FinTech and the COVID-19 Pandemic: Evidence from Electronic Payment Systems

The COVID-19 pandemic has changed many aspects of the way that individuals engage with banking and payment tools, including various FinTech services. There are several reasons why the pandemic might have accelerated the adoption of FinTech and other digital platforms in payments by consumers and financial institutions. The pandemic may have led to an increase in the use of digital banking that is driven by the ease of use and limited access to traditional banking services due to COVID restrictions. Additionally, the pandemic may have led to an increase in short-term demand for essential goods and an increase in e-commerce related activities, as consumers try to minimize in-person contact. Furthermore, disruptions in local and global supply chains, including declining profit margins for stores (that may lead to increase prices) and overall demand shifts, may lead consumers to hoard and stockpile essential goods. And because of restrictive lockdown measures, such transactions are likely to be carried out using mobile and digital banking.

If indeed the COVID-19 pandemic has accelerated digital onboarding and the adoption of FinTech in payments, we should be able to observe this shift, especially in markets that have high pre-COVID-19 pandemic utilization of FinTech payments. This shift would be marked by an increase in payments via FinTech and related digital platforms relative to other forms of electronic payment systems. In general, developing and emerging markets have a higher rate of FinTech adoption due to limited access to traditional banking and the need for financial inclusion — extending financial products and services to traditionally unbanked consumers. An examination of how the pandemic has impacted FinTech adoption in emerging markets might provide some measure for the potential adoption of FinTech in more established markets such as U.S and Canada.

FinTech adoption during COVID-19 in Kenya

In my recent study we focus on FinTech use in Kenya. With a population of about 50 million (the size of France and Belgium combined), Kenya has only about 1,255 bank branches and 2,423 ATM machines, but roughly 80% of the population uses digital banking, specifically mobile banking. Kenya is also a regional economic power, has strong trade ties with Asia, Europe, and North America, and is the third largest economy in Sub-Sahara Africa. As a result, Kenya can serve as a useful case study for understanding how the COVID-19 pandemic has affected consumers’ attitude towards FinTech.

The Kenyan government implemented several short-term FinTech-related regulatory measures  in response to the pandemic. They include:

  1. The transaction limit for mobile money was increased to $1,550
  2. The daily limit for mobile money transactions was increased to $2,800
  3. The mobile money wallet limit was increased to $2,800
  4. The monthly total limit for mobile money transactions has been eliminated
  5. All charges for mobile money transactions up to $15 have been eliminated
  6. The current tax rate for mobile money transactions worth $650 will also apply to mobile transactions up to a maximum of about $1,500
  7. Payment Service Providers (PSPs) and commercial banks eliminated charges for transfers between mobile money wallets and bank accounts.
Mobile Payments

At the onset of the pandemic, the transaction values of mobile banking declined by about 15.5% as shown in Figure 1. But, following short term regulatory measures, there was a 16% increase in transaction values in mobile banking, a 8.48% increase in the number of mobile banking agents, a 15.64% increase in transaction value per agent, and a 8% increase in value per transaction, as shown in Figure 2 and Figure 3.

Figure 1: Mobile Banking Transaction Values and Volume.

Figure 2:  Number of Mobile Agents and Payment per Transaction in Mobile Banking.

Figure 3:  Transaction per Account and Transaction per Agent in Mobile Banking.

My results support the theory that the pandemic accelerated consumers’ and banks’ adoption of FinTech payments. While the pandemic initially had a negative effect on the adoption of FinTech, favorable short-term regulatory measures have reversed some of these negative effects. The combined effect of these short-terms measures reduced the transaction costs on mobile and digital banking. These measures were initially meant to expire on June 30, 2020, but have now been extended to December 31, 2020 . The length of the pandemic seems to be the main determinant on how long some of these measures will stay in place.

Use of other electronic payment systems

The paper also documents how the COVID-19 pandemic has impacted the use of other forms of electronic payment systems. We first look at the effects of the pandemic on the use of electronic payment cards. For consumers, electronic payment cards and FinTech platforms, such as mobile banking, are complementary forms of payment. These electronic cards include: debit cards, credit cards, POS machines, charge cards, and prepaid cards.

There was an 11.74% decline in all electronic card transaction values in the first quarter of 2020 compared with the first quarter of 2019. Credit cards and debit cards transaction values declined by 15.38% and 11.7%, respectively, in the first quarter of 2020 when compared to the first quarter of 2019. POS machines and prepaid card transaction values declined by 0.91% and 43.2% respectively in the first quarter of 2020 when compared to the first quarter of 2019.

However, we find that there was an increase of 50% in the use of charge cards between December 2019 and May 2020. Unlike credit cards, charge cards do not charge interest on outstanding amounts and consumers are only required to settle the full amount on the due date. The results on charge cards suggest that as the marginal value of dollar increases, consumers substitute away from costly forms of payment to cheaper forms of payments. This is particular important because of the disruptions in the local labor markets due to the Covid-19 pandemic.

Figure 4: Electronic payment cards.

Figure 5: Electronic Payment Cards (By Type).

Central bank payment systems

My paper also examines the effects of the COVID-19 pandemic on the main Kenyan central bank payment systems: the real-time-gross settlement system (RTGS) and the clearing house. RTGS is an electronic payment system use by commercial banks and other financial institutions for interbank fund transfers. We found that there was a significant decline in both transaction volumes and transaction values. Transaction values and volumes declined by 19.21% and 10.94% respectively between December 2019 and May 2020, as shown in Figure 6.

Figure 6:  Real-Time Gross Settlement System: Transaction Values and Volume.

Figure 7 shows that the COVID-19 pandemic has had a significant decline on the interbank electronic fund transfers process via the clearing house. There was a decline of 6.99% for debit checks and a decline of 2.94% for credit electronic fund transfers for the first quarter of 2020 compared to the first quarter of 2019. The overall decline in interbank fund transfers show that the pandemic has elevated settlement and liquidity risks amongst commercial banks and other financial institutions.

Figure 7:  Debit and Credit Electronic Fund Transfers via Clearing House.


The FinTech industry has been critical for the Kenyan economy during the ongoing COVID-19 pandemic. The documented increase in consumers’ adoption of FinTech payments, coupled with a general decline in the use of other forms of electronic payments, suggests that the FinTech industry will play an important role in cushioning the adverse impact of the COVID-19 pandemic on the global economy. Notably, favorable regulatory measures can accelerate the adoption of FinTech. The lessons from Kenya for the more established markets such as the U.S and Canada would be that well-established government regulatory measures are critical for the growth of the FinTech industry. An establishment of FinTech -specific regulatory and compliance framework at both the federal and the states levels (provincial-Canada) would be an important step to this end. Overall, the results from Kenya show that the FinTech industry might be useful in ushering economies out of the ongoing pandemic.

Daniel Tut is an Assistant Professor of Finance in Ted Rogers School of Management at Ryerson University (Toronto, Canada).

This post is adapted from his paper, “FinTech and the COVID-19 Pandemic: Evidence from Electronic Payment Systems,” available on SSRN.

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