Research Spotlight: The impact of COVID-19 on the FinTech industry

Along with changing the way we socialize, buy groceries and work, the global pandemic has also changed the way we use our money. 

Daniel Tut, an Assistant Professor and researcher at the Ted Rogers School of Management, is investigating the ways financial technology (FinTech) has been impacted by COVID-19. 

In a recently published paper titled, FinTech and the COVID-19 Pandemic: Evidence from Electronic Payment Systems, (external link)  Tut examines if the pandemic has helped the FinTech industry.

“Early evidence indicates that the COVID-19 pandemic has accelerated the adoption of FinTech amongst consumers and banks,” said Tut, who teaches finance at the Ted Rogers School and researches capital markets and the real economy. 

“A combination of lockdown measures and restriction to in-person interactions has meant that consumers have to find alternative means of accessing financial products and services. Digital banking has become a very attractive option for most consumers,” said Tut. 

Tut says one of the reasons adoption of FinTech was slow pre-pandemic was because of a demographic divide. 

“Younger consumers tend to be more proactive and more willing to adopt FinTech but older consumers tend to hold more wealth,” said Tut. 

“Banks have traditionally been restrained in adopting FinTech since it requires significant initial investments and older (higher-value) clients tend to prefer face-to-face interactions as ‘trust’ is an important factor in banking for this set of clients.”

However, as the pandemic halted everyday financial services and in some cases, the use of cash, the adoption of FinTech became necessary. 

“Early empirical and anecdotal evidence suggest that the pandemic has facilitated consumers digital onboarding and that banks are investing more into the FinTech space,” said Tut. 

Tut also looked at the use of electronic payment cards (debit cards, credit cards, point of sale machines, prepaid cards, and charge cards) during the pandemic. 

“Electronic payment cards provide a snapshot of consumers' spending patterns and behaviour and are generally good indicators of economic activities (GDP) during rare and extreme events such as the ongoing Covid-19 pandemic.”

He says that there was an overall decrease in the use of all these payment cards except for charge cards as consumers aren’t required to pay interest but have to settle the full amount at due date. 

“Because of the uncertainty regarding the nature and the duration of the pandemic and its effects on the labor markets, consumers are less likely to use high interest forms of payment.”

Tut says that in the short run, the pandemic will increase the digitization and adoption of FinTech by both consumers and financial institutions but in the long run, it will be government regulations that determine the future of the industry. 

“The pandemic has provided both the regulators and financial institutions with an opportunity to have a serious discussion on the FinTech industry.”