What a year it is has been.  It has been tough for many – from small businesses, to big high street retailers. We can’t however ignore the fact that the pandemic certainly forced companies to adapt and learn to be agile quite quickly. To not depend on typical lines of communications, funding, and ways of working. We witnessed legacy banks and financial services push for innovation at record speeds for their own workforce, and to stay connected with customers.

The more innovative and agile fintech companies have this year explored new territories to help business operations, provide quick and easy access to capital, and better the overall customer experience, especially in times of need.

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After COVID-19 has held a grip on the world for most of this year, it’s hard not to see everything through the lens of the pandemic: in the industrial, technological, medical, educational and financial worlds–as well as in our personal lives–the pandemic has colored everything.

The virus has been around long enough at this point that while the emergency remains, the sense of urgency may have passed; COVID, unfortunately, has become an integral part of our lives, like a burglar who busted into the house a few months ago and decided to take up residence there–an uncomfortable and threatening presence that has become all-too-familiar.

And indeed, we may only be at the beginning of the cycle of change that the pandemic has incurred, certain COVID-related changes already seem as though they may become permanent.

One of the sectors that were most deeply and quickly affected by the spread of COVID-19 was the fintech sphere.

Suddenly left without access to a number of the traditional financial services that they were used to, people around the globe turned to fintech platforms en masse: fintech platforms were relied upon to distribute loans, grant access to financial facilitate a large number of transactions that may have previously been conducted in cash, and many other things.

Additionally, the loss of income that many experienced as a result of the pandemic seemed to cause a wave of new users to seek out cryptocurrency and stock trading, as well as a number of other fintech-related methods of generating possible revenue.

Now that the fintech world–along with the rest of the world–has been living with the pandemic for several months, which changes are shaping up to be permanent? Or is it too early to say what the “new normal” is?

The wave of new fintech users that came when the pandemic began seems to have stuck

For Yoni Assia, chief executive of eToro, the answer to the latter question is “yes.”

“I think it is too early to talk about a new normal,” he said. “While we have seen some countries move out of lockdown, in others, the number of COVID cases continues to rise.”

“Similarly, while we have seen market volatility subside, many believe that there is more to come as the markets react to news such as the success of vaccine trials and the impact on jobless figures as government support comes to an end,” he continued.

Still, some of the trends that started as a result of the pandemic seem to be continuing: for one thing, the wave of new users that hit across fintech platforms seems to have led to a healthy crop of new fintech users.

“eToro has seen strong growth this year in terms of new registrants to our investment platform,” Yoni told Finance Magnates. “We saw 100% growth in H1 compared with the same time last year.”

Yoni explained that “part of this is driven by COVID as the pandemic induced market volatility has put markets and investments front-of-mind for many.

Yoni Assia also commented that some of the growth was “also driven by the launch of our zero commission stocks offering,” which “attracted more people to start investing in stocks as a key barrier to entry–cost–has been minimized.”

Additionally, “stock investments on eToro have quadrupled in H1 compared with last year.”

Similarly, Finance Magnates reported in June that other commission-free trading apps were had racked up new users by the ton, seemingly in large part because of COVID: Robinhood passed the 13-million user mark in May; site traffic on WeBull surged by roughly 294.12% from December to May.

Trending toward a cashless society?

Greater engagement with fintech companies on a business-to-customer (b2c) level seems to also have been reflected on a business-to-business (b2b) level in the fintech space, particularly when it comes to companies that have unique payments needs.

For example, Tom Gavin, chief executive of cannabis industry-focused payments company CannaTrac, told Finance Magnates that “as a cashless payment solution for cannabis companies, we have seen a huge demand for businesses looking to onboard with us during the pandemic.”

Tom explained that this particular kind of engagement is due to the fact that “many consumers are being more careful about using cash in an effort to avoid the virus and cannabis companies don’t have many reliable options, like the CannaCard, when it comes to cashless transactions.”

The trend away from cash payments isn’t just a trend in the cannabis industry; however, in fact, the trend away from cash was already underway when the pandemic began. Still, COVID does seem to have had a profoundly accelerating effect.

“The WHO recommended avoiding cash as much as possible in an effort to decrease the spread of the disease,” Tom Gavin continued, adding that “correspondingly, contactless payments have seen a huge increase in popularity.”

Indeed, Mastercard published findings in July 2020 that 51 percent of Americans are now using some form of contactless payment, including tap-to-go credit cards and mobile wallets like Apple Pay.

“Now that many consumers have seen the convenience that comes along with contactless payment methods, I think this popularity will persist, and demand for fintech companies to innovate cashless payment options will continue,” Tom explained.

Innovation has been spurred by pressing needs for change

Indeed, another aspect of the paradigm shift brought about by the COVID pandemic is a change to the rate of innovation within (and without) the fintech sphere.

Indeed, companies who have had the resources to ride out the storm have often been forced to make decisions and build new products quickly, which seems to have accelerated the rate of innovation: “the pandemic has accelerated digital transformation,” eToro’s Yoni Assia told Finance Magnates.

