Written by Andrew M. Dahdal, Janos Barberis, Gordon Walker, Jon M. Truby and Douglas Arner
The 2020 COVID-19 outbreak has caused chaos, including global travel, trade and financial markets. Healthcare facilities in an increasing range of places, starting with Wuhan in China and now including Iran and Italy, have been at a breaking point. Global supply chains have been stretched and equities markets have experienced unprecedented volatility. Digital technologies are playing a vital role in the fight against the virus – directly through, for example, bio-tech medical research; but also in indirect ways that alleviate the disruption to people’s lives (i.e. many schools around the world have been trialling and rapidly upskilling staff for remote classroom arrangements (via Skype, Zoom or similar services).
One area where technology has greatly assisted in minimising the impact of the virus on daily life is in the financial realm. Although this is first and foremost a humanitarian crisis, there are some clear insights from the events of recent weeks that are worth highlighting with respect to digital finance, in particular, as they have helped in seeking to address the humanitarian crisis.
We here explore some of the lessons arising from the use of digital financial platforms amidst the COVID-19 crisis. These examples underscore the versatility and agility of financial technology and demonstrate how the emerging digital financial infrastructure is robust, resilient and most importantly responsive in the face of fluid and unpredictable events.
As people, companies and government re-organize themselves, it begs the question of what will emerge once this is behind us.
This blog is looking at two separate elements that have the same consequence: increasing the transition toward digital finance. Why?
Firstly, there is a reaction phase. Companies and start-ups are readjusting their valuation proposition in a COVID-19 world. Contactless payments are not just more convenient – they are safer.
Secondly, there is the behavioural fallout from COVID-19 primed through the quarantine and social distancing policies being implemented. A 2010 university study focusing on human psychology concluded that it takes 66 days to create a habit. What begins as a temporary lifestyle change, can, given enough time, become a new daily norm. As digital finance platforms take a more prominent roil in people’s lives throughout this crisis – some of those behaviours will stick.
Electronic payments and fund transfers: Financial relief and contagion avoidance
In times of upheaval, people need the means to secure the essentials of food, shelter, and clothing. As long as basic market conditions still hold, and the situation has not deteriorated into riots and looting, the commercial exchange remains the only legitimate way to secure such essentials. Digital financial platforms, and digital wallets, in particular, can deliver funds to those in need rapidly and accurately. One of the criticisms levelled against banks in the current COVID-19 crisis in China has been their relatively slow response to ease the financial burden on virus victims.
Although several banks in the Chinese market have responded to the crisis with measures such as mortgage relief, credit card payment holidays, and corporate loan readjustments, they have been criticised for taking too long to act. However, in Australia and other developed nations, it has taken way longer for banks to take action – and they have done so only after the government has taken the lead. The timeframe for these relief measures has been in the ‘weeks and months’ since the virus was first discovered. China’s big-tech companies, Alibaba and Tencent, have accustomed the Chinese public to rapid and customised service in nearly all realms of digital life. We now live in a world of on-demand entertainment and Amazon Prime timeframes. In the era of instantaneous tech, this response time by banks has been deemed by many as too slow.
As noted by Finews.asia:
As more technology companies gain digital banking licenses, banks can no longer operate as they used to. They also cannot claim to be the source of vital ‘life-lines’ for their customers, if they do not demonstrate the timeliness of actions during critical times. If incumbent banks want to have a place in their clients’ hearts, they must respond in the way that big techs do and see themselves as part of the ecosystems they serve.
InsurTech: Crisis means risk, risk means insurance
The availability of insurance (medical, travel, pet) via online platforms has grown exponentially in recent years. As COVID-19 has been spreading, the demand for insurance has also increased. Notably, however, the declaration of COVID-19 as an epidemic rendered many existing travel insurance policies ineffectual and left many others in a grey area in relation to claims that are contingent on the ascertainment of booking dates, cancellation terms and other relevant criteria. A significant volume of insurance disputes arising from the COVID-19 situation are therefore to be expected. In order to alleviate distress and simplify the resolution of insurance-related financial disputes, online dispute resolution services such as the private UK service ‘Resolver’ – as well as other public and private online dispute resolution platforms may have a vital role in the recovery process (particularly in light of emerging social distancing guidelines).
Attaining insurance through digital platforms has never been easier. The responsiveness of InsurTech platforms to the COVID-19 has been most visible in China especially with WeSure (the insurance arm of Chinese tech giant Tencent). WeSure has rapidly launched a suite of insurance products aimed at protecting potential COVID-19 victims (covering a wide scope of potential policyholders from medical personnel to SMEs). Xiang Hu Bao, a Chinese mutual aid platform (i.e. insurance provider backed by Ant Financial) has even piloted the use of blockchain data verification to fast track payments to virus victims and avoid face-to-face transactions.
Beyond being a shrewd financial move, WeSure has even launched a free insurance policy open to all Chinese citizens aged 0-65 as part of its corporate social responsibility obligations to further support the Chinese people and the fight against the virus. The move also clearly communicates the message that ‘you are safe in our eco-system’ – blurring the lines between the real and virtual worlds.
This is the 1st of the series of articles on the impact of COVID-19 on Digital Finance, curated by CFTE.
- CFTE appointed as an educational partner for the Global Fintech Festival 2023
- Crypto Market Protection: A Conversation with Kathy Kraninger, the Vice President of Regulatory Affairs at Solidus Labs
- The state of MiCA: A conversation with Ondřej Kovařík, member of the EU Parliament
- World’s first wholesale CBDC: A conversation with Alexandre Kech, Head of Digital Securities at SIX Digital Exchange (SDX)
- The future of stablecoins: A conversation with Dante Disparte, Chief Strategy Officer and Head of Global Policy at Circle