, founder and CEO of MX, said in a press release,
“Americans are turning to mobile banking as a way to take control of their finances and plan for their economic future. With increased consumer engagement across mobile banking applications, financial institutions have the responsibility to not only deliver a great user experience, but also to provide meaningful advice and guidance that’s critical to the financial well being of consumers, especially during times of economic uncertainty.”
Alex Rampell, a General Partner at Andreessen Horowitz, wrote an article⁵ calling for government to collaborate with FinTech to help the last mile of identifying, adjudicating, and disbursing of the $350B stimulus package. The article has a great example:
For many banks, the way you apply for an SBA 7a loan is to prepare tons of documents, go to your local branch, and then wait as long as 90 days. Wells Fargo has a fancy website, but for SBA loans it directs you to your local branch for a process that takes dozens of hours of form collections and physical signatures followed by months of waiting.
It’s year 2020. We have so many FinTech companies with financial information of millions of small businesses. Yet, we still cannot get rid of these tedious business. It is time to go online.
Welcome to the AI-driven, cashless, online, and personalized FinTech world.
Opinions are of my own.