FinTech’s pathway under COVID-19 circumstances
By: Ömer Take
Tags: Fintech, Blockchain, Creative, Digital Transformation, The Great Reset

There is no denying that the coronavirus pandemic is one of the centenary events, which has resulted in massive changes in the markets and consumer behaviours. It has acted as a catalyst concerning the process of digital transformation. After catastrophic events occur, the financial system tends to reassess itself as happened after the Great Depression[1]. Yet, the upcoming reassessment, the Great Reset, is going to be a milestone for us and the next generations. This article will examine the progress of Fintech and how it has been affected by the pandemic.

The Great Reset. Retrieved from https://www.weforum.org/

Let’s start by looking into the phases of FinTech. Three contributors from the University of New South Wales published a document that briefly identifies the financial technologies in 2015. According to their research, FinTech started to emerge when communication technologies such as the telegraph and transatlantic cable were first invented in the late 19th century. It paved the way for the electronic fund transfer system and electronic payments like credit cards. Additionally, the launch of solid-state type calculator and ATMs was also a big step that conduced to technologies such as the Society of Worldwide Interbank Financial Telecommunications (SWIFT), which made cross-border payments fast and secure. In 2019, about 33.6 million transactions a day were sent via the network by more than 11,000 SWIFT member institutions. Almost five decades passed and this data demonstrates how fast financial institutions adapted the FinTech instruments. Before moving into drawbacks and critics in detail, it is important to mention the Global Financial Crisis of 2008 and what happened aftermath. GFC caused millions to be unemployed and created a sceptic perspective regarding the financial system and its institutions. Despite the fact that FinTech was criticized during GFC, the release of Bitcoin whitepaper turned a new page. Therefore, it became a thesis of FinTech to eliminate the previous critics. After more than a decade, the world is questioning the place of crypto assets and blockchain in the financial system. For example, one of the latest FinTech products is cryptocurrency cards that allow users to buy goods and services with crypto assets.

Digital transformation. Retrieved from https://pixabay.com/

Secondly, it is a big dilemma whether FinTech is a sort of amenity or a tool that causes bubbles and crisis. Since the misuse of technology is a phenomenal human behavior, criticism on FinTech was inevitable after the Black Monday[2] in 1987 and GFC in 2008. For both of the crisis, scholars and analysts still cannot come together at a common ground to be able to point out a consensual reason. Additionally, world economy has taken a huge damage as the number of lockdowns increased in March 2020. International Monetary Fund claimed that the impacts of COVID-19 and lockdowns have brought an economic downturn, which is worse than the Great Depression (IMF, 2020). Yet, the key features of FinTech such as e-commerce have gained popularity as it can be observable in the stock price of Amazon.com (AMZN).

yahoo!finance. Amazon.com, Inc. price chart [AMZN stock price in USD]. Retrieved from https://finance.yahoo.com/quote/AMZN?p=AMZN

Thirdly, increased online presence creates cybersecurity risks for firms and consumers. Herjavec Group, Canada based cybersecurity firm, released a report that analyzes the potential cost of cybercrime. According to their report, the cost of cybersecurity has increased drastically over the last five years. As Cybersecurity Ventures predicts, by 2021, cybercrime will cost the world more than 6 trillion dollars annually, up from 3 trillion dollars in 2015. Another example is that the world’s third-largest FinTech company, Finastra, experienced series of cyberattacks in March 2020. As a result, the company had to shut down all the infected servers since their customers compromise 90 of the world’s 100 largest banks. Together with the examples, there is no doubt that cybersecurity is one of the challenges that FinTech faces.

Another fact is that centralization of high-level structures creates an unjust system by being not accessible to everyone. On the other hand, blockchain technology offers alternatives such as P2P (peer-to-peer) payment mechanisms, smart contracts and DeFi projects to eliminate the drawbacks of centralization. The start point of blockchain revolution has been taking place in undeveloped countries recently. For instance, Iran is the first state in the world that uses Bitcoin as a value of exchange thus the US sanctions on Iran can be surmountable. Considering the public distrust and bad reputation that traditional financial institutions have, it is clear that blockchain technology is going to find more space in the next year.

In conclusion, the effects of the coronavirus pandemic seem to stay longer; until a fair recovery period is designed. Until then, states will have to decide whether they are going to follow a state-centric approach or a liberal approach in terms of new FinTech instruments like cryptocurrencies. Although challenges such as cyberattacks and regulations make FinTech’s pathway difficult, cybersecurity implementations may lead to widespread adaptation of the FinTech instruments