COVID-19 FAQ: Fintech

May 2020

From enabling financial transactions to be carried out remotely to facilitating contactless payment and the distribution of government aid in this time of crisis, fintech companies have been crucial in the fight to curb COVID-19 infections. Without fintech innovations, there would be more widespread virus transmission and greater harm done to the global financial system. The rapid adoption of fintech solutions in response to the pandemic will also benefit these companies in the long run. 

Here are some of the most frequently asked questions and resources to help fintech companies in their immediate response and planning.

To learn more and access numerous insights, resources and webinars, you can also visit our COVID-19 crisis response resource center.

A. The SEC has provided conditional relief for registrants that are impacted by COVID-19 and are unable to file on a timely basis. On March 25, the SEC issued a new order extending the due date by 45 days to file certain SEC disclosure reports, such as Forms 10-K or 10-Q. On May 4, the SEC released additional guidance on the disclosures required to take advantage of the extended filing deadline under the order. The exemptions granted relate to reporting and proxy delivery requirements for registrants, and the new order modified exemptions to cover filings due between March 1 and July 1, 2020. Registrants must also disclose why they were unable to file on a timely basis.

Many lenders may consider extending reporting deadlines for annual audits and routine reporting. If management determines that an extension may be necessary, early and transparent communication with lenders is key.

For more information on how to take advantage of the extension, view our insight: Accounting and Financial Reporting Considerations for Bank CFOs as they Navigate the COVID-19 Business Impact.

A. While fintech share prices have been decidedly mixed in the wake of a global economic downturn, over the long haul, the industry is poised for rapid growth and will make an increasingly attractive acquisition target in a post-COVID-19 business environment.

The industry is well-positioned to benefit from the accelerated adoption of innovations in lending, payment processing, treasury management, insurance and other traditional financial services verticals. These have been embraced by consumers and businesses alike, and even championed by governments, to help stem the spread of the virus. On the other hand, the outlook is worrisome for some fintech sectors such as payment and foreign exchange facilitators, as plunging transaction volumes erode commissions. For fintech lenders, consumer spending and transaction volume is down, and record-high unemployment may leave consumers with no choice but to delay mortgage, auto loan and credit card payments.

Other opportunities for post-crisis growth will come from within the broader financial services industry, as traditional banks increasingly look to proprietary fintech applications to support customer conversion and servicing. Additionally, strategic growth opportunities may arise as competitors that are not as well-capitalized become attractively priced targets. Another imminent opportunity reinforces the adversarial roles of fintech companies and traditional banks, as they compete to process small business loans stemming from the Paycheck Protection Program (PPP) and additional rounds of funding.

A. In responding to the global public health crisis, the private sector has shown its resilience and innovative spirit by working in tandem with the public sector to help address local and national challenges. For example, a fintech company offered free loan processing software to banks to enable quicker emergency small business lending. Restaurants are also helping serve free meals to children out of school and to the homeless, and manufacturers have repurposed supply chains to make sorely needed products like hand sanitizer and personal protective equipment.

To find opportunities to work with the public sector, identify the most significant concerns for your community—and its surrounding areas—and then map out how your organization could help address them given your existing capabilities. Fintech companies may be able to use their platforms to facilitate individual and business applications for local, state and federal government aid. Community-based problems are best coordinated by community-based organizations, so your next step should be to identify and reach out to public sector, nonprofit and charitable organizations that are best-positioned to benefit from your help or deploy your solution.

Both public and private sector entities can work together to empower local leadership by offering to collaborate inside—and beyond—their own organizational silos for the greater public good. By doing so, organizations can reinforce the concept of power to the edge, which involves the empowerment of individuals at the edge of an organization to positively impact the larger community. Power to the edge reinforces agility, better situational awareness, collaboration and other principles key to persevering through and surviving beyond the pandemic.

By eliminating the need to execute many financial transactions face-to-face, fintech innovation has already played a significant role in helping maintain the flow of business while fighting the spread of the virus. Whatever action you take to help your community—whether that’s local or global—offering to collaborate for the greater public good could also help your brand earn trust with potential consumers and emerge from this crisis stronger than before.

A. All organizations must be prepared for an extended crisis environment as the pandemic fuels significant threats, including cyberattacks, fraud, regulatory changes, supply chain disruptions and bankruptcies. However, the fintech industry is better positioned than most and is benefiting from the increasing adoption of innovations such as contactless payment, which address concerns stemming from the pandemic. Fintechs are also nimble and can quickly adopt innovative business methods, which should help them weather this storm better than organizations in most other industries, although some fintech sectors face unique challenges because their customers are struggling.

While many companies may be in ‘reactive’ mode due to the unprecedented nature and volatility of the situation, it’s prudent to take a step back and put together a crisis management team and response program that includes executive leaders, IT, accounting, HR, communications and customer account staff. They can help to methodically assess how to maintain operations while limiting exposure risks. Liquidity and sustainability must also be given equal weight as short-term and, gradually, longer-term decisions are being made.

