This article was written by Nirav Patel, CEO of Intercash Financial Services, Malta.
April 16, 2020 - The Coronavirus outbreak is having a profoundly negative impact on people’s livelihoods, on companies of all sizes and on economic growth. We are acutely aware of the widespread effects of the pandemic across our target sectors, in so much that we have been following sector experts in their commentary around the economic impact both short, medium and, where possible, long term. Furthermore, we are closely following the European commission as it manages temporary framework on state aid for businesses of all sizes across our target sectors. Their aim is to maintain liquidity in these businesses to ensure they can continue to operate as close to the norm as possible.
We see a second economic effect stemming from the uneven incidence of the lock-down of economies. We have been analyzing Sweden vs Italy as two ends of the scale and looking at the impact across both of these countries to analyze the impact of COVID-19 on our target sectors and therefore our projections.
Aviation, tourism, leisure activities and non-food retail businesses face an extended period of inactivity. Apart from the direct effect of the virus on the worst affected localities, the economic woes could be severe for localities, regions or entire countries dependent on these sectors.
As a feature of the expert analysis, we have been assessing and we have seen some offset from a number of our target sectors which have expected to gain from efforts to contain the virus. This includes on-demand health care and courier platforms, specifically in the food and beverage industry, and an upturn in the industries supplying it with equipment and materials. Furthermore, we have seen a positive outlook for e-commerce, consumables, regulated online gaming and gambling, and bio-pharma, specifically with respect to a vaccine, have seen increased projected growth.
The risks for companies in locked down sectors are acute. Those with heavy overheads, whether large or small, will quickly exhaust their working capital and face insolvency. However, there has been marked relaxation in insolvency rulings and regulations as a result of COVID-19, which somewhat eases the pressure.
For the EU level, the crisis poses distinct challenges, specifically around its use of fiscal policy; at the EU level, it is heavily constrained. It can help, but only marginally, to reinforce the fiscal stimulus effort by accelerating spending from the EU budget and possibly a bit more through loan guarantees. It has also signaled that obligations under EU fiscal rules and restrictions on use of state aids will be eased to help during and for a period of time after the pandemic. We will continue to monitor the situation specific to our target sectors, and where we feel particular sectors are struggling, we will divert our marketing efforts to those sectors seeing significant growth. In our opinion, the fall of demand and growth in sectors such as FX deliverables and wealth management are offset by the growth and upturn in sectors such as on demand healthcare, online gambling/gaming and bio-pharma. Overall, due to the widespread sectors of our target clients, we continue to maintain our projected forecast, particularly in the short term. However, due to the unprecedented nature of the pandemic and controls, we will continue to monitor each sector carefully.
Additional sector(s) analysis:
The pandemic has had an enormous impact on the Fin-tech industry. In particular, start-ups in the earlier stages of their life cycles who are particularly vulnerable if growth stagnates or even drops for a period of time. The uncertainty of the current situation puts pressure on fundraising, cash management, marketing and staff management. In the short-term, there are number of hurdles to overcome. However, post-crisis (projected Q4 2020+) it is expected a lasting impact on society creates conditions which are favourable for growth, resulting in some momentous cycles for Fin-Tech companies.
Based on sector expert analysis, these key findings are expected in the sector:
· Issues surrounding the pandemic to continue until Q3 2020, which is expected to be followed by an 8 to 12 month recovery.
· A fast track into digital-only is highly likely to become the new industry norm in financial services, greatly accelerating the fin-tech sector growth projections.
· We expect that Financial Institutions will turn to Tech companies rather than in-house solutions to accelerate digital transformation.
· Within the sector, we expect there to be particular services that will thrive, while others will face increased pressure.
The following are service areas we expect to thrive:
· Consumer and SME lending platforms
· Mortgage and life insurance digitization.
· Fin-tech focus on AI, IoT and software solutions are in high demand especially around bots for call-centers, account-opening procedures and loan automation.
· KYC: increased need for safe digital ID given volume of digital business transacted and robust solutions required for protection of client assets.
Those that will face increased pressures in our opinion include:
· Challenger banks who have high valuations, heavy cost run rates and lower expected activity post-crisis.
· Wealth management, both fin-tech and traditional, will struggle as clients will de-risk due to volatility and lower AUMs impacting bottom line.
· FX and deliverables, both as fin-tech and traditional, will see decreased transaction activity affecting commission businesses.
E-commerce - COVID-19 Commerce Insight shows the impact Coronavirus COVID-19 has had on e-commerce in Europe and the rest of the world. Every day, the tool shows new data at a global and regional level in multiple sectors within e-commerce. We have been closely following the seven-day trend via the following site: https://ccinsight.org. At the moment, our analysis shows continued growth in this sector, but due to the unprecedented events of COVID-19, we will continue to closely monitor the sector.
Bio-pharma – Direct from the European pharmaceutical industry, their response can be found at the following site: https://www.efpia.eu/covid-19/. Our analysis of this sector through regular conversations with the group’s long-time client, IQVIA, gives us a strong understanding of the continued growth and more importantly, the viability of the sector for the foreseeable future.
Online Gambling - Cancellation and postponement of major sport events will have a negative impact on revenues from the sports betting segment. Since many major sporting events took place as planned in the first half of March, this segment did not see a major effect on revenues for that month. The majority of the online gambling sector business is outside of sports betting. The largest segment is online casino, which is now having a positive trend. The industry does not expect the COVID-19 pandemic to have a long-term effect on its business and view the situation as temporary in nature.
Online Gaming - According to experts in the sector, COVID-19 has led to a 12% increase in digital video traffic and a 20% increase in web traffic, while online gaming is up at around 75%. This out-performance has several drivers; unlike film/TV, there is no real maximum to how much time you can spend online gaming. Furthermore, during a time in which hundreds of millions are forced into physical isolation, the ability to co-experience content from a safe distance becomes particularly important. As such COVID-19 will further the growth of this sector.
Marketing and Media Buying – The global spend forecast on media buying has been reduced as a result of COVID-19, however the majority of this reduction has been as a result of decreased demand from China. Otherwise, the key dynamics of this sector remain as they were prior to COVID-19. Furthermore, the bulk of ad spending takes place towards the end of the year, typically prior to the holiday season. The sector will continue to be monitored as any supply chain shortages which can lead to further economic loss tends to result in a reallocation of resources from ad spending to offset losses. Again, this was seen in the sector in China, so there is a possibility of impact in Europe. This is offset as consumers spending more time at home means media buyers are turning their attention back to mainstays like the major search engines and social platforms. In summary we will continue to monitor the sector closely.
On demand and Courier Platforms – On demand has seen a significant effect following COVID-19, with most of the major services drastically falling away, however healthcare on demand has seen significant growth and will leave the target sector largely in status quo as per our projections. Courier platform growth has been focused in the food industry since the onset of the pandemic. As consumers continue to stay home we foresee continued growth in the sector.