Aditi Sharma, vice president of digital design at JPMorgan Chase, also told Finance Magnates that this innovation has largely been driven by customer needs and demand.

Specifically, “our users are looking for more clarity, control, and communication than ever before, especially after this crisis,” Aditi told Finance Magnates.

This is because “users tend to compare fintech to other experiences in their ecosystem—like how they order a pizza and can track how much time it takes, what process it goes through, and they can control how to pay or where to get it delivered.”

Aditi said that in the fintech space, this has materialized as a hunger for information: “[users] are concerned with the volatility of the market as well and thus like to proactively analyze and forecast market trends using machine learning models before they become financial risks.”

“They want to use intelligent, recommendation-based search (like when they shop online) to only work with relevant data,” Aditi said. “Time is a big factor to them, and thus they are trusting artificial intelligence more than ever before to streamline workflows by cutting down on redundant steps and pre-populating with relevant data.”

However, some innovation in fintech may be stunted by a lack of funding for new companies: CB Insights published findings this month that “fintech deals dropped in Q2’20, reflecting broader market uncertainty and potentially continued tough times ahead.”

One of the nation’s largest banks has been taking heat from customers in recent months. No, it’s not about unanticipated fees or problems with security. Instead, the issue is the bank’s sudden decision to cutoff a popular fintech service.

According to the Wall Street Journal, PNC bank customers find themselves unable to connect their accounts to Venmo, the popular P2P payments platform. The core of the problem is the data aggregator Plaid, which serves as an intermediary between banks and fintech platforms. PNC’s recent updates block Plaid and other data aggregators, citing security concerns.

For their part, PNC’s response hasn’t been overwhelmingly positive. “We’ve made some security enhancements which may be causing difficulty when attempting to link your PNC account with Venmo,” the company tweeted in response to one frustrated customer. “If you are having this difficulty, you may want to explore alternative means of money movement, such as Zelle, or work directly with Venmo on other options.”

The sticking point here: Zelle is a competing platform owned by a consortium of banks, including PNC. This looks bad from an optics standpoint; at face value, it seems like the bank handicapped a competitor and incentivized customers to use their own proprietary platform. Venmo hasn’t been shy about making that the narrative, urging irate PNC customers to message their bank saying, “Hey PNC Bank…Let me use the financial service apps I need!”

PNC has been the highest-profile party involved in this confrontation, but they’re not alone. JP Morgan recently announced they would ban fintech apps from using customer passwords, too.

How Banks are Addressing Fintech Challengers

The bank’s underlying assertion is that they have genuine, security-focused concerns about allowing some third parties to access customer data. Beyond that, though, the dust-up speaks to a broader disconnect between traditional institutions and fintech upstarts.

We can count the rise of new fintech players among the most significant payments industry trends of the last decade. It’s not just Venmo; everything from consumer banking to small business financing saw an influx of new, dynamic brands looking to cut-in on turf previously reserved for traditional institutions.

In turn, banks began taking pages out of the fintech playbook. Zelle launched in September 2017, providing an alternative to third-party P2P payments. This isn’t the only place in which banks are pushing back against fintech encroachment, either. While banks lost 12% of their market share in personal lending over the last six years, some have taken steps to build-out their own platforms, in some cases even partnering with fintech upstarts to do so.

In essence, the banks are buying access to a market they once dominated. As Wells Fargo Senior Bank Analyst Miko Mayo put it, “The question is still whether fintechs are friends or foes…On the friend side of that, they have the ability to help banks with technology.”

Simply buying and incorporating the competition may work for now, but it may not be sustainable. Fintech innovation will keep pushing forward. Buying every upstart company with a novel idea isn’t a strategy that can work time and again, and trying to build-out offerings to counter every fintech inroad could be unfeasible.

Different Strengths, Different Vulnerabilities

Banks want to maintain their market share against fintech competitors. To do that, though, they need to look inward and identify opportunities, while also pushing for external change.

Keeping up with fintech requires the kind of agility that is—truth be told—not a strong suit for traditional institutions. They rely on legacy processes and infrastructure to conduct most business, resulting in slower processes and lower satisfaction. For instance, consider traditional payments settling, as opposed to the kind of payments made possible through fintech innovation. From a customer’s perspective, would you rather do business with an institution that takes days to clear a payment…or one which can do it instantaneously?

Of course, some matters that impact banks’ procedures are out of their hands. Chargebacks are an example of this phenomenon; outdated legacy processes tend to make transaction disputes a long, drawn-out procedure for every party involved. While this is more in the hands of card schemes like Visa and Mastercard, it’s up to banks to push for the kind of change that can deliver faster, more accurate resolutions.

Fintech companies succeed because they have the freedom to build and scale quickly. They can afford to take a “move fast and break things” approach. In contrast, banks have more limitations placed on their movement, and rightfully so, given the foundational approach they play in the market at large. As a trade-off, though, banks enjoy the kind of reach and legitimacy that fintech startups lack.

