KPMG has classified 2021 as a “remarkable year” for the fintech industry. It hit a record number of deals in every major region, including the Americas, EMEA, and Asia Pacific.
But what is the future for 2022/23? Rising interest rates, rising inflation and market volatility make the prospect of a recession more likely. What does this mean for fintech?
The industry has a lot to celebrate. There has been a surge in the types of fintech solutions attracting investment. The hottest offerings right now focus on cryptocurrencies and blockchain, wealth tech and cybersecurity.
We’re also seeing stronger partnerships between legacy and new products. Financial services has extended its reach to a wider range of everyday transactions through the use of embedded banking, insurance and financial products.
In the past, legacy structures may have hindered this pace of development.
But incumbents are increasingly realizing that by reimagining what is possible in fintech, there is a huge opportunity to emerge stronger and create unique value for customers, customers and investors.
An increasing number of banks now offer embedded solutions. They are changing their inward focus to becoming financial service providers to non-banks and non-financial institutions as part of larger offerings.
Instead of taking a build or buy stance, the banks saw they could have the best of both worlds. By partnering with nimble, innovative fintech companies, they gain flexibility in the range of products and services they offer.
By leveraging fintech’s flexible deployment options, such as APIs and customizable feature sets, they can engage in long-term win-win cooperation and accelerate innovation.
Global venture capital investment will reach a record $115 billion in 2021. That’s a huge change from the all-time high of $53.2 billion set in 2018. What are the areas of greatest concern? Cryptocurrencies and blockchain lead the way.
Globally, we’re also seeing huge interest in cryptocurrencies and their underlying technology’s potential role in the modern financial system. This includes central banks. Many are considering developing their own digital currencies.
We have also witnessed the maturation of so-called “challenger banks” – such as Monzo, Starling, N26 and Revolut. These are no longer in infancy. Instead, they are cementing themselves in the mainstream and earning public trust.
In fact, Starling Bank CEO Anne Boden has said the bank should be ready to list on the public markets by the end of 2022.
The fact that Starling is preparing for an IPO is a huge step forward for the challenger banking industry. Many believe this will be the start of a series of similar products.
But with a global recession likely sometime in 2023, what’s the bigger picture?
There are two situations. Each depends on the maturity of the fintech organization.
The recession will hit the hardest on fintech startups that lack the capital and assets of banking rivals to withstand market pressures.
Right now, investor optimism, hype, goodwill and an overheated market underpin these. “When the tide goes out, you know who’s been swimming naked,” said James Allum, senior vice president and regional head of fintech Payoneer Europe.
The valuation of Swedish BNPL fintech company Klarna plummeted 85% to $6.7 billion in July. Trading platform Robinhood is laying off nearly a quarter of its workforce amid high inflation and a slump in the cryptocurrency market.
But the picture is more rosy for fintech companies that are nimble enough to take advantage of the changing economic environment.
Those who can provide products and services tailored to support companies and individuals in addressing the financial challenges posed by the recession will be successful.
Who will they be? Time will prove everything. Challenging conditions will become a reality for all financial institutions, including the big banks.
The simple fact is that investors will continue to pour billions of dollars into businesses that survive the fittest – delivering the services we need most by delivering the best and most effective innovations…