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Fintech ecosystem – is it going through stressful times?

April 23, 2020


The biggest casualty of COVID-19 Pandemic is the discretionary spending. Either people do not have the liquidity to spend, or they are conserving cash for the rainy days.

COVID is terrible news for the fintech ecosystem. The sector already had functional troubles like narrow margins, high customer acquisition costs, and massive burn. The fledgling digital payments mean stressful times for the entire industry.

Trends in March 2020

A total of 1.25 billion UPI transactions worth Rs. 2.06 lakh crore in March was processed by the National Payments Corporation of India, the organization responsible for processing retail payments.

The March transactions represent a 6% fall in volume and a 7% decline in value of UPI transactions compared to 1.33 billion transactions worth Rs. 2.22 lakh Crore in February.

All digital channels operated by NPCI, such as IMPS, Fastag, and Aadhar Enabled Payment System (AePS), recorded reduced traffic in March due to COVID-19 restrictions. This reduction is despite the advisory from Government, RBI, NPCI, and Banks advising citizens to move towards digital payments to avoid cash-based physical payments citing health risks.

IMPS transaction volumes by 20%, Fastag volumes declined nearly 23%, and AePS recorded a 16% decline. Only the Bharat Bill Payment System (BBPS) bucked the trend and recorded a marginal increase in transaction volumes.

We have to keep in mind that the lockdown began only on March 25th, 2020. Initially, it was announced for 21 days and now remains extended till May 3rd, 2020. The decline in digital payments would be much larger in April, as we had a lockdown for the entire month.

digital payments

42% increase in the use of digital payments in the first three weeks of lockdown

42% of Indians have increased the use of digital payments, and the biggest gainers are the purchase of essentials and mobile recharges, according to the survey conducted by the consultancy firm Local Circles.

Many retail stores and local general stores have been reporting a significant rush and spike in order during the lockdown. E-commerce platforms, especially the ones delivering groceries, have been reporting five times the demand.

Digital payments and especially contactless payments are the preferred modes of payment here. The lockdown has brought a lot of first-time users who are not tech-savvy towards digital payments.

Why do we say that these are stressful times for Fintech?

Bill payments, food, grocery, healthcare, and e-education are seeing digitization. However, travel, tourism, hospitality, entertainment, and fashion, the money spinners for payment companies, are at a standstill with no upward graph visible soon.

While some sectors are showing growth, many are seeing no activity. The large players who have a mix of industries can survive, but the ones that are concentrating on specific verticals would face huge issues.

Vishwas Patel, Cofounder of CCAvenue, said, “Overall, my portfolio has come down by more than 30%.”

Even the sectors that are doing well during the lockdown have declined while the impact is relatively limited and controllable. Food and grocery were at 60% of its pre-lockdown volumes, and hospitals were recording 30% of its normal volume.


Outlook for the rest of the year

The impact of COVID is expected to be felt throughout 2020. The festival season that sees enormous spending from the beginning of September is set to be disrupted.

The essential purchases alone would not drive uptake in transactions. While the industry is talking about the brighter side where the contactless transactions have gone up, the overall volume doesn’t look encouraging.

The effect of this also spirals as most Fintech’s depend on transaction volumes and the resulting cash flow.

The expectation is that the new converts, the first-time users of digital payments, will stay to be digital payment users when the situation improves. We will have to wait and watch if that turns out to be the case.

Sabapathy Narayanan

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