NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

By Nizan Geslevich Packin

We are in the middle of a global economic crisis. This crisis, which was triggered in large part by the novel coronavirus, is very different from the 2008 financial crisis in fundamental way—big banks, which were at the epicenter of the 2008 crisis, are now perceived as the safe players in the financial markets that will help us weather the storm. FinTech companies, on the other hand, which are nonbank technology companies that offer financial services, are not perceived quite the same way. Just a few months ago FinTechs were giving big banks a run for their money. Now they are in serious jeopardy.

In this time of uncertainty, the pandemic is causing a retreat to the familiar incumbents that survived 2008.  Worried investors are moving capital away from anything perceived as risky and the government seeks the advice of and to cooperate with the comforting too big to fail, stable financial institutions.  Although decreasing risk is good, FinTech companies are not necessarily “unsafe.”

Photo courtesy of Ava Systems.