For fintechs, the crisis should be viewed as a catalyst for needed change, because the sense of urgency, cooperation, need for innovation and decisiveness that emerges during this time can also help secure viability in the long-term. For example, one way that fintechs can evolve is to make their innovations more accessible. Many people who were accustomed to depositing checks at their local bank branch are now being forced to use mobile deposit technology. Interfaces that are user-friendly and seek to eliminate new-user anxiety stand a better chance of holding onto those customers in a post-crisis business environment.

A. Defaulting on a covenant allows the contractor, such as a lender, to demand early repayment of the outstanding balance or deny the company access to further funding or services.

Fintech companies need to be intimately familiar with the terms of their contracts and clear about how the contractor interprets the various clauses and covenants. From there, businesses need to assess which covenants they’re likely to breach, if any, over the coming weeks and months. Armed with that knowledge, companies have the option of negotiating longer payment terms with vendors, for example, or negotiating a debt service holiday or covenant relief. External advisors can also help organizations navigate considerations about business restructuring. Fintech companies may also be on the receiving end of such inquiries from businesses and individuals with whom they have outstanding loans. As such, it will be increasingly important to pay close attention to whether their clients are in breach of any covenants, and thus should have access to services or funds curtailed.

To learn more, view our insight: Middle Market Businesses Need a Plan to Weather the COVID-19 Crisis.

A. Due to a combination of travel restrictions, stay-at-home orders, rising unemployment and the resultant contraction in consumer spending, almost all businesses will experience declining revenues due to the widespread impacts of COVID-19. Between the ongoing costs of continuing operations and additional costs incurred as a result of responding to the pandemic, many organizations will experience a liquidity crunch because of reduced cash flows.

Fintech companies should examine their current cash flow and make a realistic projection of cash burn over the next three to six months to understand their expected capital requirements. Planning for a range of possible scenarios can also help identify the options available to a business, which can help to strategize for various circumstances as the ongoing situation develops.

Beyond just reviewing profits and losses, it is crucial to focus on the balance sheet and determine the current cash conversion cycle, especially as vendors and customers experience disruption themselves. Although some back-office functions may not usually be top of mind, decision-makers need a clear picture of accounts and the timeline for conversion to understand cash flow now and in the near future.

To learn more, view our webinar: What the CARES Act Means For You & Tax Strategies to Increase Cash Flow.

A. Fintech companies with no more than 500 employees are likely able to leverage some aspects of the economic stimulus packages passed by the federal government.

In particular, for small businesses, the CARES Act has implications for two disaster loan programs—The Paycheck Protection Program (PPP) and the Emergency Economic Injury Disaster Loans (EIDL) program. The PPP is a forgivable loan program included in the CARES Act, which significantly expands which organizations are eligible for Small Business Administration (SBA) loans. The federal government also released a second round of funding aimed at assisting small businesses in April. For organizations facing financial strain as a result of COVID-19, these loans can help offset a variety of costs.

The CARES Act also provides funds for the EIDL program, and it makes several changes to this program, which is available to businesses and nonprofits of all sizes in a declared disaster area. Currently, all 50 states, the District of Columbia, Puerto Rico, Guam and the Northern Mariana Islands have all been declared disaster areas for purposes of the EIDL Program. These loans are processed directly through the SBA. Fintechs can apply for loans under both SBA programs as long as they don’t cover the same expenses.

Employers who don’t take advantage of the PPP would be eligible for a 50% credit on qualifying wages paid to employees between March 13 through December 31, 2020, if they either:

  • Fully or partially suspend operation during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel or group meetings (for commercial, social, religious or other purposes) due to COVID-19; or
  • Experience a significant decline in gross receipts during the calendar quarter, relative to a comparable quarter in 2019.

All employers are eligible to defer their social security tax liability due March 27 through the earlier of PPP loan forgiveness, if applicable, or December 31, 2020.

In addition to these loans, the CARES Act also includes a number of tax savings opportunities, including AMT credits, net operating loss carrybacks and tax-deductible charitable contributions.

While there are many opportunities available in the stimulus bills, eligibility for some provisions is dependent on company size and other factors, and many benefits are mutually exclusive or have other implications. Given the level of complexity in deciding which relief measures to pursue and in securing them, it is critical for organizations to consult with professionals in order to maximize their savings and direct relief where it will matter most.

It’s also important to note that fintech companies with an international presence should look at what additional opportunities may be available in the countries where they operate. To learn more about key measures being introduced by governments and institutions worldwide in relation to the COVID-19 pandemic, access our Global Tax Tool.

For more information, view our insights: Breaking Down the CARES Act’s $500 Billion Economic Stabilization Plan and CARES Act Aids Employers Who Continue to Pay Employees.

