What future for Fintech: 3 post-emergency scenarios

15 June 2020

The pandemic and the significant blockage are determined by a very strong acceleration of the technological processes that probably require years and affirmations, in the absence of an emergency.

These consequences are evident if we consider the financial habits of citizens, inclined to use virtual services like never before. What are the areas most involved in the Fintech sector? We talked about it with Emanuele Bajo, Full Professor of corporate finance at the University of Bologna and Associate Dean of the Business School of Bologna, where he is Director of the Master in Finance and Fintech.

“It is reasonable to ask how Covid-19 and the consequent restrictive measures to circulation are known the propensity and familiarity of all citizens towards technology and how, consequently, it can change how individuals will change their habits and financial choices.

To bring some obvious examples, the widespread adoption of remote work, online teaching, telemedicine, the advent promoted all online entertainment have now become almost normal, but only a few months ago represented a futuristic scenario, but certainly not next one.

Regarding the sphere of financial choices, a recent work by some Swiss researchers based on 74 countries shows how the impact of coronavirus and the consequent restrictions have led to an increase of between 24 and 32% in the number of downloads of financial apps. If this research does not show the socio-demographic distribution of users, it is logical to expect that this increase in demand mainly comes from demographic bands that have been less covered to date.

This is a relevant point because it suggests that a potential resistance linked to the lack of knowledge and familiarity with technological means on a segment of the population of more mature and well-off age could be partially demolished and leave room for the development of Fintech.

What impact will this technological immersion have on the financial behavior of individuals? Naturally, it is impossible to predict the future: however, here are some areas that, in all probability, will be more easily affected by the phenomenon of digitization.

Mobile payment and (minor) use of cash

Several reasons may suggest a decrease in the use of cash in favor of electronic payments. First, the most contingent aspect linked to the more or less justified fear that physical contact with money could become a carrier of the virus. In the short term, this phenomenon leads to a lower propensity to use cash in favor of the use of electronic money. Secondly, the lockdown has led to exponential growth in electronic commerce and, linked to it, electronic payment. A segment of consumers who were more reluctant to use these tools before Covid-19 had to adapt to new purchasing dynamics and it is difficult to think that this is a completely reversible process.

Choice of virtual coins as a new asset class

For some years the financial literature has been asking whether cyber-currency, such as Bitcoin, can be a useful choice for diversification purposes, to manage portfolio risk. If, initially, the level of volatility, however idiosyncratic and eliminable in the context of the portfolio, of these electronic currencies has relegated the investment in Bitcoin to a few investors guided by a mere speculative perspective, over time the interest from investors has increased with a less hit and run investment objective. Empirical evidence shows that, at least to date, these currencies have generated a risk reduction benefit and a generally anti-cyclical trend, as in the case of precious metals.

Generalized development of digital financial services

Trying to think more generally, the entire Fintech sector is reasonably destined to undergo a strong acceleration caused by the greater familiarity with the use of technology. As an example, the underwriting of insurance policies and their possible liquidation (Insurtech), rather than the possibility of obtaining peer-to-peer financing (P2P Lending) or the fractional real estate investment (Alternative Investing) have been the reality, but with a still small market share. It is difficult to imagine that we will not see a rapid spread of these and other services shortly”.

Author: Emanuele Bajo


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