Can FinTechs Get Through A Turbulent Market?

There are bad days on the market — and in the wake of COVID-19, the disease caused by the coronavirus, which has spent the last month gaining more and more global ground, there have been more than a few of those of late.

Then there are bloodbaths, where things go from bad to a sea of red in the face of a selling frenzy triggered by a massive wave of general uncertainty breaking and crashing through the markets.

“The market has had a crisis of confidence,” Willie Delwiche, investment strategist at Baird told the Associated Press.

And as Monday (March 9) closed out — the losses were notable. The Dow cratered by 2,013, or 7.8 percent, by the end of trading — its worst single-day loss in history. The S&P 500 took at 7.6 percent hit after an opening sell-off triggered a market circuit breaker within a half hour of the opening bell. Trading halted for 15 minutes to see the market re-open for business shortly before 10 a.m. And while it didn’t quite hit the worst-day-ever lows that the Dow managed, the day did make the index’s top 10 most down days.

The rapid losses early trigger fears that the 11-year bull market might be coming to an abrupt end by a black swan, namely the coronavirus, that investors fear will trigger a recession, as the problems are much bigger than merely an off-day on Wall Street. The losses were sharp and shocking in the U.S., without a doubt.

But Wall Street wasn’t the only place swimming in a sea of red. Stock indexes across the EU Monday registered their sharpest losses since the recession over a decade ago, while the bottom fell out of the oil market, and crude prices fell by 25 percent. That last one isn’t actually a coronavirus outcome; it’s the result of crude oil prices cratering by 25 percent after the world’s producing countries failed to strike a deal last week. That has led both Saudi Arabia and Russia to reportedly make plans to ramp up production on their own terms when current agreements expire.

Even bitcoin wasn’t safe from the blow-up. The Organization of the Petroleum Exporting Countries (OPEC) break-up paired with the stock sell-off jointly pummeled cryptocurrency markets with the big coin on the block, Bitcoin, losing roughly 10 percent of its value in 24 hours. Bitcoin is still up on the year, but considering it lost about half its annual gain in a single day, stay tuned.

It’s only Tuesday. The world is wondering what’s next.

“The fear today is: Are the bears correct in talking about a recession around the corner from this?” said Quincy Krosby, chief market strategist at Prudential Financial, told the AP. “Is this just about now? Is this just about the oil? Is this just about the virus? Or are we looking at a recession around the corner because all of this?”

That is the question that no one can answer today. What is, however, incredibly clear is whether or not a recession is around the corner — the economic white water currently swirling is not going to be an immediately remediable problem. As PYMNTS has spoken with innovators in areas like commerce and telemedicine who are facing the effects emergent health crisis directly, a consensus has emerged. Innovators and creative players will pull the opportunity from the problem, but the hits are real and likely will get worse before they get better, particularly in the U.S. and EU.

And those predictions are increasingly amplified by headlines in the last few days. Italy, as of Monday had expanded its quarantine and travel ban nationwide, essentially shutting the EU’s most economically fragile member down for business.

Apple, according to an increasing chorus of reports, is facing product launch delays that could be measured in months due to the profound disruption to production in China.

Apple CEO Tim Cook maintained that supply chain issues remain manageable and the firm is not forecasting delays, but an investor note from Bank of America analyst Wamsi Mohan viewed by Bloomberg indicated that if Apple cannot ramp up production between now and May, the 5G phone it is promising this fall could see a two-month delay, meaning it risks missing the 2020 holiday season.

The National Retail Federation (NRF) led off the week revising its estimates for supply chain disruption as it is seeing member reports that indicate larger than expected issues. A survey of its members found that 40 percent are seeing disruptions, and 26 percent expect to see disruptions. Analysts further noted that The Home Depot and Lowe’s stand to see a lot of short-term risk due to the disruption because of the high volume of goods produced in China that they sell, and the incredibly seasonal nature of their businesses.

All of that leads to the question payments people should be pondering in particular as they are watching the markets start their triage attempts.

What will happen to all those firms that built a new take on financial services around a slick app, a better and faster onboarding users experience? The pitch varies but almost always involves an easier, more accessible (usually cheaper) financial service product than the historical bank branched version via a digital channel. They’re the firms that popped up in the aftermath of the financial crisis and have yet to be tested by a recession, or even really rough market white water.

A recession is not a foregone conclusion; adversity has a tendency to breed interesting innovation. But choppy water ahead for some time at least seems pretty much inevitable in light of recent events, and what remains to be tested is how well these firms do. When PYMNTS has spoken to the innovators behind some of the bigger names in the game, what we mostly hear is confidence that they’ve made hay while the sun shone, and that their rafts are ready for white water.

Confidence is reassuring, and some of it is undoubtedly well placed, but in times of uncertainty, the wheat will be separated from the chaff pretty quickly when it comes to actively delivering. So far, the road for at least some apps has been pretty bumpy. For example, Robinhood, an app designed to make stock trading accessible for everyday investors, found itself sidelined on a very busy trading day — as it crashed.

An hour of a full blackout was followed by partial service for most of the rest of the day, although user reports indicated it was slow, inconsistent and often needed to be rebooted. That incident was followed by a bigger crash, which saw Robinhood investors sidelined.

Robinhood is currently valued at $7.6 billion.

The startup has since said it will compensate investors impacted by the outage on a case-by-case basis.

Now one bad day on the market does not for an economic meltdown make, and one financial services app spectacularly crashing when put under a bit of pressure from turbulent times is not necessarily a harbinger of things to come for all of FinTech.

But it does illustrate one thing: Some firms are ready for some real turbulence, some aren’t. And it looks like a real-time separation of those two groups is up next.