Jessica Ellerm is a thought leader specializing in Small Business and the Gig Economy and is the CEO and Co-Founder of Zuper, a neowealth disruptor in Australia
After being the darlings of the fintech space for so long, startups in the payments space have been some of the first stocks to feel the full force of the economic punch that is the coronavirus.
Around the world retail, hospitality and tourism are coming to a screeching halt, faced with a combination of forced lock down and pure consumer avoidance. With jobs on the line across multiple industries, discretionary spending is basically dead for the foreseeable future.
Of course, for many large incumbent payment platforms and acquirers, a drop in payments volume in one area can usually be set-off an uptick in another (i.e. we buy less shoes, but we buy more canned food). If anything, we’ll be more inclined to tap our phones than handle dirty, germ ridden cash, right? Coronavirus could longterm be good for business!
So, with a diversified customer base, a payments business should be expected to weather a black swan event like the coronavirus relatively well, all things considered.
But fintechs aren’t often that diversified. In fact, for many, their strength comes from their niche approach. Take the multitude of buy now, pay later businesses, that have emerged across the world. Many are firmly entrenched in retail and fashion, and cater to those who don’t have the capital to pay for goods up front – casual, young workers. Those same workers that could be the first to get laid off. It’s a perfect storm.
Money that used to go on another pair of Adidas shoes will now need to be redirected to plug lost wages, or saved for future medical expenses.
In Australia, buy now, pay later fintech Afterpay, has shed over half its value in 5 days, dropping from AU$26.22 on the 12th of March to just under $13 today at the close of trade today. The business was trading close to the $40 mark only a few weeks ago.
But it’s not just buy now, pay later that is feeling the corona chills. Niche fintech acquirers like Tyro, that specialise in small businesses payments, are also exposed. The company is trading at AU$1.415, down from a high of $4.49 on the 11th of Feb.
It must be said, much of the market is in ‘panic’ mode, rather than ‘rational’ mode. Good businesses will survive. One thing is for sure though, never before have the realities of supply chain dependencies and diversification of revenue been more front of mind than now, no matter what business you’re in.