COVID and Compliance

How is Coronavirus affecting the financial payments industry and compliance?

As the COVID-19 outbreak affect many business areas and their way of operation, the financial ecosystem has had its share in this transformation towards a more digitalized and zero-touch environment. As one of the natural results of the pandemic, people tend to increase the frequency of using cards and digital wallets instead of cash which will in turn influence the money circulation trends and businesses depending on it.

At the same time, there is a tendency among consumers to withdraw their money from banks probably having the idea that cash will be accepted by everyone – no risks- and with the instinct of physical possession to feel safe. The problem here is that the concept of money is confused with currency most of the time. However, “in fact currency accounts for a very small share (as little as 2-3 percent) of total money outstanding in a modern economy” (Economics for Everyone, 2008, Jim Stanford). So, when the actual percent of currencies printed globally is taken into consideration, the quarantine trend of stacking cash may have negative results.

The concept of a cashless society has become more and more appealing as cash, credit cards or debit cards carry the risk of spreading the virus. As more countries will embrace the concept of cashless society, financial processes and data accumulation procedures will improve.

All these new trends emerging as a result of COVID-19 will likely to affect and transform the general consumer behaviors, global markets, regulations and digitalization processes in the financial ecosystem.

 Financial reflections of coronavirus pandemic on global markets

“What you have is an economic effect now that, very clearly, is going to be prolonged beyond the period of the pandemic.”  

– Angel Gurria, OECD Secretary-General

Unfortunately, the economic impacts of the virus are expected to be severe and long-term even though the pandemic may disappear in the upcoming 2-3 months. OECD (Organisation for Economic Co-operation and Development) also predicts that due to global lockdowns, the global growth rate might be decreased by 1.5% in 2020.

With the important halts and pauses happening in many sectors and markets like retail, transportation, and restaurant, the global stock market crashed on the 20th of February and as a result, most global markets had to go through severe contractions. The phenomenon is called “Coronavirus recession” which refers to an economic recession that will hit the world economy in 2020 as a result of the coronavirus pandemic.

As for the consumer spending trends, digital options like mobile devices and online shopping are on the rise since they seem safer than cash in most ways being free from human contact. Also, due to the fact that retail chains in most locations are closed or lack of goods that are needed directed most consumers to online shopping.

On the other hand, consumers rush to banks or ATMs to withdraw big amounts of cash to secure themselves psychologically to the effects of the pandemic.

Regulatory transformations: Are regulators ready to change legal terms for limits of credits and borrowings?

As the trend of going more digital and cashless in the payments, it is expected from banks and credit unions to bring better and more efficient digital banking solutions into the market. This means that the help and support of the fintech firms will be needed the most during this process. In this scenario, there seems to be no other option for governments and regulators but to encourage the expansion of fintech solutions by alleviating the regulatory liabilities to promote contactless payments and positively impact their economy during the coronavirus pandemic.

With an increase in the limits of contactless payments, the customer verification gained more importance but at the same time, it has become harder to follow. Remote solutions can be offered by fintechs to onboard and verify customers securely while making sure that the process is in line with the regulatory compliance requirements.

Are digital wallets the new tools of cashless society?

The World Health Organization (WHO) recommends consumers to do contactless payments to be able to prevent the spread of the virus via cash. Therefore, there is a boost in using digital wallets and cashless payment adoption.

There are measures taken by some governments to encourage digital and contactless payments to restrict cash flow like South Korea by disinfecting cash and keeping it in the central bank for two weeks before releasing it.

The rise in digital wallet usage may bring regulatory and operational challenges on the table for the banks and other financial institutions. As some countries seek ways to keep their economy in a good state and ease regulatory requirements to this purpose, the risk in terms of compliance increases. To make sure the compliance requirements are met, banks will need the digital support of Fintech firms more than ever.

The areas affected by coronavirus outbreak remained not limited to only health-related ones. In the field of finance, it changed the way consumers behave, the global market fluctuations and requirements on the regulatory side. It may alter or transform the tools or habits used by consumers; however, the demand for the goods and services will remain intact as the Neo-capitalist system requires. What is crucial is to ensure a smooth transition as possible by taking security measures and educating consumers on the use of new digital tools effectively.

At Fineksus, we offer digital solutions that will help you meet the changing needs of the digital payment systems and regulatory expectations.  You can check our solutions or just contact us and we would be delighted to share our expertise and answer any of your further concerns.