Fintechs have done extremely well out of the Covid crisis. The lockdowns have forced more people to turn to online for financial products, as well as day trading as a way of creating an income at a time when jobs are disappearing.
Afterpay is one example. It is an online service that allows shoppers from the USA, the UK, Canada, Australia and New Zealand to pay for small items, such as clothing in instalments over a six-week period. It’s an online version of the catalogue shopping that was so popular in the 1970s and 80s that allowed mostly women to clothe their families by paying for the items over a period of time. Now it’s in a digital format and not connected solely to a small selection of businesses.
Afterpay is only five years old, but the pandemic has made its founders billionaires, even though at the start of the crisis its shares tanked. Now its shares have increased in value tenfold thanks to a surge in online retail sales. For example, in the second quarter of 2020 it handled transactions worth $3.8 billion, an increase of 127% over the same quarter in 2019.
Who else has benefited? Chime, a digital bank, Robinhood, the stock trading app and Swedish fintech Klarna. And then there are those platforms such as Zoom and Slack which have enjoyed a boom due to the increase in working from home.
Others have not been so fortunate. The Lending Club, which offers personal loans to high-risk customers has laid off 30% of its staff, and On Deck, a lender specialising in small business loans has been sold off in a fire sale.
Victoria Treyger, a general partner who leads fintech investing at Felicis Ventures, commented to Forbes: “Consumer fintech adoption was already strong pre-pandemic, especially among the 20s to early-40s age group,” adding, “The pandemic has become a growth rocket, fuelling the rapid acceleration of adoption across all age groups, including 40- to 60-year-olds.”
Fintech payment providers are amongst those benefiting most thanks to the rise in online spending and home delivery services. Marqueta is one of those. It is a specialised payments processor providing a service to Instacart and others. It is discussing an IPO valued at $8 billion, which is four times its valuation in March 2019.
Credit card spending is down, as large-ticket items such as holidays were effectively cancelled for 2020. Instead, debit card payments are up. This is good for fintechs, as they primarily offer debit cards. For example, Chime, based in San Francisco, used the US government stimulus package to its advantage. In advance of he $1,200 government-stimulus checks started hitting Americans’ accounts, it loaned customers that money to the tune of $1.5 billion. Its CEO said, “Following the stimulus advance, we had the largest day for new enrolments in the history of the company.” It also has a new valuation of $14.5 billion, and “venture capitalists are valuing the company at 24 times its revenue.”
While this year has proved to be a great one for fintechs and other online platforms, there is one thing to consider: will consumers keep up the habit their online shopping habits in 2021, because a lot is riding on that for the fortunate fintechs.