Why do fintech startups thrive during times of crisis?

When faced with things we can’t control, it would be reasonable to expect humans to cling to those things they can recognise. But, at least when it comes to our financial habits, that doesn’t seem to be the case.

Historically, economic crises seem to correlate with the uptake of financial innovations. And so far, COVID-19 is proving no different.

Tech companies such as eBay and PayPal — both pioneers of e-commerce — survived the dot-com bubble and went on to thrive as consumers warmed to the idea of paying for products online.

But, it was the 2008-09 global financial crisis that is often hailed as the dawn of fintech.

Firstly, the crisis brought on a swathe of regulatory reforms, meaning tech companies no longer had to adhere to an antiquated rulebook.

Second, people were starting to spend more time online, and social media platforms and well-designed websites were making the web an appealing place to be.

And finally, the financial crisis crushed consumer trust in bricks-and-mortar banking institutions almost irreparably.

The years that followed saw the birth of some of the biggest names in fintech today.

In 2009, Venmo was founded, and Twitter founder Jack Dorsey created Square. Bitcoin also made its first appearance, and Kickstarter introduced us to crowdfunding.

Stripe was founded in 2010, and in 2011, Transferwise came along, cutting banks out of the money transfer process.

Yet somehow, it wasn’t until 2015 that JP Morgan chief Jamie Dimon famously warned that “Silicon Valley is coming”.

“There are hundreds of startups with a lot of brains and money working on various alternatives to traditional banking … They are very good at reducing the ‘pain points’ in that they can make loans in minutes, which might take banks weeks.”

Fast forward to 2020, and the COVID-19 crisis — while not a banking one — again seems to have exacerbated activity in fintech.

In Australia, shares in buy-now-pay-later provider AfterPay are hitting record highs; former Square exec Ben Pfisterer raised $6.3 million to build his startup Zeller, offering alternative banking solutions for SMEs; and Aussie-founded fintech Fast is going gangbusters in the US.

Aussie unicorn Airwallex even closed a massive $250 million funding round in April, with co-founder Lucy Liu saying the startup is still seeing “extraordinary growth”.

So, what is it about an economic crisis — when one could expect people to be extra cautious with their cash — that sets fintech startups up for success?

All shook up

Speaking to SmartCompany, behavioural expert Bri Williams notes that during times of crisis, we’re forced to change some of our behaviours. COVID-19 has undoubtedly shifted everyone’s work and social behaviours.

“A significant disruption like this is really shaking up the status quo,” she says.

“And when the status quo is disrupted, it gives us licence, I suppose, to try new things,” she adds.

“We’re shaken out of our ruts.”

Even if you set aside this global pandemic case study, the best time to make a deliberate change to your habits is when you’ve moved house or changed your job, Williams says. Your routine is changed, so you’re more likely to adopt new behaviours in the long term.

“We’re seeing that on a large scale here, and across all sorts of different societies.”

In a fintech context, some consumers are using digital payment platforms or online banking tools for the first time, purely out of necessity.

“Because their options are somewhat restricted, they end up using it and they form a habit around it,” Williams suggests.

As to whether these habits will stick depends on whether they see a reward, or some benefit, for their efforts.

“If that’s not the case and we’re only gripping on and soldiering through because we have to … those things are likely to drop away.”

Dr Billy Sung, a senior lecturer at the School of Marketing at Curtin Business School, suggests COVID-19 is driving people to become more comfortable online in a variety of settings. If they get used to using technology to communicate with their family, for example, they may be more willing to try online banking.

If they’re comfortable with online banking, they may be more likely to try online shopping and online payments.

“A lot of research has shown that once you have experience with digital technologies, you’re more likely to be more tolerant to other innovation or other digital technology,” Sung says.

Once they’ve trialled a process, and it’s gone well, they’re motivated to repeat that behaviour, he says.

“There’s less psychological friction,” he adds.

All about trust

Crises can also serve to change our perceptions of the world, and the institutions we rely on to keep that world running smoothly. When trust is shaken in the banking systems, for example, people’s attitudes to finance can be altered dramatically.

In Europe, the early neobanks really grew out of the global financial crisis, and a breakdown in trust in the traditional banking providers.

It was also around this time that use of Bitcoin picked up momentum, and we saw the early signs of what would become the cryptocurrency boom.

“People lost faith and trust in the system, and they were looking for alternatives,” Jason Andrew, founder of accounting and operational finance firm SBO tells SmartCompany.

Now, while the circumstances are very different, the COVID-19 crisis again has people questioning things that, mere months ago, were undeniable truths.

For business owners, once strong sectors are suddenly dormant. For individuals, once safe jobs are suddenly in jeopardy.

“In times of crisis people are forced to look at themselves and look at alternatives to what they thought was true,” Andrew says.

But that sentiment applies to all aspects of life and business. Fintech adoption is just one of them.

At the same time, fintech is spreading into other business sectors. In a digital world, every business needs fintech to survive, and more brands are pivoting to meet those needs.

Once, no one associated Apple with finance, Andrew notes. Now, ApplePay is a major fintech player.

“It’s about the branding, and the brands [consumers] trust,” he says.

“It’s these brands then taking over the entire ecosystem. Payments and transactional finance is critical to commerce,” he adds.

“It’s a no-brainer for these large brands that have established that trust in the ecosystem to move into taking a clip of payments.”

This time it’s different

For Williams, while we can draw comparisons with crises and seismic societal shifts of the past, we haven’t faced anything of the scale of COVID-19 before. This is global, and affects everyone in one way or another.

“It has disrupted every single industry and institution,” she says.

“I don’t know that, in this generation’s lifetime, we’ve experienced anything like it.”

But that doesn’t mean human behaviour will shift in any way we can’t expect.

Behavioural change tends to happen at two speeds, Williams explains.

Firstly, “we act on the now”, she says.

“Sometimes, we’re chasing the next shiny toy and we’re trying to get through the day.

“But underneath it all there are patterns of human behaviour that won’t necessarily be disrupted by societal change like this.”

For example, social norms will always be a thing, and will always play a part in the adoption of new tools and technologies. People have always, and will always, follow others.

Williams uses the example of a painting, commissioned in 1862, “of the wife of a guy who was trying to remediate his social status”.

The father of the man was a criminal, and the family was being tainted by that reputation. By commissioning the painting of his wife, the man was signalling that he was, in fact, an upstanding member of society, altering the perception of his peers.

“We do the same thing now with Instagram,” Williams says.

“The technology may have changed, but we are adopting the same sorts of behaviours.”

Whether we’re in wartime, recession, digital revolution or in the throes of a global health crisis, human wiring doesn’t change much at all.

“We’re still wired in the same way,” Williams adds.

“We think everything is changing, but underneath it all, we’re the same as we always were.”

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