Cooperation, Not Conflict

The key is not for banks to try and “be” fintech. Instead, they should reevaluate their role and play to their strengths, while fintech companies do the same.

Banks can look for opportunities to increase efficiency and optimize their internal processes. They can be the bedrock of the payments space, while leaving the more disruptive change to fintech. Once a technology proves itself, like P2P payments or lending, institutions can then take steps to integrate with it and provide the benefits to their customers.

Banks and fintech startups may be going after the same consumer base, but they don’t have to be competitors. Each party can evaluate their strengths and weaknesses, then tailor their strategy accordingly. If the two parties cooperate, rather than race to turn out competing technologies, they may be able to deliver a better experience for everyone.

Fintech started as tech for financial firms, but the needs of consumers for other money-related activities had already started to broaden its range. Will COVID-19 and a recession mean a retrenchment or an expansion for broader consumer fintech?

The history of fintech is long, centuries even, depending on what you consider “technology.” Even leaving out carrier pigeons and semaphores, most would certainly include 19th century transatlantic cables as an early example of financial technology.  In more recent decades, a way of categorizing fintech was simply technology used for financial businesses, typically banks and investment firms. Often this meant technology built by or for these institutions, and often these products were invisible to their end-customers, or consumers at large. Bloomberg terminals are perhaps a reasonable example.

The most recent, and more broadly interesting, transformations of fintech have had much to do with the consumer market, and the increasing access to financial tools via easy-to-use (though not always) websites and mobile apps on smartphones. Leaving aside many other important enabling, if ancillary technologies such as cybersecurity, cryptocurrencies, and so on, there are many implications of this sudden expansion of “range” for the sector – here are three that might look familiar:

1. Financial institutions aren’t great at understanding consumers

The transition from simply providing online access to existing products (bank accounts, loan information, investment portfolios) to actually understanding, marketing to, and managing customer relationships is not an easy one to make. So, the big leap into online consumer interfacing is rife with risk, as it’s a brave new world for many financial players.

1. Consumers are more comfortable with technology because of their exposure to other, more technologically savvy, industries.

It has only been a couple of decades since many smart people said, “no one is going to use their credit card on the internet.” E-commerce, social media, and Netflix have changed buying behaviors (and many industries’ business models) in the ensuing years. This has opened doors for many challengers to traditional financial players, even though the incumbents have many factors in their favor, not in the least including banking regulations and licenses, and of course, scale.

1. Money is less compartmentalized in the consumer’s mind.

Whereas perhaps not long ago we may have thought of doing “that financial stuff” once a month when bills were due, highly sophisticated financial transactions of many sorts are part of our daily lives – from digital coupons and offers, to digital transactions for items as small as coffee at Starbucks. Loyalty plans, shared payments for Uber rides and even political contributions are all interspersed into our daily routines, communication habits, and social media. This is both an opportunity for new financial tools and instruments, and for businesses to find new ways to attach themselves to consumers. That said, it’s also a risk for financial institutions who believe consumers will look to them first for anything “money-related.”

One way of describing this trend towards the consumerization of fintech is to say that fintech had already moved out of the barn and into the “corral,” but is now at the point of going “free-range” to a greater and greater degree. Keeping track of whose product is whose is quite literally a “branding” problem to be confronted. As fintech products are white-labelled by multiple partners and channels, differentiation becomes difficult and confusing. Managing customers’ expectations and their “journey” begins to be more valuable.

And now, COVID-19.

The potentially enormous economic impact and upheavals that the new Coronavirus is likely to have on the global economy means that everything becomes even more difficult to predict. Will the economic pressures result in a retrenchment for incumbents, and a slowing of entrepreneurial activity amongst new fintech challengers? Or will the pressing and broad-based needs of consumers under duress result in new opportunities for innovation? As an entrepreneur myself, I’d like to believe the latter. However, having been an entrepreneur for many decades, I also know that, without a doubt, there will be winners and losers on both sides of the equation.

Nonetheless, even if slowed down by the current health and economic crisis facing the world, some trends are likely to continue – for one, fintech will very likely have more and more touch points with consumers, both because of a “push” from institutions to create outreach and stickiness, as well as “pull” from customers who want more control and visibility over their money-related activities. Another trend likely to continue, despite (and perhaps because of ) financial pressures on the economy, is the further “unpackaging” of money-related products (insurance, loans, loyalty programs, marketing discounts, etc.) and “repackaging” of these along with the consumer products, services, or even contexts in which those products operate in.

Whether it happens within a few years or perhaps over decades, it would not be entirely surprising if “fintech” eventually becomes “money-tech,”-  mixed in and indistinguishable in the consumer’s mind from the actual product they want, enabled by a broad range of specialized financial offerings. If this were the case, then fintech would, indeed, have gone “free-range.”