A. Data privacy and security is a vital concern for companies and safeguarding against cyber threats is more important now than ever before. That’s because the rate of telecommuting has increased dramatically, potentially increasing the number of network entry points. Cybercriminals have also become more aggressive, probing to exploit any vulnerability, so it’s crucial to take the necessary steps to monitor and protect against cyber threats.

Due to the nature of their business and the high value and sensitivity of the data they collect, fintech companies should already have in place robust office-based cybersecurity and data privacy measures. Because telecommuting is prevalent in the technology and financial services industries, the vast majority of fintechs will have already addressed many of the vulnerabilities that cybercriminals seek to exploit among remote workers.

Strong access controls can ensure that only those who are authorized can access sensitive data, and audit controls can track access to systems. Intrusion detection systems can also monitor traffic across the network and alert IT teams about any suspicious activity, making it possible to stop cyber threats as they arise. A cloud VPN for employees can provide secure access to the organization’s network and shared files with all data encrypted, and two-factor authentication can strengthen that security further. Internal threats are also a significant concern, but audit controls and intrusion detection can help protect against these. Fintech companies should also review their cyber insurance policy to understand coverage and the potential costs of filing a claim.

Staff should be trained to identify any suspicious activity as well, such as phishing emails, and promptly report such activity to the IT department. Additional training for employees should cover best practices for secure remote work, including providing additional guidance on tactics that hackers are exploiting more often during this time. To supplement these sessions and reinforce the importance of cybersecurity and data protection, companies should maintain clear and consistent communication to employees on security and privacy best practices, changing regulations, evolving vulnerabilities and any other concerns as they arise.

Finally, fintech companies need to keep abreast of any changes (or the lack thereof) to data privacy regulations. For example, in Europe some countries have temporarily modified GDPR regulations in light of the pandemic. The International Association of Privacy Professionals (IAPP) is also maintaining a list of COVID-19-related changes to privacy regulations.

To learn more, view our insights: Top Cybersecurity Recommendations Amid COVID-19, COVID-19 Data Security, and Managing Your Risk During the COVID-19 Crisis.

A. While the pandemic has forced many companies, and even entire industries, to adopt telecommuting widely for the first time, remote working is nothing new to fintech companies. The tech industry had the second-highest percentage of full-time remote workers before the outbreak (10%), followed closely by financial services companies (9%), and many more employees work remotely at least part of the time. Adjusting to working from home is a challenge that many fintech employees won’t have to overcome, because they are already adapted to that mode of work.

However, even work-from-home pros are finding it hard to juggle the personal and work obligations that are overlapping like never before. Many employees have added the roles of teacher and caregiver to their daily responsibilities. From the C-suite to front-line managers, companies should be seeking to support their employees through clear and consistent communications; increased flexibility; reduced focus on milestones or productivity measures that may not be realistic; and promoting services and resources for employees who need them. Managers and supervisors should prioritize their direct reports’ physical and mental health above all else and be patient and empathetic as employees adjust to this global crisis.

Companies should also ensure their employees are aware of any relevant support or relief measures available to them. The Families First Coronavirus Response Act, for example, guarantees that workers have access to paid sick leave and expanded family and medical leave for specified reasons related to COVID-19, regardless of the size of their employer. For more information, you can consult the Department of Labor’s COVID-19 resources and fact sheets.

To learn more on these topics, view our insights: Embrace, Support and Prepare: How to Lead Virtual Teams Through a Crisis and Weathering the Coronavirus – Companies Seek Work from Home Options.

A. In response to the COVID-19 pandemic, governments around the globe have taken action to provide both companies and individuals with tax relief designed to increase cashflow and help companies continue to employ their workers. In the U.S., the Coronavirus Aid, Relief, and Economic Security (CARES) Act addresses the economic impacts of COVID-19 and includes a number of tax relief options.

The CARES Act includes payroll tax credits for employers that have been impacted by COVID-19 but have retained their employees, and it permits employers to defer payment on the employer portion of Social Security tax that would otherwise be due at the end of this year. Additionally, the CARES Act accelerates the refund schedule for corporate AMT credits, which are now fully refundable for either the 2019 or 2018 tax years. The CARES Act also allows businesses to utilize net operating losses (NOLs) generated in prior years to offset 100% of taxable income for tax years 2019 and 2020.

While there are many tax savings opportunities included in the CARES Act, eligibility for some provisions is dependent on company size and other factors, and many benefits are mutually exclusive or have other tax implications. Given the level of complexity in applying these provisions, it is critical that organizations consult with tax professionals in order to maximize their savings and understand the long-term impacts of their tax strategies.

Outside of the existing stimulus measures, fintech organizations should also consider tax relief measures that predate the COVID-19 pandemic. If businesses are working to develop, improve and adapt products and processes, they may be eligible for Research & Development tax credits from federal and state authorities.

To learn more, view our insight: A Global Tax Tool: COVID-19 Fiscal and Financial Measures to Support Businesses and Individuals.